{"id":130339,"date":"2020-10-07T10:10:14","date_gmt":"2020-10-07T16:10:14","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=130339"},"modified":"2021-03-16T17:03:37","modified_gmt":"2021-03-16T23:03:37","slug":"how-to-collect-security-deposit-landlord-tips","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-to-collect-security-deposit-landlord-tips","title":{"rendered":"5 Tips for Collecting Security Deposits Smart Landlords Swear By"},"content":{"rendered":"

Collecting the security deposit and the first month\u2019s rent is the first task landlords do after signing the lease. Although this sounds straightforward, there are many things landlords must keep in mind about collecting security deposits. Apart from knowing local landlord-tenant laws, you need secure ways to manage security deposits and keep them safe. After all, the deposit remains the tenant\u2019s money under the terms of the lease.<\/p>\n

This article explains the best ways of collecting security deposits. You\u2019ll also find out about the benefits of using a rent collection app for managing rent collection, security deposits, late payment fees, and rental payment reminders.<\/p>\n

Why Collect Security Deposits?<\/h2>\n

The security deposit is a safeguard for landlords that tenants will comply with the lease. All states in the U.S. allow landlords to collect security deposits. Even though you\u2019re not required by law to collect security deposits, it makes sense to do so. This way landlords have some financial guarantee that they can cover costs if the tenant damages the property or moves out without paying rent.<\/p>\n

Related: <\/strong>The Landlord\u2019s Guide to Rental Property Security Deposits<\/a><\/em><\/p>\n

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What Landlords Should Know Before Collecting Security Deposits<\/h2>\n

Before you think about collecting a security deposit, it\u2019s vital to check your state\u2019s local landlord-tenant laws. Some states place specific limits on the size of security deposits, whereas other states don\u2019t set limits. Also, the amount you collect could depend on the age of the tenant.<\/p>\n

Another factor to consider is where to hold the security deposit. Again, state laws vary throughout the country on how and where landlords can hold security deposits. For example, you may be required to keep the deposit in an interest-bearing account. You might even have to report accrued interest annually to the tenant.<\/p>\n

How to Collect Security Deposits<\/h2>\n

Although collecting security deposits only happens once, it\u2019s vital to do it properly. The last thing you want is for the first month\u2019s rent check and security deposit check to bounce after your tenant lives there. In this case, you face a lengthy and costly eviction process<\/a> that you have to pay for yourself.<\/p>\n

Here are the smart things to do to collect security deposits from tenants.<\/p>\n

1. Collect security deposits before tenants move in<\/h3>\n

The security deposit and first month\u2019s rent are the first payments tenants make before moving in. So, you must discuss the amount of the required security deposit with potential tenants. You should make sure that the size of the deposit and rent price are included in the lease agreement.<\/p>\n

You should collect the security deposit and first month\u2019s rent after signing the lease but before giving tenants the keys. It\u2019s always best to ensure that the funds are available in your bank account before proceeding.<\/p>\n

2. Put everything down in writing<\/h3>\n

Include the amount of security deposit and rent payments in the lease agreement. However, depending on local laws, you may need to specify where the security deposit is held and if the tenant receives interest. Remember that many states require that you keep rent payments and security deposits in separate accounts.<\/p>\n

To make collecting security deposits easier, some savvy landlords open separate bank accounts for each rental unit they have. This way, they ensure that security deposits are kept safe and accrue interest for the tenant.<\/p>\n

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3. Collect security deposits and rent online<\/h3>\n

Successful landlords now use rent payment apps or property management software to collect security deposits and rent. Collecting rent payments online is one of the best ways landlords can streamline their business. However, most tenants prefer the convenience of paying rent online.<\/p>\n

Related:<\/em><\/strong> 7 Undeniable Reasons Online Rent Collection Beats Paper Checks<\/a><\/em><\/p>\n

Here are some advantages of collecting rent online:<\/p>\n