Does anyone have any suggestions for determinig a security deposit? And also what if the security deposit isn't enough due to an abusive tenant that tears the place up?
Your local landlord/tenent laws may have restrictions on the amount you can legally charge as a security deposit. The laws may also prohibit collecting first and last month's rent at the beginning of a lease term.
For example, the MD landlord/tenant laws in the counties where I have rental property prohibit collecting "last month's rent" as a condition of the lease, and, limit my security deposit to a maximum of two month's rent. Therefore, in most of my properties, I charge a security deposit equal to one month's rent. In one property, I charge a security deposit roughly equal to 110% of one month's rent.
Appropriate clauses in your lease should make it clear that any damage to your property resulting from tenant abuse will be charged to the tenant, perhaps collected as additional rent. If the tenant's security deposit is insufficient to cover the cost of tenant abuse repairs, then your remedies are small claims court, and/or, a collection agency.
Most of the time, I find that pursuing a collection is not worth the time and effort. I just write off the expenses of repair as a cost of doing business, and increase the rents for future tenants if the market will bear it.
Suggest you call several property management companies in your area and ask them what their usual security deposit and damage collection procedures are for a property under management. These are reasonable questions for any rental property owner who is interviewing a potential property management company. From the answers you get, you can probe what your legal limits are on security deposits and ask what tenant screening and inspection measures the company uses to mitigate the risk of tenant abuse.
22nd November, 2002
Thanks DaveT,
Your input is greatly appreciated!!!
The amount of the security deposit that a landlord can ask a tenant to pay depends on the type of rental agreement and the rental market area, I would call on rentals in your are just like your property and see what they are charging to stay competitive.
I use the following formula for my rentals and adjust according to current market conditions:
If the premises are rented from week to week, the deposit is the first two weeks rent.
For a monthly rental agreement the deposit is the same as the first months rent.
Where the premises are rented for a fixed term of 6 to 24 months, the deposit is ¾ of the first full months.
Even though most tenants do not like paying deposits, it is in your best interest as a landlord to collect the last month's rent in advance. If the tenant fails to live up to the terms of the agreement, this deposit will help you to defray some of the costs of evicting the tenant. Defraying the legal costs is the only reason for this payment or deposit. You can also collect a cleaning deposit and a security deposit. These deposits are applied to any damages that occur while the tenant is occupying the unit
A good starter book is Property Management For Dummies.
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I am going to buy the book, "Property Management for Dummies" per DaveT's advice but was wondering if I don't need something that is specific to the state I live in...(Texas) Christina
"Property Management for Dummies" was suggested by JohnMichael. Your local landlord-tenant law is specific to the state and even the county you I live in. You may even find that your local ordinances are on-line.
When I first started renting houses, I always charged one month's rent. But then the tenant would leave and not pay the last month's rent. So then I changed and started charging one month plus $100. That seems to work very well.
As far as damages, you can NEVER charge enough rent to cover all damages a tenant can inflict. If you give me ten minutes and a baseball bat, I will do thousands of dollars of damage. The best defense is a good screening policy and a quarterly inspection of the property.
I like the idea of having first month , last month and a securty deposit, but that is a lot of money for some people.
Lastly, there are lots of great books on renting houses, but if you do not get some information for your specific area, you are heading in to a world of hurt. For example, in some states you must pay the deposit back in a week and in some a month. In some states, you must pay TRIPLE damages on illegally retained deposits. Either find the information on-line or go to the library. You need to become an expert in rental law!
Hi Playboislim, I'm sorry but this may not apply to your situation but I tried to structure my business where I could do Lease Options instead. This strategy got me out of investing in anything but sfd, where I should have been in the first place. There of course we get a small, small security deposit and we take a big non refundable option consideration payment. Let them tear the place up you can do the repairs with their money. With Lease options another major benefit is that you can manage 10 times as many houses than when doing strictly rentals.
In response to the rules on returning security deposits you can download the Texas Property Code at the State of Texas website, basically it states that you have 30 days to refund the deposit or send a letter stating what deductions from the refund you took. It goes on and states that you are automatically in violation of the Deceptive Trade Practices act and are subject to Treble damages of the amount of the security deposit. We always send a letter for any security deposits we have taken. This does not apply to Non Refundable Option Consideration.[ Edited by firepro on Date 02/25/2003 ]
Your local landlord/tenent laws may have restrictions on the amount you can legally charge as a security deposit. The laws may also prohibit collecting first and last month's rent at the beginning of a lease term.
For example, the MD landlord/tenant laws in the counties where I have rental property prohibit collecting "last month's rent" as a condition of the lease, and, limit my security deposit to a maximum of two month's rent. Therefore, in most of my properties, I charge a security deposit equal to one month's rent. In one property, I charge a security deposit roughly equal to 110% of one month's rent.
Appropriate clauses in your lease should make it clear that any damage to your property resulting from tenant abuse will be charged to the tenant, perhaps collected as additional rent. If the tenant's security deposit is insufficient to cover the cost of tenant abuse repairs, then your remedies are small claims court, and/or, a collection agency.
Most of the time, I find that pursuing a collection is not worth the time and effort. I just write off the expenses of repair as a cost of doing business, and increase the rents for future tenants if the market will bear it.
Suggest you call several property management companies in your area and ask them what their usual security deposit and damage collection procedures are for a property under management. These are reasonable questions for any rental property owner who is interviewing a potential property management company. From the answers you get, you can probe what your legal limits are on security deposits and ask what tenant screening and inspection measures the company uses to mitigate the risk of tenant abuse.
Thanks DaveT,
Your input is greatly appreciated!!!
The amount of the security deposit that a landlord can ask a tenant to pay depends on the type of rental agreement and the rental market area, I would call on rentals in your are just like your property and see what they are charging to stay competitive.
I use the following formula for my rentals and adjust according to current market conditions:
If the premises are rented from week to week, the deposit is the first two weeks rent.
For a monthly rental agreement the deposit is the same as the first months rent.
Where the premises are rented for a fixed term of 6 to 24 months, the deposit is ¾ of the first full months.
Even though most tenants do not like paying deposits, it is in your best interest as a landlord to collect the last month's rent in advance. If the tenant fails to live up to the terms of the agreement, this deposit will help you to defray some of the costs of evicting the tenant. Defraying the legal costs is the only reason for this payment or deposit. You can also collect a cleaning deposit and a security deposit. These deposits are applied to any damages that occur while the tenant is occupying the unit
A good starter book is Property Management For Dummies.
[addsig]
I am going to buy the book, "Property Management for Dummies" per DaveT's advice but was wondering if I don't need something that is specific to the state I live in...(Texas) Christina
Christina,
"Property Management for Dummies" was suggested by JohnMichael. Your local landlord-tenant law is specific to the state and even the county you I live in. You may even find that your local ordinances are on-line.
When I first started renting houses, I always charged one month's rent. But then the tenant would leave and not pay the last month's rent. So then I changed and started charging one month plus $100. That seems to work very well.
As far as damages, you can NEVER charge enough rent to cover all damages a tenant can inflict. If you give me ten minutes and a baseball bat, I will do thousands of dollars of damage. The best defense is a good screening policy and a quarterly inspection of the property.
I like the idea of having first month , last month and a securty deposit, but that is a lot of money for some people.
Lastly, there are lots of great books on renting houses, but if you do not get some information for your specific area, you are heading in to a world of hurt. For example, in some states you must pay the deposit back in a week and in some a month. In some states, you must pay TRIPLE damages on illegally retained deposits. Either find the information on-line or go to the library. You need to become an expert in rental law!
Hi Playboislim, I'm sorry but this may not apply to your situation but I tried to structure my business where I could do Lease Options instead. This strategy got me out of investing in anything but sfd, where I should have been in the first place. There of course we get a small, small security deposit and we take a big non refundable option consideration payment. Let them tear the place up you can do the repairs with their money. With Lease options another major benefit is that you can manage 10 times as many houses than when doing strictly rentals.
In response to the rules on returning security deposits you can download the Texas Property Code at the State of Texas website, basically it states that you have 30 days to refund the deposit or send a letter stating what deductions from the refund you took. It goes on and states that you are automatically in violation of the Deceptive Trade Practices act and are subject to Treble damages of the amount of the security deposit. We always send a letter for any security deposits we have taken. This does not apply to Non Refundable Option Consideration.[ Edited by firepro on Date 02/25/2003 ]
land01
I suggest the following sites for your area
http://www.oag.state.tx.us
http://abclocal.go.com/ktrk/features/ktrk_renters_rights.html
http://www.haaonline.org/haaweb/StaticContent/StaticPages/1/html/renter.htm
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