News & Resources

Property Management and the Pitfalls of Security Deposits

Jul 30, 2019 MicroBilt News

Security deposits have been tools of choice among landlords for protecting their investments for decades. However, there are some pitfalls to consider when it comes to security deposits. Pitfalls that might make other options more attractive to many landlords and those considering investing in rental properties.

Why Have Security Deposits to Begin With?

Initially, security deposits offered precious protection for landlords with concerns that tenants may not pay their rent or might damage the property. Security deposits offered landlords some protections against these possibilities. In addition to security deposits, landlords should consider appropriate insurance products to protect their investments and other financial interests beyond the scope of security deposits.

What are the Potential Pitfalls of Security Deposits?

Security deposits can be problematic for landlords on multiple fronts. In fact, three of the top 10 legal mistakes landlords make, according to NOLO, involve misusing or abusing security deposits under state and local laws.

Because of abuses by a few landlords when dealing with tenants, most states have created strict laws related to security deposits, such as:

  • Security deposit terms
  • Maximum amounts
  • Interest rates
  • Notice requirements
  • Documentation of damage requirements

Failing to comply with these strict laws and terms in many states can result in landlords being required to pay their tenants far more than two or three times the security deposit to the tenants instead.

If you are concerned about landlord laws in your state and how they might affect your ability to protect your investment in property, consider checking out this list of landlord-tenant statutes by state. You should always know and understand the laws in your state as they relate to tenant privacy rights, security deposit regulations, and landlord expectations so you do not unintentionally cross legal lines you do not know about.

Alternatives and Options for Security Deposits

While security deposits do offer valuable protection to property owners, prevention always makes the best cure. Adequate screening is one sure-fire solution that can help you learn more about prospective tenants before you decide to rent your property to them.

It doesn’t always reveal the whole scope of the person, but preventative screening in the form of the MicroBilt property management screening tools can help you make informed leasing decisions that rely less on security deposits to protect your interests and more through prevention. Things you can look for with proper tenant screening include:

  • Eviction history
  • Credit history
  • Criminal record
  • Employment information

Access to this information can help you make rental decisions based on these factors which can indicate the likelihood that a tenant will be able to pay the rent on time for the duration of their lease term.

This is especially the case if you look for history of actions brought against tenants by previous landlords. Depending on state laws, these actions may be for non-payment, eviction, or damage to the property beyond the scope of the security deposit.

Concerned about your landlord experience and the impact security deposits may have? Contact MicroBilt today to learn about your options for protecting your investment with effective tenant screening.