Real estate can be an excellent investment, but it's not always as simple as many people think.

There are all kinds of aspects to running a successful real estate business, and you need to understand as much of it as possible. Most people know the basics of security deposits, but plenty of landlords still make mistakes. It's important to follow security deposit rules to make sure you don't end up in a bad situation.

Let's go over some key landlord security deposit tips that you should know.

Deposits Have Limits

Security deposit rules vary in different states and one thing that many states impose are deposit limits. These are put in place to protect landlords if tenants cause damage before leaving or fail to pay rent.

In many states, the limit is equivalent to one or two months rent. Note that some states don't have limits, so you can request whatever you want; but that doesn't mean you should. If your deposit is too high, it will put potential renters off making it harder for you to find tenants.

Accounting Is Crucial

Making mistakes while handling tenant deposits can lead to some serious issues. As such, you should keep accurate records of all security deposits you receive. You should also provide tenants with receipts for security deposits detailing the amounts and the dates.

In many states, landlords are required to keep deposits in dedicated accounts with a local bank. Even if this isn't required in your area, it's still good practice. It ensures the deposit doesn't get mixed up with any other funds.

Additionally, some states require that you keep deposits in interest-bearing accounts. Whatever interest is generated is then given back to the tenant at the end of their lease along with their deposit.

You Must Return Them on Time

Before your tenants move out, they need to give you a forwarding address. You can then send them a written notice of any charges that may be incurred. You can also use this address to send their deposit (if sending by cheque).

After performing a moving-out inspection, you can determine if there are any charges. You'll take these out of the deposit before sending it back to the tenant. Make sure you're aware of what constitutes damage and what is simply considered normal wear and tear.

Deposits must be returned within a specified time limit, and this also varies depending on the state. It's often somewhere between 14 and 60 days. Make sure you know what the rule is for your location so you can return any deposits on time.

Handling Security Deposits Correctly

The importance of security deposits can't be understated. It's important to always handle them correctly, though this isn't always easy. A professional property manager can help you deal with them and manage any security deposit disputes that come up.

HomeRiver Group is a professional property management company that serves clients all across the US. We've grown rapidly over the last eight years and can handle security deposits as well as any other aspect of property management.

Take a look at our property management services page to find out more about how we can help you.