All Forum Posts by: Morgan Ward

Hi I own a duplex in Baltimore city and I'm wondering if my security deposit is too high? I feel like I haven't been getting enough hits on the listing in the past month. I've sent a couple applications but no one has filled them out. The security deposit is 2 months rent not 1. I've listed it on Zillow and a couple other places. It's my first rental and I'm living in the other unit, I guess I'm just wondering if 2 months deposit is too high for the area?

 So do landlords in MD end up pay the interest out of their own pocket most of the time if the interest generated in the account isnt enough?

also if I do just go with a savings account I would get taxed on the interest correct ? Would I avoid this with an escrow?

Quote from @Russell Brazil:

The interest you pay to the tenant for the deposit is an expense to the business.

1.5% is the minimum amount of interest you could owe. Today youll be paying them more. You need to pay the daily us treasury curve yield rate. It is about 5.5% right now.

Ideally Deposits should be placed in an account labeled escrow. Most banks will have a business option for an escrow account.

Will a bank open a business escrow for an individual? I only have one rental unit and everything is in my name, not a LLC or business entity.

Do you have a suggestion for a bank to open an escrow account? The one I use the most doesn't have rates even close to US Treasury rate

So I'll link the law below for anyone who isn't in MD but pretty much you're required to keep security deposits in an interest accruing account at 1.5%, then interest is returned with the initial deposit to the tenant (if I'm interpreting this correctly). I was thinking I could use a high yield savings account or a certificate of deposit? I'm just unsure if I can avoid being taxed on the interest as it builds up in the account? I'm going to be new to landlording and I just want to make sure I'm using the right types of accounts.

Bank Account: The landlord must keep all security deposits in federally insured financial institutions that do business in Maryland. The account must be exclusively for security deposits and bear interest. The landlord can also hold the security deposits as insured certificates of deposit. The landlord must deposit each security deposit in that account within 30 days after receiving it. If the landlord owes any person money, that person cannot use the security deposit to be repaid.

Read the Law: Md. Code, Real Property § 8-203; Financial Institutions § 1-101

Return of the Deposit to Tenant; Interest: The landlord must, within 45 days after the end of the rental period, return to the tenant the security deposit minus any amount which the landlord may rightfully keep. Simple interest of the greater of the US Treasury yield curve rate or 1.5% per year must be paid on security deposits of $50 or more and must accrue each month from the day the security deposit was given, after the security deposit has been held for 6 months. A security deposit calculator is available at the website of the Department of Housing & Community Development.

Interest is not compounded.

If the landlord, without a reasonable basis, fails to return any part of the security deposit within 45 days after the end of the rental period, the landlord may be liable to the tenant for three times the withheld amount, plus reasonable attorney’s fees.

Read the Law: Md. Code, Real Property § 8-203