Laugh on your way to the bank! According to CBS News, the average security deposit is $700. This is enough money to cover a lost rental payment or pay for property damage.
Security deposits are one of your best tools as a landlord. Yet learning how to collect security deposits can be tricky. There are a few things you need to know so you comfort your tenants and get the money you need.
What laws affect how you calculate security deposits? How should you talk to your tenants about deposits? When should you collect security deposits?
Answer these questions and you can get the money you need for managing properties in no time. Here is your quick guide.
Study Laws on Security Deposits
Section 504B.178 of the 2021 Minnesota Statutes provides the state laws on security deposits. There is no limit on how much you can collect in a deposit. You can also gather interest at a rate of 1% per year.
You can use the deposit to pay for missed rent payments and damage to your property. If you don't use the deposit, you must return it to the tenant within five days of moving out of the building. If you fail to do so, you must pay damages to your tenant.
Discuss Your Deposits With Tenants
Though you can charge any amount you want for your deposit, you shouldn't go too high. You may scare potential tenants away, especially if your monthly rent payments are already high.
A common rule of thumb is to charge one month of rent for a deposit. If your tenant is bringing a pet, you can charge an additional month if their pet damages their property. You can adjust the deposit based on the value of the home, as long as you use calculators and tools to make accurate estimations.
Whatever your deposit amount is, you should talk to your tenant about it. Tell them what you are charging, what you would use their money for, and where their money is.
You can give them bank statements showing that their money is safe. You can also discuss when and how they will receive their money back.
Get the Lease Signed First
Your lease agreement can specify what your security deposit and rent payment procedures are. You're not required to write about the procedures in your agreement, but doing so can comfort your tenant and create transparency.
You should wait to collect your tenant's first payments until they have signed the lease agreement. You should also bear in mind that your tenant may have multiple offers for housing. Give them a few days to weigh their options and then sign the document.
Take Advantage of Security Deposits
Minnesota law gives you broad discretion for security deposits. You can collect all the money you need to improve your property.
However, asking for too much money will deter tenants. You should calculate your deposits based on how much you charge for rent and what your property is worth.
Be clear with your tenants about security deposit collection. Wait until after the lease is signed to collect the money, and return it to your tenants once they move out.
You can get help with collecting deposits. 33rd Company helps landlords with property management. Contact us today.