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With over 122.8 households in the U.S., 36% of these properties are occupied by renters. And the number of renters increases each year.
Although most renters are responsible and pay their rent and care for their property, many do not. For this reason, most landlords collect a security deposit before a tenant moves in.
If you're new to the rental property business, you may not know that security deposits protect the landlord and the tenant as well. If you're interested in learning more, we can help!
Here's what landlords need to know about security deposits.
What Are Security Deposits?
A security deposit is the sum that tenants pay a landlord before moving into their rental property. This protects landlords if they need to repair any property damage after tenants move out.
If there's no damage when renters move out, the landlord returns the security deposit minus any repair costs. If the tenants cause zero damage, you return their deposit in full.
As a landlord, you can't deduct the costs for normal wear and tear from a tenant's security deposit. There are laws regulating these processes, and they vary from state to state.
Security Deposit Uses
To keep rental income steady, you want renters to occupy the property as much as possible. Security deposits help the property owner keep rental income stable in two ways.
When there's too much downtime between tenants, your income suffers. A security deposit provides a cash reserve to repair the damage quickly. This allows you to get your property ready for a new tenant right away.
Security deposits are also useful for screening tenants. As a landlord, you can base the amount of a tenant's security deposit on their credit score.
A tenant with a history of late or missed payments may pay a higher deposit than one with a better track record. Be sure to follow the Fair Housing Act guidelines when determining security deposit amounts.
A professional property management company can help you with this process and all your property management needs.
How Much Should the Security Deposit Be?
A rental property helps you generate income each month, just like a business. One of the biggest factors for setting a security deposit amount is how competitive your rent price is in today's housing market.
Thirty states have set limits on what security deposits can be. In MN, there's no limit on security deposits, but if you collect a pre-lease deposit, you must apply it to the security deposit.
Contact a property management company to help you determine the average rate for your area. Whether you have one or multiple rental properties, they have the expertise to help you set the correct security deposit rates.
Get the Best Property Management Advice
Owning a rental property can be a lucrative investment, but it's a big responsibility too. You have to worry about your monthly income, and it's all based on the stability and consistency of your renters.
Charging security deposits is one of the best ways to protect yourself and keep renters occupying your properties as much as possible. If you need property management assistance in the Duluth area, we'd love to assist you.
Let us help you take care of and protect your valuable investment.
Contact Duluth Property Management today to learn more.
