10 Security Deposit Tips, Tricks & Hacks for Landlords

by | BiggerPockets.com

Security deposits don’t protect the average landlord as well as they think.

In fact, for the typical landlord, the security deposit protects against only one thing: minor tenant-caused damage to the property.

What doesn’t it cover?

To begin with, it doesn’t cover major damage to the property. For example, the security deposit may cover recarpeting one room, but what if the tenants ruin the carpet in every room?

Security deposits also don’t cover unpaid rent. Some states go so far as to specifically bar landlords from using the security deposit to cover unpaid rent. But even in states where landlords can use it for that purpose, one (or even two) month’s rent won’t cover all the losses when a landlord is forced to evict. The eviction process takes a minimum of around three months from start to finish, and that’s in a landlord-friendly state. In tenant-friendly Maryland, I’ve had evictions take a full year.

And then there’s “normal wear and tear.” The line between “tenant damage” and “normal wear and tear” is blurrier than a big foot photo. But guess who judges tend to side with when it comes time to classify what counts as “normal wear and tear?” (Hint: It’s not you.)

When you deduct repair costs from the security deposit, be prepared to have to prove to the judge that every cent went to fixing tenant damage. It will be an uphill battle, but documentation helps, as do the following ten tips and tricks.

Before Signing a Lease

1. Tenant-proof your property.

Your goal: to make your property a defensible fortress against barbarian hordes. Make no mistake—your property will be assaulted, day in and day out.

Tenant-proofing is a lengthy discussion in itself (we hosted an hour-long webinar on it a couple months back–I know just how lengthy it can be!), but here are a couple quick tips:

  • When your carpets reach the end of their lifespan, replace them with bamboo or faux-wood flooring.
  • Use glossy paint on all walls (it’s easier to wipe clean).
  • Install door stoppers behind every door.
  • Put a shoe rack by the front door.

Perhaps most of all, you can use aggressive lease clauses and requirements to demand good behavior. But we’re getting ahead of ourselves.

2. Avoid any applicant who makes noises about not having the deposit.

Ever have an applicant say something like, “Well, I have $300 of the deposit now, but I won’t have the rest for another two weeks”?

It’s a big ol’ fluttering red flag.

What can you conclude about the person who said that? Either they only have $300 to their name, or they’re a liar.

Neither bodes well for them as a renter. Good renters are financially stable, and financially stable people have more than $300 to their name. They have an emergency fund, they have some savings (however modest), they have assets like stocks and bonds and mutual funds—OK, well, maybe that latter is too much to ask.

But you get the picture: stable renters, the kind who will pay on time, don’t live hand-to-mouth.

Besides, if they’re living hand-to-mouth and plan to give you all that extra money from their next paycheck, how will they be paying their other bills for the rest of the month?

3. Inspect applicants’ current home as the last step of tenant screening.

I mentioned this when I covered advanced tenant screening techniques, but it’s worth reiterating here.

If you don’t want to end up with more damage in your unit than the security deposit can cover, go see for yourself how this applicant treats their home.

Some people are clean, respectful, low-impact. They take pride in their homes.

Others are dirty, careless, and don’t give a second thought to how they treat their homes. Which type of person would you like to entrust with an asset worth hundreds of thousands of dollars?

Luckily, it’s easy to tell the difference. Just spend five minutes walking through their current home, and you’ll know how they’d treat your property.

Related: How to Use the Disposition of Deposit as a Landlord [With Sample Form!]

The Lease Itself

4. Reclassify “normal wear and tear.”

Landlords have a certain amount of leeway in what they require of tenants in the lease agreement.

And sometimes, if they get extremely specific, they can shift some common forms of damage from “normal wear and tear” to “tenant damage.” Read: able to be deducted from the security deposit.

For example, at what point do drywall holes from wall hangings leave the realm of “normal wear and tear” and become damage? You can leave it to the judge to draw that line—or you can specify in the lease itself.

“Tenants may not use screws or nails larger than 12½ gauge to hang decorations on the wall. Tenants are further responsible for spackling and repainting (in the original paint: Duron DJT-355) all drywall holes created by wall hangings. Failure to do will result in a deduction from Tenant’s security deposit.”

Will that clause hold up in court? Maybe. You can’t know for sure what a judge will rule, if it comes to a hearing. But it’s much stronger than no clause at all and sets clear expectations for the tenant.

Conscientious tenants do everything they can to adhere to the lease agreement, which means that if you’ve screened your tenants well, they’ll honor your lease clauses.

5. Don’t specify uses for different types of deposit.

Know how some landlords list specific deposit types, like “pet deposit,” “cleaning deposit,” etc.?

Don’t do that.

Under the law, all refundable deposits fall under the same umbrella deposit limits. For example, in many states the collectable deposit limit is two months’ rent—all refundable deposits fall under that limit collectively.

So you’re not doing yourself any favors by separating out these deposit types. In fact, you’re creating self-imposed limits on what you can deduct.

Say you collect $250 specifically as a pet deposit, and there’s $500 in pet-related cleanup. The tenants could make a case that you can only deduct up to the $250 pet deposit for pet-related cleanup and not deduct money from the main “damage deposit” unless the pet cleanup can also be classified as “tenant damage.”

Charge one security deposit, and specify in your lease that it can be applied toward any damage, cleanup, unpaid bills, or other money owed upon move-out (within your state law’s limitations, of course).

Upon Lease Signing

6. Conduct a move-in inspection—and document it thoroughly.

If you do nothing else to protect your property using the tenant’s security deposit, do this.

Walk through the property with your new renter, and fill out a detailed move-in condition report. Mark every single pre-existing issue, however small. Initial each item, and have the tenant do the same. Sign it, date it, and keep the original.

Take many, many photos, with the timestamp function turned on to document the date and time. Save these photos in your digital file for the tenancy, alongside a scanned copy of the signed lease and move-in condition report.

One of the most common ways that tenants get out of having their security deposit dinged for damage is saying to the judge, “That was already like that when I moved in.”

Don’t let them pull that trick. Document exactly what the condition is at move-in, so you can deduct for any damage caused after that date.

7. Put the security deposit in a separate, interest-bearing account.

It’s worth noting that in many states, this is legally required of the landlord.

But even in states where it’s not, there are several reasons to do so. First, it prevents commingling of funds, for cleaner accounting. It also removes the temptation to spend the security deposit on other expenses.

And hey, you get to keep the interest if you’re not legally required to give it to the tenant!

8. Inspect regularly.

Want to make sure your tenants are treating your property with respect and adhering to your lease’s rules?

Schedule quarterly or semi-annual inspections.

Not only will you catch lease violations early, but it also sends a powerful message to your renters that you are paying attention and you take enforcing the lease seriously.

At Move-Out

9. Address repairs immediately or risk losing the entire deposit.

Each state has a strict deadline for when landlords must either return the entire security deposit or provide a written accounting of all deductions. Failure to do so means forfeiting the right to deduct anything at all from the security deposit—and in many states even comes with financial penalties for the landlord!

That means landlords must move quickly to get quotes, make all the repairs, put together a written statement, and provide it to ex-tenants.

Really, landlords should be moving at lightning speed on turnover work anyway. Turnovers are a landlord’s biggest expense, and cutting turnover times should be a landlord’s number one priority.

10. How to Deduct Your Own Costs from Security Deposits

Do your own repairs? Or your own cleaning, when preparing a vacant unit to show to new prospects?

There’s nothing wrong with that—it’s a great way to save money. But how do you deduct these expenses ethically and legally from the tenant’s security deposit?

Related: The Landlord’s Itemized List of Common Tenant Deposit Deductions

First, know what the market rate is for each type of work. Be able to back it up with real numbers: what comparable contractors or cleaners charge by the hour.

Next, keep detailed written records of exactly how many hours you spent on each task. Make these records as official as possible.

Finally, separate out charges for different types of work. You may be able to charge one hourly rate for higher-skill work (like repairing drywall damage) but a far lower rate for the time you spent cleaning.

If the tenants challenge you on your numbers, be prepared to show up in court with detailed records and evidence that your charges reflect market rates, for each type of work performed.

The Non-Sexy Essentials

Like everything else in landlording, maximizing the protection afforded by a security deposit is all about two things: prevention and having every requirement and record in writing. The overwhelming majority of this work takes place long before you ever go to deduct from the security deposit; it’s all about laying the groundwork in preventative measures and written documentation.

That may not be the sexy side of the landlord business, but it’s where landlords make or break their profits. It’s why we focus again and again on systematizing property management practices with our course students—the groundwork has to be laid months or years in advance for landlords to maximize their returns.

But when you follow best practices at each step of the way, you’ll find that not only fewer bumps appear in the road, but the few bumps you do hit don’t jostle your profits nearly as much.

Being a profitable landlord doesn’t just happen. It’s the result of careful execution and prevention, the non-sexy essentials.

We’re republishing this article to help out our newer readers.

Have any security deposit tips or tricks to share?

Pass them on below!

About Author

Brian Davis

Join Brian for a free live masterclass in October to plan your Real Estate FIRE Escape: What It Takes to Retire in 5 Years with Rentals. And bring your questions, it will be very interactive!

Brian is a landlord and long-time personal finance and real estate expert, who provides free rental resources such as a rental property calculator and free rental forms through SparkRental.com.

56 Comments

  1. Curtis Bidwell

    Brian, Thanks for the good list. I go over ‘wear & tear’ in detail with each new tenant and remind them that ‘wear & tear’ is NOT ‘dirt or damage’. If I have to clean it or repair it they will be charged. Faded -cracked mini blinds, wear pattern in carpet, minor nicks and scratches are wear & tear. Broken-bent blind slats, Cleaning the carpet, repairing holes in the wall, are ‘dirt & damage’.

    I have made the choice to never have a tenant fill a hole in the wall for any reason – or paint! I allot 1 hr to do minor touch-up, nail hole filling, etc. I only start charging after the first hour. Tenants will leave a gob of putty ruining your textured wall, and will leave paint on trim, floor, etc.

    BTW, I have done court evictions in 20 days in Washington state (uncontested. Contested could take an additional 10-20 days).

    • Brian Davis

      Thanks Curtis, and you raise a good point that reviewing the expectations and rules with each tenant, in detail, in person, is an excellent preventative measure. Sends a strong message that you are not an absentee landlord, and you will be enforcing the lease!

    • Hans Thurau

      Totally agree about not letting the tenant do wall repairs. Additionally, keep track of all the paint colors you use so you could match them up later. I keep the paint color codes and brand in a file just for this purpose. I also keep similar information for all the floor tiles, laminates, grout colors I use, so that in the future, I can find exact matches.

    • Brian Davis

      My experience has been that tenants, even decent ones, will leave smudges and marks on flat paint walls. Semi-gloss is an in-between option. But I’m with you about supplying the paint – if you want tenants to use it, you really need to supply it. Easy enough to leave leftovers, as long as they’re well-sealed!

  2. John Barnette

    Glossy paint may be a bit ugly or less stylish for an owner occupied place or a flip. But for rental purposes I have found it is completely appropriate. I don’t have high end A kinda properties so cannot speak to that. Semi gloss or satin at the least is more durable and easy to clean. I do recommend a high quality premium paint. Have learned that in my years of experience. Labor is significantly more money than the difference between different grades of paint. Better paint equality fewer coats and longer lasting. I personally like the top of the line Behr from Home Depot.

  3. sri ram

    Good article. the ideas are great. Implementing them with tenants is always a hassle for example tenant has security deposit and it says it is meant only for damages and they use for the rent for the last month or that period.
    I am doing two evictions like that.

  4. John Murray

    I charge a $250 per pet fee. Non refundable, in the contract and most don’t say a word. Don’t know if that is legal in my state and I don’t care. If some former tenant wants to file, so be it. I’ll just pay them their $250. I provide great service to my tenants, they seem to appreciate my efforts. I had past tenants never ask for their security deposits back and some have paid last months rent twice. Go figure being nice goes a long way.

      • Children are worse. Should we charge a nonrefundable for children? I have always had a pet, and there has never been an issue, so I would resent a non-refundable pet deposit. that is just profit-taking.

    • Todd Michaels

      We also charge a non-refundable move-in fee (1/2 months rent) instead of a security deposit and do a pet rent ($25 per pet per month) instead of a pet deposit.

      We don’t have to worry about a separate account for security deposit(s), don’t have to worry about the tenants doing the old “use my security deposit as last months rent” line, which makes the deposit $0 and frankly we aren’t going to go after an old tenant $1000 – $2000, just isn’t worth the hassle.

      Monthly pet fee instead of a pet deposit as it works out much better long term if they stay longer than a year and new tenants aren’t put off by a large pet deposit. Saying $300 pet deposit sounds worse to most new tenants than $25 a month pet rent, which works out to $300 a year anyways. But that $300 in pet fees is your money, not a deposit. And if they stick around for more than a year, that extra $25 a month adds up.

  5. Domenick T.

    Excellent article Brian!

    #5 is a huge mistake for landlords in my area. NJ limits the total deposit to 1.5X monthly rent yet I still see a lot of landlords charging a pet deposit. They are limiting what they can deduct from it when they do that! Just charge an extra pet rent to cover your expected losses.

    Lots of great advice. Thanks!

  6. Doug Seaney

    I make it a point to meet them at their car, or walk them out to their car at the showing. How they keep their car has been a strong indicator of how they’ll keep your house. I despise the gloss paint, have been using eggshell finish, but maybe I need to do semi-gloss. I’ve been renting houses for 7 years and only had one bad renter. I spend extra time on front end, rather have it vacant then rented to a stinker.

  7. Jim Stallings

    Great article Brian!!

    On my rentals, I don’t charge a deposit at all! I do charge a move in fee, and this is a nonrefundable FEE similar to a pet fee. I also charge a pet fee ($300 per) and pet rent ($25 per) additional person rent… 100+ rentals without any issues. This is just how I do it…

    • Have you ever thought that the reason you don’t have issues is because renters NEED housing, so they are often forced to accept bad terms. My son is having issues with his landlord, but he doesn’t dare say anything because it is just too hard to find another place to live.

      • Lana Lee

        I would never want to become so close with the tenants. I would never party with them either. It would be so hard for me to charge them late fee or any City violation fee, caused by tenants. But yes, when we were tenants ourselves we invited our landlord to our daughter’s 1st B. party. But on the other hand he never had to worry about late rent or anything:-)

  8. Patrick Murphy

    Love the post, thank you. I use semi gloss paint, easy to clean and also I keep the paint colors consistent for all of my rentals both inside and out. Of course if their is a HOA they may have a different idea but if no HOA use your standard colors, always. That just saves a lot of hassle. If a tenant wants to paint a new color inside if it is a long term tenant then I allow them to do it with the understanding that they paint the walls back to the original colors, this way my tenant is happy and feels like it is their home and I get a freshly painted wall at their costs. I also keep track of what walls I painted and receipts for the paint that I used for documentation, great way to make 60.00 per hour.
    I like the part about do it yourself. Easy way to make money, I can usually turn a SFH in less than 1 week,
    I use a video camera when I do the walk thru with my tenant next to me. I video them and we walk room to room and note any issues on the video. Then when I get home I upload the video to dropbox and send the tenant the link to download to their computer. I will also do it when they move out,
    I also will send my security deposit and documentation of repairs to my ex tenant via USPS certified with receipt of acceptance. I will then save that all showing the tenant that they received the documents. Next if the tenant does not give a forwarding address I just send it the same way to their last known address (my property) that shows my due diligence, I do not want to waste time looking for a tenant but want to make sure the court knows that I sent it to the last known address.
    I have been renting 11 homes in Phoenix for the past 8 years, I have worked my way through the bad tenants and now have the best. One tenant calls my wife and myself mom an dad. Another tenant’s son drew a picture of me installing a new toilet (finally my 15 minutes of fame). We have attended quinceanera parties and have been invited to birthday parties. I love being a landlord, we feel like we have an extended family.

    • Brian Davis

      Great suggestions Patrick! Nowadays it’s so easy to take a video of the walk-through, it’s a great way to document exactly what’s said and noted. And like you said, certified mail is also a great way to keep records of when you sent what, in case you ever need them for court.

  9. Curt Smith

    I ditched security deposits per landlord teacher David Tilney’s coaching in Tampa. Can’t explain the replacement but the key is you take the same amount $$ as a typical security deposit but you aren’;t in any way obligated to give it back. The system is; you return some variable amount based on “tenant performance” which is clearly spelled out in the lease: no late payments, keep the place clean, show the place when you give notice etc…. which includes showing a “move in ready” house to the next tenant with the business model goal of zero day down time. IE new tenant moves in day after old tenant moves out. New tenant rates move in condition which becomes only one metric used to determine the “performance bonus” you give to the out going tenant. TOO much BS around standard damage charges, un realistic expectations of out going tenants re security deposit. I snapped and Dave Tilney had the answer.

    A non-security deposit also avoids the separate holding account issue…

    Gloss paint every where, OMG you have to be kidding.

    FYI folks, see my paper on how to buy bullet proof rentals paper I’ve uploaded to BP, see my profile, 1st paragraph I pasted a URL to the file. Target your desired tenant, find areas with growing jobs….

    • Brian Davis

      Interesting concept, of taking a nonrefundable fee then offering a performance bonus on the back end. I think that would a tough sell to renters in a cool (or even average) market, but in a warm market I could see renters going with it. Great way to protect yourself even better than a security deposit!

  10. Nathan G.

    Good article, Brian. I personally think “ordinary wear-and-tear” is a fuzzy concept to my tenants or Landlords but it’s clear as day to me and I provide a guide to clarify it for them. When a tenant gives notice, I immediately email them a move-out checklist that explains the entire process, what can be deducted from their deposit, how much time I have, and a handy guide explaining wear-and-tear vs. cleaning, abuse, or neglect. With 300 rentals under management, I get push-back from 1-2 tenants a year.

    As you said, documentation is key and I typically take hundreds of photos before and after tenancy so I can easily prove my position. When tenants see the pictures, they stop fighting with me.

  11. Bernie Neyer

    I tell prospective landlords all the time, “Go by the place they are living now. If it’s a dump, they’ll be bringing it with them when they move.”

    As far as “normal wear and tear,” we specifically state in our lease that the tenant is to, “Return the premises in a clean, sanitary and essentially the same condition as when they rented it.” If they are only there a year, there shouldn’t be ANY wear and tear. If they’ve been there for 15 years, God bless them, I’ll be glad to paint the place, replace the carpet and return their deposit absent any real damage.

    We also indicate they need to give one calendar month’s notice to vacate the premises or lose their deposit. If you say 30 Days Notice, they can give that notice any time of the month. We also indicate that if they are to be absent from the property in excess of 10 days, they need to inform us about their absence, and if they are absent for 10 or more days without payment of rent, we will consider the property abandoned and take full possession of the premises.

  12. Jesse Anderson

    #5 – I don’t understand why people call it a “pet deposit” still…I’ve been calling it a pet fee (upfront and monthly) for as long as I can remember.

    Deposit means it has to be returned and whenever there’s a pet I have never come across a time where I would have had the opportunity to return it.

  13. Katie Rogers

    You would have returned to me when my labrador and I left, guaranteed. On the other hand, when I was a tenant, I looked at vacancy in an eight-unit apartment building. All the tenants had dogs or cats. The one unit I entered was awful. From the outside all the other units looked to be just as bad. I told the property manager showing me the place that my labrador and I would never live in such a filthy building.

  14. Katie Rogers

    You don’t “have to” do anything. You don’t even have to charge a security deposit at all. The security deposit is not required to match anything. The law stipulates a maximum security deposit, but that only means you cannot exceed the maximum amount. When I was a tenant, no landlord ever asked for more security deposit when raising the rent. Remember, the deposit is not your money; it is the tenant’s money. If you have a good tenant, then more deposit just means more money you have to give back, not to mention the ill-will asking for more deposit creates. Why should the landlord get to earn interest on the tenants’s money and keep that interest? I have never had a landlord return the interest my deposit could have earned for me. If you have a bad tenant, instead of raising the rent, I would serve notice that the lease will not be renewed, or if the tenant is on a month to month, I would serve the mandated notice.

  15. ken larsen

    Always send deposit monies (or the letter explaining why only part of their money is being refunded) back via USPS Certified mail, send 2 business days before refund is due. (Varies state-to-state). Here in Wisconsin, it’s 21 days; you can end up owing the tenant money if you miss the deadline.

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