6 Essential Security Deposit Management Tips for Landlords

Posted by: TheGuarantors on September 30, 2021

Security deposits are an essential tool for every landlord when it comes to protecting their property. A security deposit is a pre-set amount of money that a tenant pays to the landlord at the start of the lease. It helps landlords when a tenant is unable to pay rent or causes damage to the property.

When security deposits aren’t appropriately managed, it can cause financial woes to the landlord. As a landlord, you should know about your state's laws on security deposits. In this article, we’ll cover essential tips to help you manage them efficiently.

Know Your State Laws on Security Deposits

As a landlord, you should always stay updated on the landlord-tenant laws in your state. Different states set limits on how much money you can collect from a tenant in the form of a security deposit. Charge too much from your tenant, and you’ll be liable to return the amount or even more.

In some states, you may need to keep your security deposit in a separate interest-bearing account. You might also have to pay the interest you earn from your account to the tenant. Most states except Louisiana, West Virginia, and North Carolina will ask you to keep a written accounting of the deposit. This means you need to give a signed security deposit receipt to your tenant.

Keep All Security Deposit Information in Your Lease Agreement

Landlords must make sure to keep all necessary security deposit rules and records in the lease agreement. Here is a list of things you should include:

  • The amount of security deposit paid by your tenant
  • Date of payment
  • The place where your deposit will be stored (self/separate bank account) according to state or county guidelines. This includes the bank, address of the bank, and interest rate information.
  • Confirmation that the deposit will be fully refunded subject to terms and conditions which your tenant must follow.

Discuss every clause in your agreement with your tenant, so both of you have clarity. Specify what classifies as “normal wear and tear” and “tenant damage.” You never know what clause could hold you up at court. However, if you’ve screened applications well, a good tenant will respect your lease terms and conditions.

Do A Walk-Through Inspection Before Handing Over The Keys

Did you know that walk-through inspections are mandatory in some states? It’s a good idea to get in the habit of checking the condition of your property before handing it over to the new tenant. It can save you from unnecessary lawsuits. Here’s a to-do checklist to help you out:

Give Your Tenant a Security Deposit Receipt

Providing your tenant a security deposit invoice helps keep a record of payments, and is also an essential requirement in some states. Your receipts must include the amount of the security deposit, the name and address of the bank you’ll deposit and, and the interest rate (if it’s mentioned in your state’s laws).

When should I return the deposit to my tenant?

The amount of time to return your tenant’s security deposit differs in every state. Read your state’s laws on returning deposits thoroughly before your lease ends to avoid last-minute hassles.

Make sure you do a thorough move-out inspection and document it. If you’re withholding or returning a partial amount to your tenant, give them a detailed invoice list on why you’re keeping the money. You can legally withhold the deposit if your tenant breaks the lease or fails to notify you before moving out.

Know That Your Tenants Have Legal Rights

Remember that your tenants are entitled to keep their security deposit if you haven’t followed the laws of your state or city. They can file a claim in a claims court to recover their money.

Tenants can sue you for things like failing to mention bank details in the receipt. Always keep a personal checklist of what you need to do before, during, and after a lease term.

Protecting your security deposit is simple if you make sure you are carefully documenting everything along the way. These simple tips can help you avoid pitfalls and make you an efficient and reliable landlord.