As an investor, it’s important to have a great understanding of the ins and outs of managing your property. From finding the perfect tenants to learning how to be a respected landlord, there’s a lot to cover, but one of the items you’ll want to know before finding your first tenants is what a security deposit is and the importance of it.
What is a security deposit?
A security deposit is a percentage of the monthly rent that a tenant pays before moving into the property. For many landlords, the security deposit is 1.5 times the monthly rent, and for some landlords, the potential tenant’s security deposit is determined by their credit score. Those with weaker credit scores are charged a larger security deposit than those with a score above 600.
Benefits of a security deposit
Security deposits can be crucial to making sure that landlords and investors have enough capital to cover any damages that were incurred while the tenants were living in the property. Security deposits also have the added benefit of giving tenants an incentive to take care of the property, as everyone would love to receive a few hundred dollars back when making a new move. It also helps protect the landlord in case a tenant stops paying rent or skips out on their last month’s rent.
Security deposit deductions
If the tenant hasn’t fully followed the lease agreement, you can make deductions from the security deposit they paid, but you’ll need to provide the tenant with an itemized list of repairs, as well as corresponding receipts for the cost. It’s important to be able to support your deductions and keep a record of that information, just in case a tenant reaches out to a lawyer with questions. Keep in mind that you also can’t make any deductions for what’s deemed as “normal wear and tear.”
If you have questions about collecting and deducting from security deposits or are just looking for help managing your properties, contact Prism Realty Management.
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