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What you need to know about security deposits

Updated: Mar 16

Security deposits play a crucial part in the landlord-tenant relationship; understanding the regulations and rules surrounding it will help you comply with your state laws. You need to request them to cover potential damages left behind by your tenant, unpaid rent, or even the event of a tenant breaking the lease.

Knowing the ins and outs of security deposits is a chief component of your job as a landlord. But exactly what do you need to know about these deposits? Let’s go over some examples in this article.

What is a security deposit?

A security deposit is a one-time payment someone makes to a landlord or a property manager, usually equal to one month's rent, before moving into a new house or apartment. This payment is then held by a landlord in case the tenant damages the rental property.

A security deposit is more often than not refundable at the end of the tenant's lease. However, there are some specific circumstances in which the landlord can keep some of, or the entirety of, the security deposit. These can happen if the tenant fails to pay rent, leaves the property in an unsanitary condition, or causes damages to the property beyond normal wear and tear.

How do security deposits work?

The tenant pays them upfront, typically equivalent to one or two months' rent. At the end of the lease term, the landlord or property manager will conduct a walkthrough of the property to assess for any damages beyond normal wear and tear. If damages are found, the cost to repair them will be deducted from the security deposit. If there are no damages, the full security deposit will be returned to the tenant.

Rules and regulations for a security deposit

Although each region has its own differences when it comes to the laws surrounding a security deposit, we can observe some typical rules. Generally, landlords must return the deposit in a certain amount of time after a tenant moves out and are required to keep the deposit in a non-interest-bearing account, which is an interest-free account for both parties. This account is opened upon the customer’s request.

Some states have protection regulations for the tenants, such as demanding a landlord to provide a written notice before deducting anything from the tenant's deposit.

What other factor can influence a security deposit?

Several factors can affect the amount you would have to charge for a deposit. While some states have a rule of discretion regarding how much a landlord can charge, property managers have to look after certain aspects before deciding how much to ask a tenant to deposit.

Credit score can be a factor, as people with lower credit scores may be more likely to pay late or even miss a payment. According to these Myrtle Beach property managers, in this case, they could need to pay a higher security deposit. Background checks might be another reason for a higher charge on a deposit. Rent changing may increase the security deposit as well. You could ask your tenant for a higher deposit if it goes up.

Collecting the deposit

When collecting a deposit, a key aspect is to document the transaction. Provide tenants with a receipt that includes the details of the deposit and your signature. This would be useful if there is a dispute about the deposit between you and your tenant.

Documenting property damage

Property damage isn’t uncommon. That’s where the security deposit most often comes into play because, as a landlord, the last thing you want to do is pull money out of your own pocket to repair the property your tenant has harmed.

When a tenant moves out, the property investor can use the security deposit to cover the cost of repairs. This, of course, does not include normal wear and tear.

It’s worth mentioning that a security deposit shouldn’t be used for undocumented damage. The landlord has to be able to prove that the damage was caused by the tenant. To do this, an initial inspection of the property has to be conducted to determine the condition of the place before occupancy. Hence you should take lots of photos and make sure to follow the proper necessary inspections.


Understanding these aspects and the do’s and don’ts of security deposits can be a little challenging, especially for a first-time landlord. But this is detrimental to a landlord's job, as you need to stay on top of your property’s condition and worth.

How can a property manager help

Pros in this niche, property managers help landlords with security deposits by ensuring compliance with local laws, documenting property conditions, mediating disputes, and managing deposit accounts, providing landlords and tenants peace of mind.

Get in touch with us today and learn more about our services.

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