Rents have steadily increased across the nation during the last few years. This translates to greater potential earnings for landlords, but it also means more competition. Landlords must protect their assets while attracting renters.
That is why property owners often have questions about security deposits. They can be an invaluable tool for landlords but need to be implemented properly.
This article covers the basics of security deposits and how landlords should use them. Keep reading to learn how to strike the right balance of setting reasonable (and legal) rates for prospective renters while ensuring your property is protected.
Setting the Right Security Deposit Amount
When determining a security deposit amount, the first thing to consider is any legal requirements. Some states do not set limits on how much a landlord can charge, while others do. For instance, the Virginia security deposits law stipulates that landlords cannot charge more than two months' periodic rent.
On the other end, in most cases, landlords charge at least one month's rent. However, each property is unique. You must decide what is the appropriate amount to cover potential risks (see below).
Note that security deposits are separate from other types of deposits. Pet deposits are a common example--you can charge separately for them.
Restrictions on Deductions
In most states, there also are legal limits on the types of situations during which landlords can deduct from the security deposit. In Virginia, this is generally include:
- Unpaid rent
- Unpaid utility bills
- Excessive property damage
- Lost Income
You should ensure that these are spelled out in the lease that tenants sign. This ensures they understand that, if they fail to pay rent or an electrical bill, then those sums can be deducted from their security deposit.
Likewise, tenants must leave the property in a similar condition as they found it. Note that you cannot deduct for usual wear and tear, but you can deduct for costs associated with repairs for significant damage to the property.
Finally, "loss of rental income" relates to tenants who abruptly abandoned a unit. These are expenses that the landlord incurs. For instance, it includes rent and marketing expenses to refill the rental.
Returning the Deposit
In most locations, there is a set time limit during which you must return a security deposit. This window is meant to give you time to examine the property and assess any damage or other issues.
In Virginia, that duration is 45 days. Keep in mind that you could face a lawsuit or fines for failing to abide by these standards. This is also a good reason to keep receipts of returns.
Learn More About Security Deposits
Now that you understand how security deposits can be a valuable asset to landlords and how to properly implement them, you can move forward. An experienced management consultant can give you more landlord advice on how to set rates and get the most out of this protection for your rental property.
Since 2007, Renters Warehouse has provided comprehensive property management services to owners and tenants in the Hampton Roads region. We offer a variety of tenant screening, maintenance, rent collection, accounting and reporting, and much more. Reach out to us to schedule a free consultation today.
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