In 2022, the average rent for a property in Nashville, TN reached $1,788.
Rental properties can generate a solid income, but it's not as simple as buying a property and renting it out. There are a lot of aspects you need to think about, with security deposits being one of them. You need to make sure you're dealing with security deposits responsibly and legally.
For a rundown of what you need to do, keep reading.
What Is a Security Deposit?
A security deposit is a fee that renters pay when they sign a lease. Many landlords require that the first month's rent be paid alongside it, as well as a separate pet deposit (if applicable).
In most cases, a security deposit is refundable - assuming the landlord doesn't need to use it to pay for damages. If the tenant does damage the property, the landlord can use the security deposit to pay for repairs.
Some landlords also choose to use the security deposit to pay for the last month's rent when a lease is coming to an end. In this case, the deposit isn't refunded to the tenant.
How Much Should a Security Deposit Be?
This question can vary depending on a few factors, including:
- Your location
- The tenant's credit score
- The tenant's rental application
- The type and quality of your property
- What your competitors are charging
Some states have limits on security deposits, but Tennessee doesn't. This means you can make a deposit as much as you want. With that in mind, your renters will be put off by deposits that are too large.
Most landlords ask for a deposit that's equal to one or two month's rent. What you decide on will depend on the factors above.
If you allow pets on your property, you might want to have an additional pet deposit as they can increase the risk of property damage occurring. Note that this is typically less than the standard security deposit, so about half a month's rent is a common choice.
Rules Regarding Deposits
There are various other rules surrounding security deposits. Make sure you abide by these rules so that you don't risk facing any legal issues down the line.
For example, you must store a tenant's security deposit in a separate account from any other money. You need to use an account from a bank or lending institution that's specifically for handling security deposits.
At the end of the lease, you can make deductions to cover the costs of:
- Damage not found during inspections
- Unpaid rent
- Other amounts the tenant refuses to pay
Note that you can only charge for damages found within 30 days of the tenant vacating the property. This doesn't cover wear and tear, so you can't use a deposit to pay for things like faded paint or mold/dirty grout.
You must return deposits within 30 days of the tenant leaving, or 60 days if you never receive a response to get the refund. Note that the amount you return will not include any deductions made.
Dealing With Security Deposits
Handling security deposits can be complex, and it's just one of the many aspects of renting properties. You can simplify things by working with a professional property management company like PMI Main Source. Contact us today to get access to our 20 years of expertise!
