When you are thinking about renting a property, don’t forget about the security deposits. You should know that it’s one of your many expenses that are related to moving into a property. There is even a possibility of dealing with first (or last) month’s rent and also application fees.
Having the security deposit is basically quite common in the real estate rental business, but many aren’t really aware of it. So, what should you know about these deposits?
Security Deposit Concept and Meaning
Security deposits refer to the payment you have to make before you can move into a house or an apartment or a property. You make the payment to the management company or the landlord.
The money would cover the repair costs, in case the renters cause damage to the property, such as carpet stains or holes on the wall.
The deposits can also be used to cover missed rent payment, in the event you become temporarily unemployed or you have emergency expenses. Let’s say that you make holes on the walls during your stay, then the landlord will use your deposit to repair those walls.
Paying for Your Deposit
It’s pretty typical that tenants must pay for their security deposit and also first month’s rent (and also other possible fees) before they move in. If you pay before the deadline, it can actually help to secure the home or apartment that you desire.
You should know that if the property is highly desirable, other potential tenants may after the same property. If you pay them, you have a good chance to secure the property you want.
In some states, property manager and landlords are required to put the deposit in a separate account, especially the interest bearing one. They will provide the receipt that shows you which bank keeps the money.
The property manager and landlord aren’t allowed to spend the deposit if there is no reasonable cause. If they want to fix the normal tear and wear (which isn’t caused by the tenants) or they want to perform routine cleaning, they will have to use their own funds.
Security deposits are only used when tenants cause damages to the property, ‘forcing’ out the owner to make some repair.
How Much Is the Deposit?
Each area or state has different requirements when it comes to security deposit amount. The states generally regulate the maximum amount. In Arkansas, for instance, landlords having more than 5 properties or using property management service, must charge at least two months worth of rent. But the rules don’t apply when they manage the property on their own.
In Michigan and Arizona, the maximum limit would be 1.5 months worth of rent. In California, two months would apply to the unfurnished properties while the furnished properties may charge three months.
In Hawaii, a month’s rent is possible, but tenants with pets would be charged two months of rent. Make sure that you know your state and also local regulations before signing any lease agreement.
Factors that Affect Security Deposits
The amount of the deposits depends on the owners and their discretion. There are some affecting factors that may cause the amount to be different from one another.
- Credit score. Not many people know this, but credit score can seriously affect how much you should pay the deposit. If you have low credit score, you are considered risky. The owner may see you to be likely missing out a payment or you may pay late, so you may be charged with higher deposit.
- Background check. Landlords can perform background checks. If the tenants have low credit scores or they have criminal histories, they may be subjected to higher deposit.
- Rent changes. In the event the rent increases, it’s pretty logical if the landlord may also ask for the increase in (security) deposit.
Getting Your Deposits Back
Tenants can get their security deposits back, but not immediately and after it’s being confirmed that they don’t do any damage to the property. It depends on your local regulations, really. You may have to wait from 14 days up to 60 days after moving out.
In case the property manager or the landlord has used up the deposit (some of them or even all) to cover some repair expenses, they would provide a list (an itemized one) of the costs and how much they have used for every one of them.
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Make sure to read the lease agreement to understand everything: about the security deposits, about your rights and obligations, and even about maintenance requests – and how to do everything properly and correctly.