Have you ever had a tenant claim to have cleaned up their apartment before they left only for you to discover a huge mess? Maybe you're forced to hire a cleaner or repair services to fix up some damage. That's where a security deposit comes into place.
The only problem is that security deposits are not infinite. You can only charge a tenant so much as a deposit, and there are some limitations on how you can use them.
Here's your guide to using security deposits with your rental property.
Why Security Deposits Matter
Security deposits are an essential part of maintaining your rental property. They act much like an emergency fund to fix up any damages caused by a renter. It's also useful if you need to undo changes that they've made or move out the furnishings they left behind.
However, you cannot use security deposits for things like investments or to cover last month's rent. It can help cover lost rent in certain cases, though.
Security Deposit Laws
There are some legal limitations to how you use a security deposit.
The maximum amount of a security deposit that a landlord can charge in New York is one month's rent. It's illegal to charge more than that.
However, some renters get around that by requiring a tenant to pay for the first and last month's rent on top of the deposit. That way, they don't have to worry as much about nonpayment of rent towards the end of the lease.
Another thing to keep in mind is tenant rights.
For example, you shouldn't immediately jump to using their deposit whenever there is damage. The tenant should have the opportunity to find an affordable repair service on their own time if they so choose. The same goes for things like painting and cleaning.
Your tenant should also be able to request repairs through something like an online service page.
In addition, failure to repay their security deposit without good reason opens the landlord up to a lawsuit.
How to Handle Security Deposit Refunds
First of all, a security deposit should be stored at a financial institution and never used or combined with the landlord's personal money. If they have over six units, they need to store the deposits in an interest-bearing account.
When the tenant finally moves out, you'll need to return the deposit within 14 days of them vacating or terminating the lease. This should include an itemized statement if any of the money is used.
Alternatively, your property management company can distribute security deposit refunds on your behalf.
Get Landlord Financial Guidance
Anyone looking to rent an apartment knows that security deposits are part of the arrangement. However, it's up to the landlord to abide by the laws and use that deposit for the right purposes. After all, the tenant will expect to get that money back when they eventually move out.
PMI Empire Solutions provides full-service real estate asset management for landlords across Nassau, Queens, and Kings County. Reach out to learn more about our capabilities and schedule a consultation today.
