What Is A Security Deposit In Rental Property? A Guide
Security deposits are an inevitable part of renting apartments and other units. They actually play an important part, which is why they have become so ubiquitous in rental property. But why? What is a security deposit in rental property and how is it used?
Being systematic and organized with properties you own or manage is crucial. Overseeing Atlanta area property management, we supervise the entire process of tenant management all the time. This means we know security deposits can be a sticking point and a problematic part of it from time to time. It is important for landlords to understand each part of that process and what parts of it can go wrong. Let’s explore.
Table of Contents
- What Is a Security Deposit?
- Common Mistakes Landlords Make with Security Deposits
- FAQs
- How Professional Property Managers Could Help
What Is a Security Deposit?
It is something people have heard many times. But that doesn’t mean they know exactly what it is. What is a security deposit in rental property and what do landlords need to know when asking for and collecting them? A security deposit is a fee that a tenant pays to a landlord before moving into a rental property. This deposit serves as a financial safeguard for the landlord, covering potential damages to the property or other lease violations.
At the end of the lease, if the property is in good condition and all the terms are met, the landlord returns the deposit to the renter. However, if there are damages or unpaid dues, the landlord may deduct the costs from the deposit.
Common Mistakes Landlords Make with Security Deposits
While requiring a security deposit is standard with rentals, there are things that landlords should know to make sure they are collecting and managing them well. Both landlords and tenants want to avoid disputes and problems. It’s not just about what is a security deposit in rental property, but also how landlords and property managers administer them. There are a number of things landlords can do to avoid mistakes. Here are some tips.
Damage vs. Wear and Tear
This is a common issue. The line between “wear and tear” and damage that can be carried over to the tenant in a security deposit is sometimes blurry. It leads to confusion and conflict. Wear and tear refers to the natural and gradual deterioration of the property over time due to normal use. This can include faded paint or minor scuff marks on floors.
On the other hand, damage is harm that affects the usability or value of the property. It is caused by negligence, abuse, or accidents by the tenant. Examples would be large holes in walls or broken fixtures.
In an attempt to avoid disputes, landlords should provide clear examples of what constitutes wear and tear versus damage in their lease agreements. They should conduct thorough inspections at move-in and move-out while documenting the property’s condition with photos or videos.
Misunderstand Laws and Regulations
Each state, and sometimes local jurisdictions, has its own set of rules governing security deposits. These can include caps on the amount a landlord can charge, specific requirements for storing deposits, and strict timelines and procedures for itemizing and returning deposits post-tenancy.
Ignorance of these laws can lead to costly mistakes, such as illegal withholding of deposits or failure to provide required interest payments on held deposits. Landlords must stay informed and possibly consult legal advice to ensure their policies comply with current laws.
Inadequate Record-Keeping and Communication
Security deposits are not just about getting and receiving payments. They involve detailed documentation of the property’s condition before move-in and after move-out, along with keeping a transparent record of any deductions made from the deposit for repairs or cleaning.
This documentation should be easily accessible and shared with tenants to avoid misunderstandings. Communication about any deductions should be clear, concise, and backed by evidence so that disputes are avoided.
FAQs
Now that you know what is a security deposit, as a landlord you will want to know the specifics of what you can and can’t do with them, as well as other regulations pertaining to them. What are some frequently asked questions when it comes to security deposits? Since regulations can vary from state to state, we will be referring to Georgia law specifically. You will want to look up any differences if you live in a different state.
Is There a Security Deposit Limit in Georgia?
No, in Georgia there is no maximum security deposit amount. As a landlord, while you can ask for any amount as a security deposit, you’ll want to be reasonable with security deposits even if there is no law.
Overcharging or undercharging your tenants with fees is never ideal. Having your tenant pay either one or two month’s rent as a security deposit is a common amount and expected for most rentals. Make sure to include this term in your lease agreement.
Do Landlords Have to Store a Security Deposit a Certain Way?
Yes, landlords in Georgia are required to store the tenant’s security deposits in one of two ways.
One option is to store the security deposit in an escrow account. Per Georgia law, the escrow account must be in a bank or lending institution that’s either regulated by the state or federal government. The other option is to post a surety bond for either the full amount of the tenant security deposit or $50,000, whichever is less. A landlord needs to post the surety bond at a superior court in the county where the property is located.
Do Landlords Have to Provide a Security Deposit Receipt?
Yes, under Georgia law, tenants have a right to a written notice and/or receipt. They have a right to sign off on it both before and after the landlord receives their security deposit.
The landlord must provide their tenant with a list of all existing damages in the rental unit. The renter has a right to inspect and verify the accuracy of this list. If there is agreement on the list, both the landlord and tenant need to sign the document. The document will serve as proof of the unit’s condition after the rent period.
How Professional Property Managers Could Help
If you’re a rental property owner or landlord, dealing with security deposits can take up a lot of time and energy. It really adds up. That’s where a professional property management company comes into play. With Bay Property Management Group, you get a property management company that’s there for you. We are ready with the skills and tools to handle the needs of your tenants and properties. That way, you can focus on what matters to you.
Whether you’re a landlord, an investor, or just starting, Bay Property Management Group is here to help!
