Security Deposits - How to Accept, Manage and Return
It’s typical for a landlord to accept a security deposit. It’s a nice safety net that you won’t be bankrupted by tenant issues. However, a one-time security deposit is different than a rent check. Here’s what you need to know about accepting, managing and returning your tenants’ security deposits.
What is a security deposit?
A security deposit is a one-time payment that a tenant pays to a landlord prior to moving into a rental property. Landlords can use the security deposit to pay for any damage to the property by the tenant, or any violations of the rental agreement. It’s like an insurance policy paid by the tenant to the landlord.
How much to charge for a security deposit
In Massachusetts, a security deposit can be up to the amount of one month’s rent, as determined by your lease.
How to accept a security deposit
When your tenant signs their lease, you can accept their upfront payments. Ways to collect rent include check, an app like Venmo, or a rental management software. However, unlike your rent checks, you can’t just put your tenant’s security deposit into your bank account. Security deposits must be kept in a separate, interest-bearing account and the money must not be co-mingled with any additional funds. This makes it extremely clear to the tenant that the money is on hold for the duration of their lease, and it makes it easy to keep track of for you.
Once you accept the security deposit, you have 30 days to let your tenant know where the money is being kept. This ensures that the account is interest-bearing, and gives the tenant an idea of how much they can expect to receive back at the end of their lease, depending on any deductions that are made.
How to manage a security deposit
Ideally, your security deposit will sit in your account and collect interest. At the end of your tenant’s lease, you will return the deposit - and the interest - to your tenant within 30 days. However, it’s not always that easy. There are a number of reasons that you may have to dip into your tenant’s security deposit:
Fixing tenant damage to the unit outside of normal wear-and-tear
Unpaid rent
Unpaid utility bills that are critical to the property, like a water bill or taxes —- if they were outlined as the tenant’s responsibility
When it comes to tenant damages, be sure to keep and share a very clear record of the damages, the cost, and how much you are deducting from the security deposit. The tenant is entitled to this information if they request it.
How to return your tenant’s security deposit
A tenant must receive the remaining amount of their security deposit, plus accrued interest, within 30 days of the termination of their lease. You can return the security deposit by check (make sure you get their new address), or via an app or payment portal. Keep close track of when you send the security deposit and when it is received for your own records.
More questions about security deposits? Check out my landlord resources page, including my private landlord Facebook group.
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