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Are you a new landlord who's getting ready to start renting out your investment property? The market is hot right now, so you picked a great time to get started!
When you rent out your property, you should always collect a security deposit from your new tenants. But what are security deposits and how do they work? We're here to talk about it.
Read on to learn about the security deposit definition and more.
1. What Is A Security Deposit?
When your tenants move into their new rental home, they often pay three fees: first, last, and deposit. This means that they've paid for the first month of rent, the last month of rent, and an extra fee: the security deposit.
A security deposit is a sum of money that the tenant gives the landlord as a guarantee that they're going to keep the unit safe. It's a sign of personal responsibility.
Landlords collect deposits to protect their investments. If there's damage to the property when the tenant moves out, the landlord can use the money to fix the damage and the tenant doesn't have to pay extra money as long as the damage isn't severe.
In other words, the security deposit protects both the landlord and the tenant.
2. How Much Should It Be?
So how much is a security deposit anyway? The cost of a security deposit for rent varies depending on the unit and the landlord. Security deposits don't have to be anything at all if you don't want them to be.
That said, normally, the security deposit is the same as the cost of monthly rent.
A landlord may request up to the equivalent of two months of rent for a security deposit, though this is uncommon. Many tenants will be unwilling to pay a deposit that's this high, so it can hurt your bottom line.
If you're unsure of what to charge your tenants, look at the local average security deposit in the neighborhood of your investment property.
3. Do You Have To Return It?
In most cases, landlords must return the security deposit to the tenant. You should keep the deposit in a separate account so that you have it available and you don't risk spending it.
As long as the property is in good condition, the tenant has fulfilled their end of the bargain and they deserve the deposit. You may still have to make small repairs, but as long as they're repairs for normal wear and tear, they're not the responsibility of the tenant.
If you withhold the deposit, make sure to document your reasons so you don't end up in legal trouble.
Security Deposits: Not As Simple As You Think
Collecting security deposits protects your investment and your tenants. You'll have the peace of mind of knowing that your tenant will be able to cover any minor damage to the rental unit and good tenants will know that they'll be able to get their money back to put toward future rentals.
Are you looking for experienced property managers to help you maintain your rental property? Our team at HomeRiver Group wants to help. Contact us so we can start working together today.
