6 basics of security deposits of your rental property - Frank Roessler
6 BASICS OF
OF YOUR RENTAL
As a property owner, it’s important to understand what a
security deposit is and how it may be used. Essentially, the
security deposit is a fee that you collect along with the first
month’s rent when you rent a unit out to a new tenant. The
deposit is intended to be refundable under most
circumstances and can only be collected one time.
The answer to that question depends on the state, county,
and local laws in your area. Many states, such as Texas and
Illinois, do not limit the amount a property owner can
request as a security deposit, but that doesn’t mean there
aren’t city or county laws restricting what can be requested.
In many areas, landlords may only request a deposit
equivalent to three months rent or less, so it’s important to
know the laws in your area.
How Much is a Security Deposit?
DO YOU ALWAYS
HAVE TO COLLECT
While you’re not required by law to collect a
security deposit, it has become a standard
practice and it’s the best way for you to protect
yourself. Some tenants may claim they don’t
have enough money for the deposit and
request that you allow them to make
payments. If you agree to this, you’ll likely
never receive the full deposit amount and
you’ll have to pay for damages out of your own
pocket. It’s better to look for a more desirable
In some states, you can save the deposit however
you choose, but most states have strict
regulations. In addition to supplying the tenant
with a receipt that shows where the money is
stored, you may be required to place the money
in an interest-bearing account. You may also be
required to supply the tenant with annual reports
on the interest earned in the account.
What Do You Do With the Deposit?
HOW IS THE
DEPOSIT TO BE
Once the lease has ended, many states give the landlord just 15 days to return
the deposit to the tenant. Some states grant 30 days. If the money isn’t
returned in the allotted time, the tenant must be provided with written
reasons as to why the security deposit wasn’t returned.
While the security deposit helps you recover losses, you must return it in full
in most circumstances. Most states outline the conditions in which you can
keep the deposit, but, primarily, you can only keep it to cover the costs of
repairing damage caused by the tenant or as compensation for the
nonpayment of rent. If you’re unsure about the laws in your area, it may be
wise to consult a real estate attorney about security deposit restrictions in