Renters occupy 36% of the nation's 122.8 million households. A huge part of the US housing market is dedicated to those who rent vs. buy housing.
While many renters are responsible, pay their rent, and care for the property. Some do not, so gathering security deposits is extra important.
As a property owner or manager, you're obligated to follow specific laws related to security deposits. While security deposits protect you as an owner, the laws are also intended to protect renters from overzealous property owners.
Read on to learn more about some basic things to know about the security deposits of renters.
Laws by State
One of the essential things to know about rental deposits is that laws vary greatly by state. If you plan to rent a property and collect a security deposit, it's important to do your homework and be aware of the laws in the state of the rental.
One of the benefits of working with a property management company is that they often manage properties in many locations and need to stay abreast of the rental laws.
Security Deposit Limits
Every state in the US will allow you to collect some form of security deposit. What varies by the state is the amount you can collect.
A few states have no limits, while others limit the security deposit amount to a few months' rent.
It's important to note that some local municipalities also restrict security deposit amounts. Some states will also limit the amount of security deposit charged to senior citizens.
Get the Deposit Before Move-In
One important rule to follow in collecting security deposits is ensuring you have the full deposit amount before a tenant moves in.
If you allow a tenant to move in, you have no recourse to get the security deposit out of them.
If you insist on the full deposit before move-in, you hold the keys until a tenant pays. If they don't pay the full security deposit, you can cancel the lease and rent to someone else.
Holding Security Deposits
There are often some laws related to protecting deposits. Some states will require you to put the deposit in a separate account, and some even require this account to be interest-bearing.
If you have security deposits in an interest-bearing account, you may be required to report the interest earned. Be sure to check with your tax accountant about the rules related to security deposits.
Keeping and Returning Part of Security Deposit
One of the reasons owners and property managers collect security deposits is to act as a type of insurance policy at the end of the rental term.
If the renter has:
- Unpaid rent or bills
- Left the unit in need of more in-depth cleaning
- Failed to restore, replace, or return personal property
- Caused damage that exceeds normal wear and tear
These are some of the legal reasons you might be allowed to hold all or part of a security deposit with notice to the tenant.
Most states have laws about how long you have to address the security deposit return. Often, it's between 15 and 30 days.
Understanding the Laws Related to Security Deposits
Understanding property law related to security deposits is critical if you plan to collect them from your renters. Most owners and property managers collect security deposits to incentivize a renter to care appropriately for the property.
If you own property and are looking for a property manager, we can help. Contact us to learn about owner-related services.
