One of the aspects of rental property management that seems easy is the security deposit. However, Baton Rouge property owners need to know a number of things pertaining to handling a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. Therefore, there are rules that apply to accepting, depositing, and reimbursing security deposit funds legally. This also includes knowing how much to charge as well as the legal and ethical ways you can use the security deposit as payment once the tenant moves out. Here is some basic information on security deposits that can help you become more confident in handling them from start to finish.
Determining How Much to Charge
Before advertising their rental for the first time, rental property owners have to decide on how much of a security deposit to ask for. Many states leave it to the landlord to decide this figure. However, there can be limits to how much you can charge, so you should check your state and local laws before settling on a figure. Most landlords require their tenants to deposit an amount equal to one month’s rent as well as any applicable cleaning deposit or pet deposit. Researching on rates other landlords in your area are charging will help in keeping your rental rates competitive. If you ask too much for a security deposit, potential tenants might balk and leave.
Handling Security Deposit Funds
As soon as you receive the security deposit funds, you will have to comply with your state rules about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Other states allow landlords to choose among certain options for keeping the funds. Wherever you may live, however, you should maintain careful records that detail where the funds are kept and make sure you do not spend them unless you have a legal, documented reason to do so.
When You Can (Legally) Keep Security Deposit Funds
There are a few specific situations that allow most landlords to keep and use a tenant’s security deposit funds. The most usual one is to pay for any repair of damages to the property beyond normal wear and tear. Some examples where you could ethically keep a tenant’s security deposit are broken appliances, big holes in the walls, or excessively stained carpets. You should note, however, that if that carpet is more than seven years old and was to be replaced for the next tenant anyway, it is illegal to withhold a portion of the security deposit to cover the replacement.
A tenant’s security deposit may also be used to cover cleaning costs, unpaid bills, and on rare occasions, a broken lease or nonpayment of rent. There are some states, however, that forbid landlords to withhold the security deposit to cover unpaid fines or late fees, so make sure you know the specific regulations for your area.
Security Deposit Refunds
As soon as your tenant moves out, you will have to calculate how much of their security deposit will be refunded. If the tenant has satisfied all the terms of the lease, it is the landlord’s responsibility to refund the entire amount of the security deposit. Many states give landlords within 30 days or less to issue the refund. It is also wise to include an itemized list of the repairs that were paid for with the security deposit if you need to withhold any portion of the fund.
Documenting your communication to your tenant about any funds withheld is a very good practice, even if it is not required by your state. This helps avoid any misunderstanding and even legal action. In addition to that, if a property owner does not release the security deposit or an accounting record with a bill amount much greater than the deposit for longer than the period prescribed by law, that property owner could end up paying the tenant up to three times the amount of the deposit as a penalty.
So you see, security deposit issues can really be more complicated than they appear to be. Because of this, many rental property owners depend on the expert professionals at Real Property Management Baton Rouge. We have local Baton Rouge property management professionals who are well versed in the laws in your state. They can help make sure that you handle your security deposit, rent, and other interactions with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 225-389-6860 today!
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