Rental Documents Primer

Being a landlord is a full-time job, even if it’s supposed to be a part-time one. Between finding great tenants and answering those late-night calls about clogged toilets, it can sometimes feel like there’s a never-ending list of tasks to accomplish.

One of the best ways to keep your business running smoothly is to organize all rental documents in a neat, meticulous, and accessible way. Failing to produce even a single document at a crucial moment could mean losing thousands from your hard-earned money through lengthy federal or tenant lawsuits. Yes, they’re that important.  Read on to learn more about rental documents.

What Legal Rental Documents Should Every Landlord Keep on File?

Whether you’re a new landlord or an established one, these rental documents are an absolute must-have:

1. Lease/Rental Agreements

Your rental agreement is one of the main legal rental documents you need to get right. This may sound like a no-brainer, but you’d be surprised at the number of landlords that don’t get it right—or don’t even have one in the first place. 

Rental agreements may vary, but the most basic one should include the following:

  • Your rights and obligations as the property manager or landlord
  • The tenant’s contact information 
  • The tenant’s rights and obligations
  • The duration and terms of the lease
  • Payment terms, including when rent is due, accepted payment options, and whether or not your charge late fees

It’s good practice to always have multiple copies of your lease agreements on hand. For each tenant that moves in, have them sign the agreement and retain a copy (this includes the co-signer/guarantor). This way, you’ll be better placed to protect yourself should any legal disputes arise in the future.

2. Rental Applications

As a landlord, it’s standard procedure to ask potential tenants to fill out a rental application. A rental application is simply a form that requests preliminary information about a tenant. 

A typical rental application includes:

  • Basic contact information
  • Proof of income
  • Employment history
  • References
  • Current and prior resident information

If more than one person will be residing in a single unit, or your prospect has a guarantor/co-signor, be sure to ask those individuals to fill out their own application as well. Once you’ve received these documents, begin the tenant screening process right away. Doing this will significantly reduce your risk of leasing to a tenant with a less-than-spectacular rental history. 

3. Welcome Letter

Move-in is just the beginning of your landlord-tenant relationship, so you want to ensure you start off on the right foot. That’s where a welcome letter comes in.

Your welcome letter will help tenants remember and follow the property rules to a tee. Better yet, you’ll be able to answer questions before they’re even asked. You’ll also make an excellent first impression, and tenants will view you as a resourceful and professional landlord.

A good welcome letter will include:

  • Details about move-in day
  • How to set up, use, and pay utilities
  • Where to pick up keys
  • Where to throw away thrash and what day it’s collected
  • A reminder about renters insurance (if you need it)
  • How to report maintenance issues
  • Neighborhood guidance
  • Parking/towing information

4. Mortgage & Property Improvements

If there’s one rental document you should keep for your own sanity, it’s this one. Ensure all the mortgage information pertaining to your property is kept in a safe, easy-to-access place. These documents include your loan information, mortgage, repayment plans, and even the receipts/invoices reflecting improvements done to the property.

5. Emergency Contacts 

Something unfortunate might befall your tenant—they may incur a serious injury, fall ill, or fail to show up at work. As such, it’s incredibly important that you get them to provide you with one or more emergency contacts. You need these contacts so you know who to call if something bad happens.

This information can also come in handy in the event of an unauthorized move-out. If the tenant skipped town while owing you money, the collection agency has a much better chance of tracking them down.

If you’re a conscientious landlord, you’ll call and make sure these people actually exist. Once that’s done, compile the contacts into an accessible file or address book. 

6. Move-In Checklist

Beyond just helping keep track of your property’s condition, a move-in checklist holds your tenants accountable for any damage that occurs during their stay. Without this document, it’ll be your word against theirs after move-out.

For tenants, a move-in checklist provides some much-needed peace of mind, assuring them that you won’t charge for damages they weren’t responsible for.

Make a point of reviewing the checklist when the tenant moves in, and then again during move-out, to find out if there’s any damage beyond the normal wear and tear.

7. A Checklist for Moving Out

If you decide to craft a move-in checklist, then it’s only prudent that you have a move-out checklist in place as well. Alongside the move-in checklist, the move-out checklist paints a complete “before and after” picture of the rental unit.

Unfortunately, some tenants might disagree with or deny any damages you uncovered prior to their move-out day. These types of disputes can land both of you in court. A move-out checklist serves as a crucial piece of evidence in case a legal dispute arises over withheld security deposit funds.

8. Addendum

Do you need to make one or two adjustments to the original lease agreement? Put them in writing using an addendum form, then have it signed by all your tenant to make it legally binding. 

As a best practice, photocopy the addendum for your renters and file away the original one alongside the lease agreement.

9. Tax and Financial Records

This one is an absolute must. None-negotiable, if you may. Generally speaking, all landlords should hold on to the following financial documentation:

  • Record of rental expenses
  • Record of rental income
  • Documentation to support that income and expenses (including receipts, invoices, and other forms of proof as mandated by the IRS).

The last point is often the one that carries the most weight. If you are expensing out things like entertainment and travel for your taxes, you will need to have indisputable proof showing that they were indeed business-related expenses. Why? Because these are the things that the IRS evaluates most closely.

10. Communication with Tenants

Our final ‘legal document every landlord should keep on file’ is actually not one document—but all of them. Well, all the communications you’ve had with a tenant from the day they sent in their application to their move-out day.

Keep all emails and text messages, even the ones that seem inconsequential. We all love the concept of ‘I am a man of my word,’ but that won’t help when you’re having to pay a mortgage due to a tenant defaulting their rent. So, take detailed and dated notes of every communication you have with tenants, including in-person meetings and telephone calls. 

What Documents Should Landlords Receive Fresh Copies Of Every Year?

We see you asking, “But I already have all the aforementioned rental documents and even kept them on file.” That’s great.

However, a smart landlord will know that some of these documents must be updated yearly. After all, no one wants to open a file on the day of a lawsuit only to find that some of the information within is outdated and pretty much irrelevant.

With that in mind, here are some documents and individual pieces of information you should receive afresh every 12 months:

  • Emergency contacts
  • References
  • A signed leased agreement
  • Employment and income details
  • Screening results
  • The renter’s contact information

What Is the Best Way to Research Updates Made to Local and Federal Laws That Could Potentially Impact What Documents to Use?

Looking to find out whether there are any changes made to the federal or your state’s landlord-tenant laws, so you don’t end up using the wrong documents? A quick and incisive search on Google might just do the trick.

For local laws, any new updates are often published in the “pocket parts” of a specific landlord-tenant law book. Every state has several such books, each tackling a specific issue as it pertains to the typical landlord-tenant relationship. For example, if you are a landlord in Texas, the state’s law library recommends that you check out these landlord-tenant books every so often. Nolo has a full state-by-state rundown of landlord-tenant statutes, just in case you need it.

You’ll find the “pocket parts” at the back of each book. Even if the law you’re looking for is in the regular book, you should always check the pocket part to see if any changes to the law have been made. The pocket parts are updated every year.

For changes made to federal laws, your best bet is to keep checking established sites like Investopedia and Cornell Law School. These sites update their content every year, so you can rest assured that you’ll be getting nothing but spot-on, timely, and well-researched information.

Digital vs. Physical Copies: Pros & Cons

Digital Copy Pros

Some of the advantages you’ll enjoy once you start filing your rental documents electronically include:

  • Saves money, effort, and time
  • Better organization
  • Competitive advantage
  • Better than a filing cabinet

Digital Copy Cons

Security is arguably the main (and possibly the only) drawback associated with digital file keeping. This is especially the case if you employ a third party to do the filing for you. Besides, there are way too many hackers out there, and it takes just one wrong click for your most sensitive rental files to disappear into thin air.

Physical Copy Pros

Understandably, there are very few advantages associated with this form of record keeping. After all, no one wants to lose a critical rental file simply because they have frequent memory lapses. 

That said, some of the pros you could possibly enjoy by storing your documents in physical files include:

  • It provides a natural and dependable backup for digital files
  • Always accessible (if the files are kept well, of course)

Physical Copy Cons

Before deciding on which filing option to choose, you’ll want to peruse these physical copy disadvantages first:

  • Takes up a lot of space
  • Prone to damage and being misplaced
  • Hard to make changes
  • Security concerns (definitely less secure than its digital counterpart)
  • Higher initial and maintenance costs

Precautions to Take to Ensure Your Rental Documents are Kept Secure

You already know that you’ll always have a plethora of sensitive tenant and applicant information in your possession. That’s given. Factor in your own files, including those delicate rental income records, and you can see why it’s important to ensure everything is kept safe and secure.

While there’s no single foolproof way to safeguard data, some measures are significantly better than others. These include:

  • Zip it: While it may go without saying, tenant or applicant information is something you shouldn’t be sharing. So, please, don’t release anything unless you have consent.
  • The obvious but overlooked: Making sure your computer is secure is a must to protect sensitive rental documents. To that end, run security checks every now and then to ensure your device is running smoothing and securely. It’s also prudent to set strong passwords for your computer and limit access to it by anyone you don’t want viewing the sensitive information within. 
  • Destroy information, legally: There comes a time that you’ll need to do away with some of the rental documents you’re currently keeping. It’s inevitable. When disposing of confidential documents, it’s important that you do it both properly and legally. The best and most simple way to destroy paper documents is to use a paper shredder. As for digital copies, simply hit the delete button, and you’ll have discarded them for good.

Final Thoughts

While you may have plenty on your plate as a landlord, you can make things easier for yourself by keeping all your rental documents in an easy-to-access manner. It’s also a safety precaution that not only keeps the IRS at bay, but also protects you from any lawsuit that might be thrown your way in the future. Plus, it’s a great way to stay organized and neat.

At LandlordStation, we make rental documentation easy for you. We offer different types of legal rental documents so you can find the ones that best fit your requirements and budget. Who knew legal rental documentation would be this fast, fuss-free, and painless? Contact us today to learn more.

Rent Payment Trends: 5 Key Reasons Why You Need to Switch Online Rent Payments

Research shows that late rent payments is a number one concern for landlords and property managers. The more time you spend following up – calls, emails, texts… sometimes all of the above – is time that you can’t devote to the rest of your business. In the worst case scenarios, you lose even more time filing for an eviction just to get the tenant out.

There are a variety of ways to protect yourself from late or non payments. Screening is always your first line of defense, but a solid rent collection strategy will help encourage your tenants to pay rent on time. It will also boosts your capacity to compete and grow your rental business.

In this interest, we have made a brief rundown of the available options for collecting rent payments (including our #1 recommendation):

Rent Collection Methods

Every landlord and property manager will have slightly different business needs, so we have compiled a list of collection methods.

By Mail

It’s possible to get rent from your tenants through money orders or mail-in checks, but this also means that payments are likely to delay. Worse still, checks may get lost along the way.

Collecting in Person

This method ensures you have a check in your hands on the designated day. However, it may leave you with more record-keeping and miles to travel, thus increasing your operational costs.

Drop-Off Location

If you have an office, tenants can drop off rent payments there. You can use a dedicated drop-off box placed strategically in your rental property. Disputes may arise if a payment goes missing and a particular drop-off location may not be convenient for all your tenants.

Collect Rent Online

This is our #1 recommendation. One-third of Americans have paid a bill late due to forgetfulness, and accepting online rent payments helps simplify and automate that process for both landlords and tenants. When you use an online rent payment system, you and your tenants can take advantage of tools such as automatic reminders and recurring payments to ensure that you receive your payment on time.

Reasons to Switch to Online Rent Payments

Have a look at the following reasons why you should consider switching to online rent payments.

1. Save Time

Collecting rent can be a lengthy process, especially if done by check or money order. You’ll have to:

  • Collect the payments or checks
  • Prepare deposit slips
  • Deposit money order or checks to the bank
  • Post receipts
  • Check follow-ups to ensure checks don’t bounce
  • Adjust your booking keeping

This can take a lot of time, but when you set up an online portal to collect rent payments, you can reduce the time spent on the manual processes associated with paper-based payments by up to 65%. Imagine what you can achieve with more than half of your day back and a hassle-free rent week!

2. Convenience

Paying rent online is fast, easy, and convenient for your tenants as opposed to having them drive to your office or make sure that they get the check in the mail on time. There are a variety of things that can delay a check, but with the ability to pay rent online, tenants can make payments promptly, regardless of location. That means more on-time payments and fewer followups to track down rent.

3. Security

Security is of the utmost importance when dealing rent payments.

Criminology Professor David Maimon from Georgia State University estimates that $11-30 million is being lost across the country due to drop box thefts. He also notes that the information your tenants share via checks and money orders contains sensitive data that—in the wrong hands—can make you and your tenants victims of identity theft.

On the other hand, online rent payments are end-to-end encrypted to mitigate the risk of identity theft and fraud. Your financial data is secure, and your tenant’s financial information is safe.

4. Boost Your Cash Flow

Timely collection of rent is, arguably, the most fundamental aspect of your business. Online rent payment increases the percentage of on-time rent payments, thus creating a domino effect of profitability and efficiency. 

AutoPay and automatic rent reminders streamline the reconciliation of account receivables. As such, you will likely receive full-balance, on-time payments every month, which ultimately boosts your cash flow.

The online ability for your tenants to split rent through an online portal will also allow them to conveniently submit their half of the payment on the day it is due rather than trying to coordinate with each other each month. Once set up, a system such as LandlordStation’s Tenant Portal can charge each tenant the amount owed and deliver it to your bank account in a timely manner.

5. Enhance Tenant Experience and Retention

Offering your tenants pay-on-go flexibility through an online rent payment option will boost your resident’s satisfaction and overall experience at your property. Envelopes, stamps, and checks may seem outdated (and possibly inconvenient) to your tenants, especially the more tech-savvy ones.

According to a study, millennials pay up to 61% of their bills online, while the older generation pays 42% of bills online. If you want to hold on to such tenants, the ability to pay rent online offers them yet another incentive.

When the tenants perceive that you have their convenience, ease, and best interest in mind, they feel connected to the property and to you as the landlord. Happy tenants are more likely to renew their leases, refer friends, and respect the community. 

How We Can Help

In the course of managing your rental property, it’s easy to get overwhelmed by all the nuances and lose focus on what’s important. At LandlordStation, we offer you a full range of products and services guaranteed to make tenant and property management easy and seamless.

Our online rent payment solution is a super brand designed with unparalleled expertise to ensure you receive rent payments quickly and securely. Stop chasing down rent payments and focus on what’s important—growing your business.

For more information on Online Rent Payments or inquiries on how we can help, feel free to Contact Us today, and we will be more than willing to assist.

What Landlords Should Know About Subleasing

It is your right and responsibility as the landlord to know about everything that happens to your rental property, especially when a new tenant moves into the building. Ideally, you get to decide who rents your property. However, your tenants can assume this authority through subleasing. This can be good or bad for you and your rental business, depending on how you handle it. 

How Subleasing Works 

Subleasing essentially transfers a lease from the original tenant to another tenant. Clients usually sublease when they have to leave temporarily and are looking to offset the rent until they come back. Many tenants also sublease when moving away permanently before their lease expires with the same goal of saving money. 

Assuming that you don’t have a say in the sublease, the tenant will handle everything with the subtenant and make arrangements for important things such as maintenance and paying rent. However, it is advisable to control the subleasing process and hold both parties responsible for fulfilling the contract’s terms and conditions. 

The Pros & Cons of Subleasing 

Subleasing has good and bad implications for all parties involved, especially you, considering your stake in the property. Here is an overview of the advantages and disadvantages to you. 

Pros 

Here is an overview of the pros of subleasing, assuming that you are in control of the process: 

  • Qualified Tenants 

The landlord’s biggest concern about subleasing is that the tenant will give the property to a problematic subtenant. However, you can ensure that the subtenant meets your standards by taking part in the vetting process. 

Ideally, the subtenant should undergo the same screening process as other tenants. It is also advisable to delegate the tenant screening process to a screening agency to ensure that you don’t miss any red flags about the subtenant. 

  • Steady Rental Income 

In most cases, the tenant would have to cancel the lease agreement if they had to move, and subleasing wasn’t an option. This would leave the unit empty, resulting in lost income until another tenant comes along. You would also incur expensive tenant turnover costs when looking for another tenant. 

However, agreeing to sublease will ensure continuity in the rental income from that unit. It will also save you hundreds or thousands of dollars in tenant turnover costs. 

  • Positive Long-Term Relationships 

Some tenants sublease with the intention of coming back. Good tenants are difficult to find, and subleasing to a qualified subtenant for several months would be a small price to pay (if it is a price at all) to retain a good tenant

Cons 

As explained earlier, every landlord’s biggest concern about subleasing is that the subtenant will be problematic. Unfortunately, the tenant handling the subleasing process may not know how to screen subtenants according to your standards. A problematic tenant poses other threats, including property damage and lease violations. This is why it is important to either restrict subleasing in totality or get involved in the process. 

What to Do about an Unauthorized Sublease 

It is always advisable to cover everything in the rental contract, including whether or not tenants can sublease their units. You also have the right to cancel a tenant’s lease if they sublease their unit without your authorization. Ultimately, it is advisable to consult your lawyer and act within the law when handling such a case to avoid violating the tenants’ rights. 

Conclusion 

You never have to worry about subleasing if the subtenant meets your standards and passes the tenant screening test. LandlordStation can help you conduct thorough checks on your tenants and subtenants. Get in touch today to learn more about our tenant screening solutions. 

The New Landlord Primer

You’re all smiles as you plan to dip your toes into the lucrative real estate industry. Or maybe you’ve already built a property ready to usher in your first tenants.

Either way, as a first-time landlord, the things to do can quickly overwhelm you.

Don’t worry- we are here to hold your hands as you take those baby steps. Here are some of the things to tick off your checklist:

1. Take Cover- Obtain a Landlord Insurance

Before opening your property’s doors to tenants, ensure you’ve purchased landlord insurance. You don’t want to suffer from common issues when renters occupy your property.

You can choose from three types of landlord insurance policies:

DP-1 policy

It’s the least expensive and covers only stated risks. These perils can include:

  • Riots
  • Fire and smoke
  • Windstorms, hail, and lightning
  • Vehicle-caused damages
  • Explosions

But you’re not guaranteed compensation for damages from any of those issues.

DP-2 policy

A DP-2 protects you from more types of risks. The policy explicitly names covered risks, just like DP-1 policies. 

Apart from covering what a typical DP-1 does, DP-2 policy may also include:

  • Frozen pipe and electrical damage
  • Falling objects
  • Damage resulting from ice and snow weight
  • Flooding 
  • Building collapse

DP-3 policy

This policy is an open peril cover that lists any specific risk not included in the above coverages.

2. Compile a Thorough Lease

The lease agreement is a binding contract that stipulates what you and the renters can and cannot do. The document also explains the steps to take if any party breaks the agreement.

Remember to cover all bases when writing a lease. Sure, a two-page document may cut it for some time. But what if something that wasn’t covered adequately in the document crops up? 

Ensure you’ve included and described these items to safeguard your interest while adhering to legal obligations:

  • Length of lease and provisions for automatic renewal
  • Name and status of every person that will be residing on your property
  • The period allowed for tenant’s “guests” to occupy the property 
  • Rent, when its due, and penalties for late payments
  • General deposits and security deposits plus circumstances that will cause you to hold the deposit
  • The party responsible for utility bills
  • Rules regarding pests
  • Property maintenance
  • Insurance

The exact clauses, terms, and language may vary with states, so do your homework perfectly.

3. Befriend the Laws

You want to remain on the safe side of the law. After all, who wants to contend with lawsuits that can tarnish their images and waste resources?

The trick is to know and adhere to all fair-housing acts. This law protects tenants against discriminatory practices in housing based on seven factors:

  • Sex
  • Color
  • Disability
  • National origin
  • Familial status
  • Race
  • Religion

The Department of Housing and Urban Development (HUD) is responsible for enforcing this act. 

Here’s a well-kept secret: A person from HUD can pose as a renter on your property to see if you follow their act. Don’t let them trap you.

Also, if a renter feels like you’ve discriminated against them, they can file a claim with HUD. The department will then conduct investigations to get to the bottom of the matter. 

To avoid such accusations and comply with the fair housing act, assume every potential tenant works for HUD or is attempting to accuse you of breaking the laws. 

  • Treat every tenant with dignity and respect
  • Screen tenants consistently and employ a uniform qualifying standard- request the same documents, fees, and details
  • Check your federal, state and local fair housing laws to ensure you aren’t missing any mark. Be sure to stay abreast with all laws by researching in the right places for updates

4. Screen Tenants and Their “Guests”

Although we mentioned this point above, it needs its own section. Yes, it’s that important. 

Your renter might be a nice person who lets family and friends couch-surf while they look for their places. Or, due to a whirlwind of romance, their significant other might overstay at your property. Whatever the situation, complications may arise in the long run.

On the surface, unscreened guests staying beyond the reasonable time frame might not be the biggest deal. But here are some of the dangers they pose:

  • Unknown Background: Screening helps uncover every occupant’s criminal and credit background. You want to ensure no one turns your property into a launch-pad of criminal activities. 
  • No security investment in the property: Unscreened guests don’t have a monetary investment that incentivizes them to maintain and clean the property. 
  • No consequence for disruptive activities: The unscreened occupants also aren’t the ones who stand to lose their space when they argue, play loud music, or ignore complaints from neighbors.

Let’s face it- it’s difficult to stop tenants from hosting unscreened occupants. Your best bet is to limit how long these guests can stay. Remember to include this policy in your lease to make enforcement a breeze. 

5. Property Management Vs. Self-Management

Choosing between hiring a property manager and self-managing isn’t as easy as it sounds. A novice in the industry may view their property as a simple equation of rental revenue – (costs + mortgages) = profit.

But that’s just a basic mantra. It’s also recommendable to account for landlord duties, time, and energy. The duties include:

  • Maintenance
  • Addressing vacancies
  • Dealing with tenant relations
  • Rent collections
  • Lease enforcement
  • Other duties – Think taxes, tenant turnover, evictions, insurance, rental law enforcement, inspections, and adjusting the rent. 

Managing all these duties can be a stressful 24/7 job. But with a platform like LandlordStation, your task becomes painless. Our one-stop solution will cover everything from tenant screening to document management and online rent payments to renters insurance.

Hiring property managers come with perks of benefits. These professionals make it their duty to understand the rental industry’s fair housing laws and best practices. 

Property managers also enjoy powerful links in the industry, thanks to professional groups and associations. So staying abreast with changes in rental laws is painless.

However, these professionals typically charge 7-10% of monthly rental income to handle all the above duties and issues. For instance, the monthly fee may be $100 for a property whose rental income is $10,000. Plus, getting a trustworthy manager can be challenging.

6. Require Renters Insurance

We see you asking, “But I have my property insurance.” That’s great. 

However, a smart landlord requires all tenants to have their own insurance policy. These policies protect you against extra liabilities.

While your homeowner insurance covers the actual structure and dwelling, the renters’ insurance protects the tenants and their property from losses.

For instance, your landlord insurance policy will cover building damages caused by a burst pipe, fire, or electrical issue. But what if the fire, water leak, or power surge destroy your tenant’s personal belongings? That’s where the renters’ insurance policy comes in.

Most renters’ insurance policies also include additional living costs incurred from insured misfortunes. Consider a situation where you need more time fixing that pipe, repairing drywall, and replacing the flooring. Such a situation can force the tenant to look for a temporal place, for example, in a hotel. Fortunately, their renters’ insurance policy may pay for extra expenses above their normal living costs.  

7. Get Loan To Purchase Your Property

Looking to finance your dream but don’t have ready cash? A loan may come through for you.

But while loans for rental property share some similarities with mortgages for residences, there exist significant differences. Be sure to do your homework and research the rental loan requirements, including:

  • Credit scores: Ensure your credit score is attractive. Sure, Fannie Mae can give up to 10 loans. But the more the loans, the more the potential risks, leading to increased credit score requirements.
  • Cash reserves: Lenders want to ensure they can get back their money and interest even if the first six or so months don’t see tenants on your property.
  • Higher down-payment and income: You may have to put down at least 20%. Also, most investment loans tend to have more stringent limits on loan to value (70-80% LTV). And your W-2s or tax returns must show stable income. 
  • Find the right lender: Be sure the lender has experience handling loans for investors and landlords. You don’t want unnecessary delays or loss of your desired property. 
  • Rent loss insurance: If an unfortunate event leads to damaged property and loss of rental income, this policy will protect you. It’s usually included in your property insurance coverage.

You’ll choose between two types of loans depending on the number of units in your property:

  1. Residential loan: It’s suitable for properties with four units or less. This loan is more or less like the traditional mortgages but comes with more stringent requirements. 
  2. Commercial loans: It’s designed for properties with five units or more. While the requirements are more stringent than residential mortgages, you can use them to finance any business (not just residential property). 

Wrap Up

Being a landlord can be a rewarding investment. And with the right strategies plus tools of work, your property management duties will be painless and you’ll be on your way!

Landlord’s Guide to Security Deposits: What You Need to Know

When you rent out your home to someone, they will often pay a security deposit. Security deposits are a necessary part of renting out property. They are designed to protect landlords from damages that may occur. But what are the limits? Your landlord’s guide to security deposits will teach you what to do in these situations and more. Read on for everything you need to know about security deposits!

What is a Security Deposit?

A security deposit is a sum of money that tenants pay to the landlord upon moving in. If all goes well, it can be returned at the end of the tenancy. Security deposits are used as a way for landlords to protect themselves from damages or, in some states, unpaid rent. A solid tenant screening process will do a lot to protect your investment, but it can’t predict everything. A single missed paycheck can result in unpaid rent or damage could occur beyond normal wear and tear. Not being prepared for it can prove costly! It’s better to have something secured than nothing at all!

The Tenant’s Responsibilities

Tenants have responsibilities when it comes to renting property. They must pay rent on time and maintain the property. If they don’t take care of the property or pay their rent, the landlord can do certain things to make sure they get your money back. For example, if the tenant doesn’t take care of the property or pay the rent (in some states), you can:

  • Take legal action against the tenant
  • Put their name on a credit bureau list
  • Keep their security deposit

If your tenant breaks any agreement with you, you are allowed to do any or all of these things. 

What To Do If a Tenant Breaks Your Rules

We all know that when renting out a property, you need to prepare for the worst. If your tenant breaks your rules, there are a few steps you can take in order to protect yourself and your home.

If your tenant damages something like the dishwasher or bathroom, it’s important to keep detailed records of what was damaged and how much it cost to replace. This will help you if it comes time to evict the tenant. This also helps with backing up your decision to withhold part or all of the security deposit as a result of the damage the tenant caused.

If a tenant becomes problematic enough to warrant eviction, you’ll want to consult with an attorney to find out what steps you need to take to evict them legally and as quickly as possible. If you skip any steps or don’t handle the eviction completely legally, you can give the tenant the ability to stay longer and cost you more money.

What To Do If the Tenant Damages Your Property

The tenant will often be liable for any damages to the property – unless they have renter’s insurance. This is why it is important to make sure your security deposit covers the cost of these damages. Of course, it’s not always easy to predict if damage will occur or how much it will cost to repair. That’s why you need to take these precautions before renting out your property:

  • Make an agreement with the tenant about cleaning up after themselves and the process for any repairs that are needed
  • Take photos of everything before they move in and agree on what needs to be fixed before they move in
  • Get a signed agreement/contract with the tenant that states exactly what furniture, appliances, and other items are included in the rental agreement and what condition they are in – this will eliminate confusion over wear and tear or damage caused by tenants later down the road

Once you do these things, you should be in a position to easily determine whether the tenant gets their security deposit back and if they cause damage, how much of the security deposit to withhold for repairs.

When the tenant leaves, you should also take these steps:

  • Do a walk-through with the tenant to assess the status of the rental property
  • Take photos of everything and document specific instances of damage
  • Provide tenant with a detailed list of the damage caused and what it will cost to repair

When you take these steps, you ensure that the tenant understands why you are withholding part or all of their security deposit, if necessary. You also provide them with documentation in the event that they try to sue you for the security deposit, setting yourself up for a stronger court case.

How To Calculate A Security Deposit

A security deposit is often a certain number of months’ rent – typically one or two months. But how much you can charge is based on where you live. You need to familiarize yourself with the laws in your area. You’ll also need to look at the market itself. If other landlords are charging just one months’ rent, it’s going to be difficult for you to charge two or three months’ and find tenants. 

Security deposits are a landlord’s best friend. A security deposit is a small amount of money that a tenant pays to the landlord, in addition to monthly rent, in order to use the property as their home. The deposit is used to cover any damages that the tenant may cause to the property, or if they stop paying rent, which means the landlord won’t have to go through any legal proceedings to get their money back. It’s important that you know your rights and responsibilities as a landlord so you can avoid any conflicts and go about your business as usual.