You are finished before you even start as a landlord if you are not collecting a security deposit for your rental property. Although it is not a “requirement” to collect one by law you probably want to institute one into your standard operating procedure as a landlord. Here are the basics regarding security deposits…

What is a Security Deposit?

It is a one-time payment the tenant makes to the landlord at the beginning of their tenancy. The security deposit and the first months rent is collected before a tenant is given access (keys) to their rental apartment. Every state has different laws on the maximum security deposit you can collect depending on the age of the tenant, but you can collect at least the equivalent of one months rent for a security deposit.

How Much of a Security Deposit Should You Collect?

Minimally the equivalent of 1-months rent. The more of a risk the tenant is in terms of their credit, criminal, income, and eviction history the more of a deposit you should collect. Most states cap the amount you can collect for “move in money” which encompasses the security deposit and first months rent. Make sure to get educated on that and if your states limits the amount of a deposit you take take from older tenants. For instance my state caps the amount of security collected on tenants over 62 at 1 months rent max.

When Are You Paid the Security Deposit?

This should all be outlined in your lease! Without exception you collect the security deposit and the first months rent BEFORE you hand over the keys to the apartment. Clearly spell out in your lease what money is due at move in. They don’t have all the money you require? They do not get the keys, as simple as that. The whole point of collecting a security deposit is that it is a measure of protection for you the landlord so letting the tenant slide on any portion defeats the whole purpose.

In Part II tomorrow we will discuss where you should be keeping your security deposits as well as when you need to return them to your tenants. Stay tuned.