What’s a security deposit for? How much can I charge for a security deposit? How long do I have to return the deposit once the tenants move out? 

Questions abound when the subject of security deposits arises. Plus, laws vary from state to state and are always in flux. How to stay in compliance when renting your property? We’ve got you covered. 

Use this guide as a resource to understand the rules and regulations around security deposits, what they can and can’t be used for, when they should be returned, and tips to help you along the way.

Security Deposit Basics

While it may seem obvious, let’s begin by answering the question: What is a rental security deposit? 

A rental security deposit is an agreed-upon amount paid by a tenant to a landlord to cover unexpected damage or expenses incurred during the tenancy. 

A security deposit is different from collecting last month’s rent before move-in, which is another commonly collected fee by both landlords and property management. The difference is that last month’s rent can only be spent on rent for the last month of a tenant’s stay, but a security deposit can be spent on other expenses that may occur throughout the course of a lease.

A security deposit may be returned to the tenant upon move-out, but the last month’s rent is not. Furthermore, a landlord or property manager may deduct from the security deposit to pay for certain expenses or keep the entire deposit outright depending on the damage done to the property, utility bills unpaid, or other reasons which we’ll discuss in detail shortly. 

Finally, note that in certain states there are limits to how much you can charge a tenant for their security deposit so it’s fair for both tenant and landlord.

What’s a Security Deposit For?

Security deposits are earmarked to cover excessive damage to property such as holes in the wall, broken windows, appliances, or doors (due to negligence, not regular use), as well as burns or large carpet stains.  

A security deposit cannot be used to cover normal wear and tear. 

Normal wear and tear include furniture marks on the wall, reasonable wear on carpet, warped doors and windows due to age, dents in the walls from door handles, replacement smoke detector batteries, and similar minor repairs that stem from regular use of a property. 

Additionally, a security deposit can be used to cover unpaid rent, unpaid bills, or the breaking of a lease. Keep in mind that some states, such as Florida, have outlined in detail what a landlord or property manager can use the security deposit for. 

Returning the Security Deposit

Ideally, it’s best to return the security deposit to the tenant within 30 days of moving out. But be aware that your state may have specific guidelines for returning security deposits. 

If you do withhold part or all of the security deposit for any reason, it’s best to notify your tenant explaining why you’re doing so. Aside from being a professional standard, this  may even be required by local law. Be sure to review security deposit laws by state or entrust this task to a property manager to ensure you remain compliant.

5 Security Deposit Tips for Landlords

#1: Require Renters Insurance

In most states, landlords can require tenants to invest in renters insurance. This is common and generally accepted by tenants, as well. Requiring it not only protects tenants' personal property in the event of theft or damage but can also help pay for property damage in the event of fire or flood.

#2: Invest the Deposit 

If your state allows it, invest the security deposit during a tenant’s stay. Depending on the length of residency, you may see significant returns when it’s time to cash out. Keep in mind that some local laws require you to pay tenants interest accrued on their security deposit or that you keep security deposits in a trust account.

#3: Build a Fortress

When you’re preparing your property to be rented, think of it as a fortress more than a rental property. Here are a few inexpensive ways to fortify your property: 

• When carpets reach the end of their lifespan, replace them with bamboo or faux-wood flooring.
• Use glossy or semi-gloss paint on all walls—it’s easier to wipe clean.
• Install door stoppers behind every door.
• Put a shoe rack by the front door to encourage tenants to keep shoes off in the house.

#4: Document Move-In

Document the property as thoroughly as possible, with the tenant when they move in. Most tenants want a thorough inspection, as well, to make sure blame for previous damage doesn’t fall on them. Take lots of photos and file them away safely for future use.

#5: Inspect Regularly 

While, in many states, you have the right to inspect your property whenever you choose, most tenants don’t appreciate random inspections. In an effort to balance a working, trust-based relationship with the need to protect your property, schedule regular inspections to keep an eye on your investment. 

Managing security deposits can be tricky for new and experienced landlords alike. While you want to protect yourself in the event that a tenant isn’t careful with your property, you also have to be fair to tenants and stay compliant with local laws. A property management company can help you alleviate stress and strike a balance that ensures both your residents and your property are taken care of.