As a landlord of a rental property, there are a lot of risks you take each day. Each time you take on a new tenant you are entrusting them to take care of your property, and of course, this isn't always what happens in the end. With careful tenant screening, you should be able to prevent your properties from becoming damaged for the most part, but it can still happen.
This is where security deposits come in. A security deposit can help to further minimize the risk of you losing money on one of your properties.
So, what exactly is a security deposit, and should you be charging your tenants one? Read on to find out everything you need to know.
What Is a Security Deposit?
A security deposit is a sum of money you collect from new tenants separate from their rent payment. You take it from your tenants with the understanding and agreement that if the property becomes damaged while they are living there, they won't be able to get it back at the end of their tenancy. Its purpose is twofold.
First, as is stated above, a security deposit acts as collateral of sorts. It's a monetary incentive for your tenant to take good care of your property.
As well as this, in the event that your tenant does cause damage to your property, you can use that tenant's security deposit to make the necessary repairs. Or cover the rent if they leave the home early. The security deposit acts as a guarantee that a tenant won't damage your house or apartment or break their lease.
When and How Should You Collect Security Deposits?
The timing of collecting security deposits from tenants is important, to say the least. It's imperative that you collect any security deposits before your tenant moves into your property. If you fail to do so, there's a chance your tenant could cause damage before you obtain a deposit and then refuse to pay it to you.
To stop this from happening, you should make sure to clearly set out the terms of their tenancy (including their willingness to pay a security deposit) in your lease agreement. Make sure to remind them of the deposit's amount ahead of time, so it's not sprung upon them at the last minute. If you work with a property management service, this is something it will be able to take care of for you.
How Much Should a Security Deposit Be?
There is no straightforward answer to this question, and it is something landlords will need to decide for themselves. It can vary from property to property and even from tenant to tenant. A good place to start is with what you're charging for rent.
The higher the rent is, the higher the security deposit will need to be. Many landlords use the standard "one month's rent" as the basis for their deposit sum.
You may also want to take the tenant screening into account. Does this tenant have a history of leaving apartments abruptly or a low credit rating? If so, you may feel more comfortable with charging them more for their deposit.
Landlord Tips on Security Deposits
Protect your livelihood by collecting security deposits from all of your tenants. If you're looking for property management assistance, Salt Lake City Property Management can help. Get in touch today and let us help you make the most out of your rental properties.
