Although you would like to, you can't just "wing it" when you are renting out property. There are procedures that must be followed and you must adhere to state laws. Otherwise, you could end up in a legal dispute with a tenant. Security deposits are one of the first transactions between tenant and their landlord, and they are also commonly the subject of many disputes. Here are three best practices to help avoid any negative consequences:
1. Require That New Renters Inspect Their Property Upfront
Once a lease has been signed and the tenant has received keys to their property that they are renting, provide them with the paperwork necessary to inspect the rental thoroughly. Have a list of items that could potentially impact their security deposit when they leave and have the tenant mark the condition of each item. When they're finished, get them to sign it, date it and bring it back to you directly. To help minimize and avoid disputes with a difficult tenant, use carbon copies for the paperwork.
2. Make Sure to Inspect the Property Thoroughly Upon Move Out.
When a tenant moves out, it is crucial that you go in as soon as possible and inspect the property. You should take photos of any damage that you see that can be deducted from their initial security deposit. In fact, it may be better to take a video that begins just outside the door of the property and ends when you shut and lock the door behind you. You can use the camera to zoom in on damages.
Make sure that your camera (video or photo) has a time and date stamp on it in case the tenant attempts to disagree with the date of the damages. Also, save the photos and videos to your computer as well as an external device, such as a USB flash drive or online cloud storage, just in case your hardware becomes damaged at some point.
3. Maintain Security Deposits In A Separate Bank Account.
Although you would probably never dream of doing it on purpose, you may accidentally spend a tenant's security deposit if it is in your regular bank account. Instead, set up a separate bank account that is specifically for deposits for your rental properties. This way, there is never any confusion regarding where the money is, what it is for or anything of the sort nor will you truly be tempted to use it.
If you're new to property management and feel that all of this is a bit too overwhelming, it's okay to ask for help. A property management company (such as Carefree Property Management Inc) has a team of professionals that are up-to-date on new and existing laws regarding rentals and tenants and will help ensure that everything stays on track, including security deposit procedures.