HRG Property Management Blog

An Investor's Guide to Security Deposits

System - Tuesday, January 31, 2023
{{ post.title }}

There are currently around 20 million rental properties in the US.

As a real estate investor, there's a range of things that you need to take care of and keep track of for any properties you own. When you find a new tenant for a property, one thing you'll need to do is collect a security deposit.

So what are security deposits, and how do they work? Keep reading for everything you need to know.

What Is a Security Deposit?

After investing in real estate, you can rent it out as a landlord. When you do this, you can collect a security deposit as a means of ensuring the tenant sticks to all terms and conditions set out in your lease agreement. This typically involves things like taking care of the property and paying rent on time.

Collecting a security deposit isn't a legal requirement, but it's a good business practice. A security deposit is returned to a tenant at the end of their lease, so it serves as an incentive to ensure they follow the rules.

How Much Should a Deposit Be?

Different states have different laws on how much a security deposit can be, which is sometimes as much as the equivalent of three months' rent. In Utah, there is no set limit, but you should consider what you think is a suitable amount to charge. While landlords can make their own decision within these laws, most stick with the equivalent of one month's rent.

When to Collect a Security Deposit

In most cases, a landlord will collect the deposit either before a tenant moves in, or on move-in day, often along with the first month's rent. You can collect the security deposit later than this, but it's generally not considered the best idea. There may be non-payment issues which might result in you having to evict the tenant.

Is a Security Deposit Rental Income?

Security deposits aren't the same as rental income. This is primarily because a deposit will (ideally) be returned to the tenant. Sometimes, however, a landlord might keep part (or all) of a security deposit. This can be to pay for damage caused by the tenant, for example.

In some cases, a landlord might also use the security deposit as the final rent payment. In this case, it can be considered part of the rental income.

When Should a Deposit Be Returned?

This is something that also varies depending on the state. It's often within 2 weeks of the end of the lease - in Utah, a security deposit needs to be returned within 30 days. You can make your own decision about this, and you should specify it to any tenants in the lease agreement.

Your Security Deposits

While it's not essential, you should make sure you get any security deposits before people move into your properties, or at the latest, on the day they move in. You can use your own judgment to determine how much the deposit should be, but 1 month's rent is a good figure to work with.

Dealing with security deposits is just one aspect of property management, and there's a lot more that goes into it. Home River Group provides a range of property management services and can handle this kind of thing for you. To find out more about our services, click here to contact us today.