What do you do with the Security Deposit of your Tenants?

Property Management Blog

Tenants have this misconception that landlords do not refund their security deposits. This idea has crept in the minds of tenants because of instances where landlords have forfeited deposits on various grounds. There are many landlords who have started to think that they can keep security deposits on flimsy grounds. However, it is not a good policy if you are a landlord and treat your property as a business.

The real idea behind security deposit

Landlords charge a certain amount of money upfront from their tenants as a cover for their probable losses arising out of non-payment or violation of lease terms. They use this deposit as a security against their losses. But they have a duty to refund the security deposit if the tenant hands over their property in a good condition and no dues are outstanding in his name at the time of leaving the premises. This deposit also serves as a reason for the tenants to return the property to the landlord without causing any damage to it.

If tenants believe they will not get back their security deposit, it fails to serve as an incentive to behave nicely and not cause any damage to the property. But they know that they will get back their money if they follow the rules and return the property to the landlord in the same condition that they got it from them.

Security deposit helps in making this business honest and transparent

Security deposit should be deemed equivalent to the down payment during purchase of a home. Just like your lender who expects you to have some stake in the home being financed, your landlord expects you to take care of his property and use it nicely. The fact that you have paid money in advance for using his property keeps you on your toes. You know that this deposit can be forfeited if you cause any damage to the property. On the other hand, security deposit reassures the landlord in case you are unable to pay the rent on a month or several months.

However, security deposit or no deposit, it is your duty as a landlord to spell out in clear terms your expectations from your tenant. Make it clear that you have no intention to keep his security deposit and you would return it back if he keeps his promises. Tell him what is considered normal wear and tear and what constitutes damage to property. Security deposit serves both as a carrot as well as a stick for the tenant as he realizes that he will get the money back only if he returns the property in the condition that he received. If he fails to do so, he should be ready to forego this security deposit.

It is not enough to spell out the terms and conditions once at the time of signing the lease agreement. As a landlord, you should reinforce your expectations from your tenants as often as you get a chance during your interaction with them. It has been seen that landlords who keep repeating their expectations to their tenants get back their properties in good condition and they also return the security deposits without any problems.

Never treat security despot as a source of profit

If you consider the security deposits paid by your tenants as a source of profit for you, you will become unpopular among your tenants very quickly. If they believe you will not return their deposits, they can also cause damage to your property. In fact, you may end up spending more on repairs than the extent of damage covered by this security deposit.

If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty. 

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