A Guide to Collecting Security Deposits

By Brittany Loeffler on January 10, 2021

If there’s one smart thing landlords can do, it’s collecting security deposits from their tenants. Many landlords may be tempted to skip collecting security deposits in order to fill their vacant faster as some tenants cannot put down this extra deposit. However, this is a huge mistake and could cost the landlord by the end of the lease agreement.

If you’re a first-time landlord and don’t know the first thing about collecting security deposits and why it’s so important, then it’s a good thing you came across this article! By the end, you’ll know the basics of collecting security deposits and know exactly how they can help you in times of trouble.

collecting security deposits

via Pixabay

What is a Security Deposit?

A security deposit is an additional deposit that tenants make in addition to paying first and last month’s rent upon or after signing a lease. This security deposit is held onto by the landlord throughout the term of the lease and can be returned to the tenants if the property is left in good standing.

Typically, a security deposit is equal to one month’s rent. However, it can be more or less depending on the local laws where your rental property is located.

Check Local Laws

Each municipality has different laws when it comes to landlord-tenant relationships and means of doing business. For example, Florida has no amount limit as to how much a landlord can collect in security deposits. Other states do have limitations and detailed rules about the amount you can collect.

Some other laws about collecting security deposits determine where a landlord must keep the deposit. Typically, it must be kept in an escrow account, separate from the landlord’s personal finances and where rent checks are deposited. Some states also require landlords to disclose where the security deposit is being kept and if it is bearing interest.

Another law landlords must be aware of is the amount of time they have to return a security deposit to a tenant once the lease has ended. If not returned within the stated amount of time, the tenant can take the landlord to small claims court to collect it.

While this may feel overwhelming at first, these laws are fairly straight forward. Simply research the laws of the state and town where your property is located.

When to Collect

As mentioned before, collecting security deposits should be done either when the lease is signed or after. You should never collect money from potential tenants before a lease is signed because there is no written agreement attached to the deposit.

Always put in writing how much your collecting and when it is due. This holds the tenants reliable if they do not pay the security deposit.

Another tip for new landlords is to collect security deposits separately. Have your tenants write two checks, one for the rent deposit and one for the security deposit.

What Does a Security Deposit Cover?

The reason landlords like collecting security deposits is because they can use it if there are any unexpected expenses caused by the tenants. So, what exactly can a security deposit cover?

Damages to the Property

If the tenants leave the property destroyed and damaged such as holes in the walls, carpet that needs to be replaced, or broken appliances, landlords can use the money from the security deposit to cover the repair costs.

Excessive Cleaning

Some tenants are in such a rush to move out and into their new place that they don’t clean their current rental. If the property needs excessive cleaning such as stained carpets, furniture removal, and painting, then the security deposit covers this as well.

Termination Fee

If a tenant decides to end their lease early, the landlord may keep the security deposit as compensation. Just remember to put this clause in the lease.

Unpaid Bills or Rent

If for whatever reason a tenant has unpaid bills or didn’t pay rent one month, a landlord can keep the security deposit to cover these expenses.

Returning Security Deposits

Before your tenant’s lease ends, ask them for a forwarding address to send their security deposit. If the property is in good standing, simply mail them a check for the amount of the deposit.

If the property is not in good standing and you must use the security deposit to cover expenses, landlords must send an itemized list and receipts explaining what the money was used for. If the entire deposit was not used, then the remaining amount must be sent back to the tenant as well.

Start Collecting Security Deposits Today

Now that you know what a security deposit is, how to collect it, what it covers, and how it should be returned, you’re ready to become a professional landlord! Always remember to check with your local laws when it comes to renting out your property.

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