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How to Handle a Security Deposit for Rental Properties

Service Star Realty - Tuesday, September 05, 2017

When you’re managing a tenant’s security deposit, you want to protect the condition of your property while avoiding a dispute with the tenants about how much is owed to them. The best way to prevent any disputes is by setting great expectations that are clear, to the point and are in writing.

Document Property Condition

Create an addendum to your lease that talks about the condition of the property and how you expect to have it returned. Take lots of pictures before a tenant moves in and then take move out pictures after a tenant leaves. Video is even better. This will clearly show what condition the property was in before the tenant moved in and after the tenant moved out.

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Send a reminder to your tenants before they move out. Remind them of what they agreed to by sending a copy of their lease or a cleaning checklist. This will help them understand your expectations. You need to allow tenants to be present during your move out walk through, but don’t discuss details like timeframes and how much of the deposit they’ll get back. You’ll need a chance to review the before and after pictures and the video.

Security Deposit Claims

The most common question we hear from Phoenix real estate investors is how much can they claim from the security deposit. This is sometimes difficult to determine, and it takes experience and common sense. The law says you cannot charge for normal wear and tear, but there’s not a lot of clarity on what that is. If normal usage causes the damage, you cannot deduct. But if there are excessive nail holes in a wall, or large holes, or areas on the carpet where an animal scratched and clawed, you can deduct those repairs from the security deposit. The written expectations and videos will help you avoid disputes.

Security Deposit Timing

Timing is important from a legal standpoint. You have 14 business days to get the deposit back to the tenant as well as a breakdown of deductions and what they're for. It’s easy for a tenant to take you to court if you don’t do this, so make sure you take care of it on time. Otherwise, your penalty can be three times the amount of the deposit. Even if a tenant owes you money or leaves behind damages, you won’t be able to keep their deposit. The timing is critical. 

With a little preparation, you can avoid disputes over security deposit claims. If you need any help with Phoenix property management, please contact us at Service Star Realty.

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Service Star Realty
2929 E Camelback Rd.
#119
Phoenix AZ 85016

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