Security deposits are a vital component of any rental transaction and have a substantial impact, especially when mistakes are made. These missteps can be costly, leading to legal trouble, financial loss, and damaged tenant relationships. So what should a rental property owner be aware of when it comes to security deposits for your Greeley rental property and what mistakes should you look out for? Here are 5 key components to consider and mistakes to avoid.
The Dos and Don’ts of Security Deposits for Your Greeley Rental
Understanding is Key
One of the biggest mistakes landlords make when it comes to the security deposit is not understanding what it is. Plain and simple, the security deposit is the tenant’s money held in trust to secure performance in a rental agreement. It is not the landlord’s money. For that reason, it’s vital to keep these funds separate from any other operating costs, something that may be legally required depending on where your rental property is located.
DO: Keep it separate and understand the money always belongs to the tenant.
DON’T: Mingle it with operating costs and assume it belongs to you.
Use It for Its Intended Purpose
Another pitfall many landlords make is using the security deposit for reasons other than what it was intended for. This can include using those funds to make improvements to the property or to prepare the property to put on the market to sell. The purpose of the deposit is to protect the landlord from financial loss due to non-payment of rent, damage because of a breach of the contract, or from damage caused by the tenant that is beyond normal wear and tear. It’s not a renovation fund. Understanding what can and cannot be deducted from a deposit while processing is key. Make sure you have a good understanding of normal wear and tear as well as what can and cannot be charged to a tenant at the end of the agreement.
DO: Use the deposit for its intended purpose, such as covering tenant-caused damage that exceeds normal wear and tear or useful life.
DON’T: Use the deposit as a free-for-all to make upgrades, prepare to sell, or reasons outside of why it was collected.
Documentation
There’s a reason people say a picture is worth a thousand words. They’re indisputable evidence and extremely valuable when it comes to managing a rental property. One of the best ways a landlord can protect themselves and their interests when it comes to the security deposit is by taking pictures and thoroughly documenting the condition of the property before and after a tenant moves in. Without adequate documentation, you have no legs to stand on should your tenant dispute any of your deductions, a big mistake should you end up in court.
DO: Conduct a move-in and move-out inspection with lots of pictures documenting the condition.
DON’T: Skip out on inspections.
Process And Return
Security deposits for your Greeley rental property are highly regulated. There are laws that need to be known and followed when it comes to what you can and can’t charge, as well as when the funds need to be returned. Make sure to have a proper timeline in place from the moment your tenant gives notice to move out. Once they surrender possession, the countdown begins. The amount of time you have depends on where your property is located and what your lease states. For Greeley rental properties and the rest of Colorado, landlords have 30 days to return the deposit, unless their lease specifies the maximum of 60 days, but it cannot exceed that. Make sure only to deduct what you legally can by having a thorough understanding of normal wear and tear vs damage, then ensure you return it to the tenant along with a statement showing what was charged within the allotted time frame.
DO: Process and return the deposit in accordance with your local laws and lease.
DON’T: Make improper deductions and return the deposit later than what’s required.
Know What to Collect
Collecting the right amount to secure performance and ensuring any potential damage is covered is another key part of deposits. That being said, one mistake landlords make is trying to collect excessive amounts for the deposit. Many states have regulations on how much landlords can charge for a security deposit, Colorado included. Make sure to do your research to determine if there are any caps on deposits in your area, then compare your plan to what others in the area are asking. Typically, asking for an amount equal to one or two month’s rent is the standard.
DO: Know the laws and industry standards about how much landlords can charge for deposits.
DON’T: Charge excessive amounts that may not be legally allowed.
Security deposit issues are among the most common reasons landlords face disputes with tenants. When it comes to the security deposit for your Greeley rental property, knowledge is power. Having the right resources available to you also makes a huge difference. It’s why so many rental property owners choose to utilize professional property management services, like what Real Property Management Colorado provides. Whether you choose to hire the pros or manage on your own, make sure to have a good understanding of security deposits and avoid these common pitfalls when it comes to managing your Greeley rental. Doing so not only helps save you time and money but helps continue to build positive relationships with your tenants.
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