Landlord Security Deposit Tips and Best Practices
Security deposits represent an agreement of trust and security between a landlord and their tenants. When a tenant pays the security deposit, they agree to take care of the property or accept deductions from the money they could get back. When a landlord sends the security deposit back, they are acknowledging that the tenants were good stewards of the property. It encourages responsibility, timely repairs, and teamwork to protect your investment. This is why it's important for landlords to have a rock-solid policy that both rewards good tenants and fairly covers expenses for undue damage and costs.
The security deposit covers for tenants who are rough on a house, even if they are not malicious, and eases guilt if tenants have to leave an inconvenient mess due to a personal emergency. It also rewards tenants who can take the time to fill holes, paint over scuffs, and request repairs before they leave by sending money to them during their move, when they likely need it the most.
So, what are the best practices for managing security deposits as a landlord? Here's how to use security deposits both to protect your properties and reward good tenants.
Set a Reasonable Security Deposit
The first step is to set a security deposit amount in proportion to the property. States that have laws regarding security deposit typically set the limit at this amount, as well. Setting the security deposit higher than one month's rent is only reasonable (and possible) in states with a higher limit and with high-end properties where your tenants are more likely to be high-income with more liquid capital to invest in a rental home up-front.
Define What Can Be Deducted From the Deposit
Next, clearly define the damage and expenses that can be deducted from a security deposit. This should exclude normal wear-and-tear that can occur no matter how quietly a family lives. It should include overt damage, unreported repairs, and cleanup required if the tenants left a mess.
What to Deduct
- Holes in the walls
- Burnt or badly scratched floors
- Broken plumbing and major clogs
- Unreported damage
- Unreported visible and excessive mold
- Unpaid utility bills
- Unpaid rent
- Abandoned property disposal
- Valuable property shipping to the tenant's new location
- Destroyed landscaping features
What Not to Deduct
- Minor nail holes
- Scuffs on walls and doors
- Loose but not broken fixtures
- Worn but not damaged carpets
- Dry grass and flower beds
- A few missed non-valuable items (lost socks)
Complete the Move-In and Move-Out Inspections
Move-in and move-out inspections are valuable for both landlords and tenants. A move-in inspection proves the condition of the home just before the tenant moves in. Make sure the inspection is done right, with photographs and notes that are stored as records in your property manage documents or online platform.
The move-out inspection proves the condition of the property immediately after the tenant moves out. Make sure this is also completed thoroughly with photos, notes, and records. The move-out inspection should be completed on the last day, with the tenant present if possible. If the tenant can't stay, complete the inspection ASAP after the truck is gone with a hard-coded timestamp.
This ensures that any damages you deduct from the security deposit are definitely left behind by the tenant. And if any damage occurs after they are gone, it cannot be charged to them.
Respond Quickly to Repair Requests
During the tenant's stay, make it clear that you welcome repair requests for the good of the property. Then, respond to requests with a friendly attitude and send your repair teams as quickly as possible. This builds a routine of teamwork with your tenants to keep your property in top condition, prevent little problems from growing into major damage, and addresses issues promptly.
Not only do quick and friendly repairs make tenants happy, it also increases the overall quality of the home when your tenants hand it back so there is a far lower chance of problems that could be charged to the security deposit. If tenants complete their duty to report needed repairs, they won't be charged for the repair costs.
Provide a Move-Out Checklist
Help your tenants leave the house in the best possible condition with a move-out checklist. When your tenants report that they won't be renewing the lease, or 2 months before their move-out date, provide a checklist of everything that will be included in the move-out inspection.
Remind your tenants to:
- Fill nail holes from decorations and furniture installations they remove
- Touch up paint over scuffs and minor damage, or request your assistance to do so (if your paint colors are hard to match)
- Clear out all storage areas, including often-forgotten spaces like the attic or crawl space
- Broom-clean, vacuum, and wipe down the house. It doesn't have to be spotless, but empty and clean
- Request any final repairs before they are penalized
You can also provide a copy of the move-in inspection with photos and notes to show the move-in condition of the house. Tenants who address the move-out checklist can secure all or most of their security deposit returned.
Return the Security Deposit On Time
Check your state laws to determine your time limit on returning the security deposit. Check with your tenants on the best route to send them the money back, and do so within that time limit. If you make deductions, define each one in an itemized list including the damage and the repair costs.
Clarity can ensure that your tenants understand any deductions and appreciate your prompt return of money they can use to help smooth their transition to a new home.
Handle Security Deposits Right with Leaf Management
If you want to make sure every one of your rental homes handles inspections and security deposits correctly and on-time, Leaf Management can help. Our skilled property management team will ensure that move-in and move-out inspections are conducted with full documentation, your tenants receive timely repairs, move-out checklists are sent out, and security deposits are sent back with itemized deductions in time with the state laws for each property location. Contact us today to explore property management for your rental homes.
