There’s a lot more involved with renting out a property than just deciding on a monthly rent amount. From inspection checklists to maintenance calls to deposits, there are so many factors that a landlord must think through. One of the biggest factors to think about is the security deposit.
The Purpose of the Security Deposit
Before we talk about how to decide how much of a security deposit to charge, let’s discuss what the security deposit is for. In its simplest form, a security deposit is charged to a tenant to cover the cost of repairing any damage that occurs during the tenant’s occupancy. But not just any damage is covered. While renting out your property, whether residential or commercial, there will be normal wear and tear on the property, such as flooring wearing out due to use, marks on walls, or cracking grout. This type of damage is not eligible to be paid for by a security deposit. Instead, a security deposit may only be used to cover the cost of repairing significant, out-of-the-ordinary damage caused by a tenant or their guests to the rental property. Think holes in walls, damage to subfloors, or even removing appliances that were present upon move-in.
Matching the Monthly Rent
One very common way to determine the security deposit amount on a rental property is to just match it to the monthly rent amount. So if the monthly rent payment due is $1,000, then the security deposit would also be $1,000. With this method, the security deposit obviously goes up or down depending on the value of the property. However, matching the monthly rental amount doesn’t always work.
Non-Monthly Rentals
Not all rentals are paid for by the month. Some lower-cost rentals may be rented out by the week or even the day, while higher-cost or commercial rentals may be paid for by the year. In these cases, determining the security deposit is more difficult. Only requiring one week’s worth of rent as a security deposit probably won’t cover the cost of repairing much damage. On the other hand, requiring a security deposit equal to an entire year’s worth of rent may be excessive. Best judgment must be used in these situations to determine an appropriate security deposit amount, but many landlords still opt to match the required security deposit to what one month’s worth of rent would be.
Due at Move-In
No matter what amount you choose for a security deposit, always require the amount to be paid in full before the tenant moves into the property. Keep the tenant’s security deposit in an escrow account during their tenancy, and release it back to them after inspecting the property and determining if any excessive damage has occurred. If damage is present, itemize each thing with photos and provide it to the tenant along with any remaining security deposit that wasn’t used to cover the cost of repairs. If no damage is present, the entire security deposit is released back to the tenant.
Skip Security Deposit Headaches with Property Management Services
If math really isn’t your thing, we understand. You can still be a landlord without having to deal with the daily ins and outs of rent and payments by using a professional property management service. If your property is in southwest Florida, Douglas Realty Property Management is ready to step in as your full-service property management company. Trust us to keep up with all the details on your rental properties, tenants, payments, deposits, and more. To get started, just give us a call at 239-542-6906 or contact us online.
