If you're a new landlord or are considering charging a security deposit for the first time, there are a few things you should know. Around 87% of renters in the United States pay a security deposit for their homes, and the average security deposit is around $600. In California, security deposits tend to be much higher than the national average.
Because of the higher security deposits, it's a good idea for Californian landlords to have some extra tips and tricks for navigating security deposit laws and attracting tenants. Learn everything you need about security deposits in this handy breakdown.
Collecting a Security Deposit
Californian security deposit law only limits the security deposit a landlord may charge for residential properties. Currently, landlords can charge up to two months' rent for unfurnished units and three months for furnished units.
The best time to collect the security deposit is after the tenant signs the lease agreement. They can still legally back out of the contract if they haven't signed yet. You will then have to return the deposit if you've already collected it, which is messy.
Another good practice is to collect the security deposit in a separate payment from the first month's rent. This eases the bookkeeping for your rental property business. Though no law requires this, keeping it in a separate bank account is also a good idea.
The Status of Security Deposits
Legally speaking, the security deposit doesn't become the landlord's money once collected. It stays the tenant's money under the landlord's custodianship.
Tenants become very unhappy when the landlord doesn't have their deposit in cash or cash equivalents. Keeping the total value of all the security deposits you've collected in a high-yield bank account or other stable investments is one of the best ways to keep your tenants happy.
Deductions and Returning Deposits
When your renters leave your rental property, you'll have 21 days to return their security deposit in full. However, certain factors can allow you to deduct from the deposit if they're present.
You can deduct the costs of any repairs to the property (excluding ordinary wear and tear) once the tenants move out. However, you must first do an inspection and give the tenants a list of things to fix. You must then do a second inspection to see if they fixed everything (after a reasonable period).
You're allowed to deduct from the deposit to cover unpaid rent. You can also deduct for special cleaning costs. This is allowed if it took extra cleaning to return the place to the state it was in before the tenants moved in.
Security Deposits are Crucial
If you're a landlord or real estate investor, security deposits are wonderful for protecting your interests. However, California does have some legal requirements for the deposit you're allowed to charge. One must also remember that the deposit itself remains the tenants' money even when the landlord is in possession.
That's why keeping security deposits in their own accounts is best. This makes working with and returning the security deposits easier when necessary.
A trustworthy property management group can help you navigate all these concerns and more. Get more landlord advice from our website today.