What is a Security Deposit and why is it required?
While security deposits may seem complicated to understand, we're going to make sure you get as much information as possible here so that you can make the most out of your rental property.
Definition
In essence, a security deposit is a sum of money that tenants give their landlords or property managers. Keep in mind that the security deposit must be paid in addition to advanced monthly rent and other factors.
The Purpose of a Security Deposit
Property managers can use security deposits as insurance against damage to the rental property.
Some of the most common damages that property management companies can cover with security deposits include the following:
Property wear and tear
Unpaid rent
Unpaid utilities
Abnormal cleaning costs
Security Deposit terms and conditions may be established within the lease agreement and conditions may vary from landlord to landlord.
Security Deposit Amount
The money paid for a security deposit mostly depends on the local state laws. Most states allow the landlord to charge their tenant any amount of security deposit as desired (as long as it's reasonable). Still, most state laws cap the security deposit amount at the price of one month's rent.
In some states, the landlord may charge up to three months' rent to cover damage or other repairs, but it depends on the case. Additionally, the landlord may charge their renter a particular amount for their security deposit depending on what they find in their rental application, employment history, and others.
Security Deposit Calculation
As mentioned before, the amount of the security deposit may vary depending on the state's laws. Still, the landlord can also keep some factors in mind before choosing an appropriate amount for their renter. These factors include the following:
Type of property
State laws
Tenant's rental application
Amount of the security deposit of properties nearby
Cost of first month's rent
Cost of monthly rent in general
Keep in mind that a tenant with a low credit score may be considered high-risk for a property manager. In these cases, landlords may charge a higher security deposit to cover unpaid rent and other considerable damages.
When Are Security Deposits Paid?
In most cases, the tenant pays the full security deposit before getting the keys to the property. Overall, the tenant may use any form of payment the landlord approves, although these payment methods typically include a money order, cashier's check, or electronic payment.
Where Are Security Deposits Held?
Each state has its own laws regarding where the security deposit must be held. As mentioned before, the tenant or landlord cannot use the security deposit money for any reason that's not in the rental agreement terms.
Deposit Returns
A security deposit serves as insurance to cover ordinary wear and tear and other repairs; this means the tenant is entitled to getting their deposit back as long as they complied with the landlord's lease terms.
In most cases, the property manager must give the security deposit back from 30 to 60 days after the tenant moves out of the property. If everything is good to go, the tenant must provide their property manager with their forwarding address to receive the deposit correctly.
Reasons for Withholding a Security Deposit
There are several landlord-tenant issues that may lead to a tenant not getting their deposit back. Landlords may choose to use the security deposit to cover any additional damages that a tenant may have caused to the property.
In case the landlord believes the tenant must pay for damages, they must provide an itemized list of all the damages and repairs needed and the cost will be deducted from the deposit. Some common reasons why you may not receive the full security deposit back involve the following:
Damage Beyond Reasonable Wear and Tear
It's impossible for a property to not suffer regular wear and tear after some time. However, if the landlord must provide more money or beyond-reasonable efforts to repair damages, they may choose not to give the deposit back. This is one of the reasons why tenants with pets are usually asked to pay a pet deposit in addition to their security deposit.
Unpaid Rent or Fees
If a tenant fails to pay rent or fees at any point of the lease, the landlord may take the same amount of rent out of the security deposit to make the payment. Additionally, the landlord may make deductions from a tenant's security deposit if they break the lease earlier than what was stated in the agreement. These fees must have been stated in the lease if the landlord wants to deduct them from the deposit.
Cleaning Fees
Most property owners include a clause in their lease stating that renters must leave the apartment as clean as possible when they leave. In essence, the apartment must be left ready for the next tenant to move in.
