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As a landlord, you never know when a tenant will accidentally damage your property or suddenly find themselves unable to pay for a month's rent. When that happens, it helps to have some kind of backup plan established to cover the costs.
For that reason, one of the first payments a landlord receives when renting out a space is a security deposit. A security deposit acts as protection from a tenant's failure to care for the property you've rented out to them. However, that doesn't mean you aren't still responsible on your end.
Here's some landlord advice on how to handle security deposits.
What is a Security Deposit?
A security deposit is a fixed amount of money paid to the landlord alongside the first month's rent. In most cases, this deposit is refundable as long as the property is in the same condition as when the tenant first moved in.
If the tenant somehow manages to damage the property and fails to repair it themselves, then the cost for repairs is taken out of their security deposit at the end of their lease. They would then get whatever remains of the damage deposit if there is any left.
Determining an Amount
Every state has its own rules on how much a landlord can charge on a security deposit.
For example, Delaware limits the amount to one month's rent on leases for a year or more. Meanwhile, Texas has no statutory limit.
In states that have no limit, landlords should collect a security deposit based on rent, credit score, and amenities. You may want a larger deposit if a single month's rent won't cover any expected repairs. Collecting a larger deposit from someone with a low credit score is another way to protect yourself.
Security deposit insurance is another factor to consider. The tenant pays a monthly premium, and the insurer pays the landlord directly for any damages.
How to Collect a Security Deposit
Security deposit and rent collection methods all come with their own pros and cons.
Checks are an easy way to transfer larger amounts, but they may bounce. Mobile transfers are much easier but can take a few days to complete. You generally want to avoid cash, as it's easy to lose or mishandle.
Property management services often include rent collection. They have experience collecting rent from tenants and documenting every transaction. A property management company will also handle security deposits and any repair jobs they pay for.
Protect Your Property with Security Deposits
Regardless of what your security deposits are, you should always make sure to keep them consistent. Put them in your rental agreement and make sure the tenant knows exactly what they're going towards. If the tenant has damaged the property in any way, you should also give them a chance to pay for the repairs themselves before deducting them from the deposit.
Homeriver Group provides property management services in the Houston, TX area. Contact us for more landlord tips and to learn how we can help you.
