A security deposit, or damage deposit, is usually paid prior to a tenant taking possession of the rental home. The deposit needs to be kept in a separate account from your general funds. You need to check your local and state laws about accounting and deposits to ensure you are doing it correctly.
We require the deposit to be paid prior to approving an application. At this point it is referred to as a hold deposit. The deposit can be paid as early as when an applicant first submits their rental application. Once paid, the deposit will hold the property for the applicant until they are approved.
The amount can vary depending on the property but it is typically equal to one month’s rent. Does it have to equal one month’s rent? No, although some states require that the deposit does not exceed one month’s rent.
You need to consider your risk of loss before you decide to lower the amount required for a deposit. These funds are used if there is tenant caused cleaning or maintenance needed in the property after your tenant has moved. Security deposit funds can also be used to reimburse for any other costs incurred during the tenancy, as per the lease.
I am sure that you have that extensive move in inspection, complete with pictures, from before the tenants move in. Remember, you read the blog on that a couple weeks ago? Now you need to do an extensive move out inspection, complete with pictures. Both inspections will be used to determine what damage the tenant is responsible for.
Some Items the Security Deposit Can Be Used For:
- Cleaning of anything soiled by the tenant
- Changing locks
- Removing trash/belongings inside and out.
- Repairing holes in wall.
- Replacing blinds
Things That You Cannot Use the Security Deposit For:
- *Complete cost of replacing old flooring
- *Complete cost of painting if paint was not fresh at move in
- Any cleaning/maintenance that needed done prior to move in
- Anything caused by normal wear and tear
In addition to the security deposit you may charge a separate deposit for other extenuating situations. You can charge a pet deposit for animals in the home as long as the animals are not medically needed. You may also charge a key deposit if there is a common area that tenants must access with a separate key.
Once a tenant vacates the premise you have a limited amount of time to refund or notify the tenants about their refund. Check with your attorney to ensure that you are abiding by state and local law.