It’s no secret that security deposits have been a point of contention for many tenants and their property managers, whether it’s a dispute over excessive damage caused in the apartment or not refunding the deposit in a timely manner.
However, security deposits are here to stay as they are an essential aspect of the renting process. In an effort to help property managers minimize refundable deposit challenges and prevent disputes, here are the top 5 tips you need to know.
1. Charge What It’s Worth
The first tip is arguably one of the most important. Don’t make the mistake of charging a lower security deposit than
what you’re entitled to
. Though you may attract a large pool of tenants upfront, it is a mistake in the long run as fair security deposits offer a myriad of benefits that can help to ensure your ongoing cash flow in the following ways:
- A fair valued security deposit reduces the pool of tenants to those who can afford to live in your unit.
- It can also discourage tenants from breaking the lease agreement early with the risk of forfeiting their deposit.
- It can be used to cover missed rent payments at the end of a lease term.
As much as fairly priced security deposits help to secure long-term, quality tenants, it can’t protect against rent default. That’s why you should consider a rent default insurance provider, like
Steady
. With Steady, you can rest assured that your rental income is protected even if your tenant stops paying.
2. Know Your State Laws
Property managers must keep up with current security deposit laws in their locality. This works to ensure that you never find yourself in the perilous situation of unwittingly breaking the law. Security deposit laws typically address the following:
- Security Deposit Rates- This determines how much can be charged.
- Security Deposit Fund Storage- This dictates where the funds must be stored- whether it can be mixed with rent payments or must be kept in a separate account.
- Reports and Documentation- To hold back part of the refundable deposit some states require proof through reports or documentation to ensure it’s justified.
Security deposit laws vary by state and sometimes by county. With that said, do your due diligence by documenting everything.
3. Take Photos or Video
Evidence is key when it comes to refundable deposits. Not only can photo and video proof serve as evidence that you have followed your legal obligations, but they can also help you determine whether a tenant has caused excessive damage to your unit and how much it’s worth.
Property managers should make it a habit to take time-stamped photos and videos of a unit before a tenant moves in and after they move out. Be sure to share this evidence with tenants. This will allow you to prove damage claims and rightfully use security deposit funds to make repairs, if necessary.
Think of it as a failsafe. Even if you work to communicate with tenants, it’s always good to have evidence to fall back on.
4. Communicate with Tenants
One of the biggest reasons that refundable deposit disputes arise is a lack of communication between tenants and property managers. Which is why it’s essential that you keep tenants informed.
Your lease agreement should contain and explain thoroughly the terms of any policies and procedures. Additionally, a pre-move-out walkthrough can give tenants the opportunity to make repairs before it affects their security deposit refund.
If you are still forced to withhold funds, be sure to provide your tenants with an itemized list detailing the cost of each repair.
5. Place the Security Deposit in a Separate Account
Consider having a separate account to hold security deposit funds, even if it’s not required by your state. If you leave the security deposit funds in your primary account, it can be much easier to spend without realizing it.
If this happens, you’ll need to eventually replenish the account whether to make repairs or return it to the tenant creating an expense on your end. Rather than putting yourself in danger financially, it’s essential to keep your finances stable. The benefit of a separate account allows you to house the funds in a safe place so it’s there when you need it.
Maintain a Financial Safety
Following these tips can help you protect yourself against the pitfalls of refundable deposit disputes and the financial headaches they can cause. However, all property managers know renting isn’t protected from the ups and downs life brings — whether it’s a lost job, an ended relationship, or illness there are times when a tenant might default on their rent payment.
That’s why it’s essential to protect your finances with a rent default insurance policy through Steady. Regardless of the size of your business, Steady can help grant you peace-of-mind with their deductible-free, customizable insurance program. Securing a policy through Steady means securing your income.