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Property Management Blog

Rental Security Deposits: How Much is Too Much?

Successful property investors take the right measures to protect their rental units.

One way you can do this is to have your new tenants pay security deposits when they move in, which protects your finances in the event of tenant-caused damage. In fact, one-quarter of all renters in the US don't get their security deposit back due to the damage they've caused.

Today, we're going to help you decide how much to charge for your security deposit. Some places have security deposit guidelines that you must follow, but keep reading, and you'll know how to protect your property without frightening potential tenants.

How Security Deposits Work

Security deposits are a very common occurrence in landlord-tenant relationships. It's a fee of your choosing that the tenant must pay when they move into your rental. It's meant as a security measure that pays for any potential damage that might happen to the unit during the tenancy.

When you do a property inspection with a new tenant, you'll make note of the state the rental is in - any problems or damages with the unit. At the end of the tenancy, you'll go through the property again to see if there are any new problems that were created by the tenant.

If there's no damage to speak of, then the tenant receives the security deposit back. When it has occurred, however, you'll have to document all of the expenses and keep some or all of the damage deposit. 

How Much Can You Charge for Security Deposits?

Depending on where you live, you may have specific guidelines to follow when it comes to security deposits. States and municipalities that have more stringent rental laws may restrict how much you can charge. 

Typically, landlords charge half or one month's rent as a security deposit, which keeps things as simple as possible - especially if you own multiple properties. You can also market it as paying first and last months' rent, so when a tenancy ends, you keep the deposit and the tenant can skip their last month of rent.

You should never go too much more than a full month because your prospective tenants may be unable to afford several months' rent. An expensive security deposit is bound to shrink your pool of applicants. 

Keeping Security Deposits

There are many reasons why you may decide to keep a security deposit. It could be due to a large issue or a culmination of several smaller ones. Here are some common examples of damage that necessitates using the security deposit:

  • Unpaid rent
  • Holes in the walls, ceiling, floors
  • Mold or mildew
  • Animal stains
  • Painting (if you specify no painting in the rental agreement)
  • Any damage that needs fixing or replacing

Calculate the cost of repairing or replacing these items and take that amount out of the security deposit. Document the damage and keep all of the receipts in the event that your tenant tries to fight you on the cost.

Let a Property Manager Help

Dealing with damage caused by a tenant can be a real headache for property owners. If you'd rather take a more hands-off approach while experiencing all of the benefits of owning a rental, you'll enjoy property management services.

At Wolf Nest, we're Salt Lake City's premier full-service property management firm. We can help you with everything from tenant selection to collecting rent and security deposits. Visit our site today to conduct a rental evaluation and when you're ready, contact us to find out how we can maximize your investment.

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