How to be clear about security deposits

Security deposits are meant to protect you and your investment. When a tenant leaves, you cannot be sure that there won’t be any damage to your property, beyond normal wear and tear. To protect against it, the security deposit is there to give you a resource to repair the damage. 

Typically, security deposits are paid when the lease is signed. And, while some states have limits on how much a security deposit may be, it is common for it to be equal to one month’s rent. The idea is that you want it to deter the tenant from causing damage (as they want their security deposit back when the lease is up), but you don’t want to make the amount too high that it puts too great a burden on the tenant. 

At the lease signing, you should be very clear about the security deposit. Advising the tenant that the monies will be held in a separate account that is solely for security deposits. This money will not be touched. Upon the inspection at move-out, a refund will be determined. 

Otherwise, your tenant should be aware that you will use the money from the security deposit for damages, such as:

• Broken windows, doors or broken locks. 
• Holes in walls. 
• Removing paint from tenants. 
• Ripped carpet. 
• Excessive filth. 
• Broken light fixtures. 
• Extermination for fleas or other pests. 

The damage should be beyond normal wear and tear. The initial walk-through and the move-out inspection should be clearly documented by both the landlord and the tenant. It is expected that, when the lease is up, the rental property should appear in the same condition as it at move-in, except for the normal wear and tear. 

You cannot use the security deposit to cover costs, such as:

• Furniture marks on the carpet. 
• Dusty blinds or curtains. 
• Worn carpet from everyday use.
• Nail holes from pictures in walls – if not excessive. 
• Broken appliances, if not due to negligence.

Be sure to let your tenant know what is expected of them during their stay in your rental property – and upon their move out. However, be reasonable and understanding when it comes to wear and tear. Should you find yourself in a situation where you must use some – or all – of the security deposit, then do so wisely. Document what it is used for (including pictures if deemed necessary) and save your receipts. Should your tenant ever try to challenge you for that money, you need to be able to legitimately prove your case. 

Remember, security deposits are not free money. They are there to serve a purpose and deter damage to your rental property. Use the proper care when handling these monies.  

 Marina Shlomov, a managing partner atALH|Podland Realty & Rental Homes Property Management is the author of many articles on Landlording, Property Management, and Real Estate Investing. A residential builder in the state of Georgia since 1999, Marina is an investor herself. Her property management company is intended “For Investors” and “By Investors” for a simple reason – she knows what investors’ goals are and she works hard to reach their goals. In her spare time, Marina likes to spend time with her family, friends, garden, read and travel. Check her out at www.alhpodland.com. You can find Marina’s articles and comments at @rentalhomesatl on Twitter, on Facebook, Google+, Blogger. and YouTube,Bigger Pockets andREI Club andLinkedIn.