Landlords are required to follow the North Carolina Tenant Security Deposit Act, and today we’re talking about how you should collect, hold, and return a tenant’s security deposit. We won’t spend a lot of time discussing every detail; these are just some high level tips and tricks to help make you a more successful and savvy landlord.
Rent Deposit vs. Rent Fees
A security deposit is not a fee. So, if you have a lease that isn’t a standard Realtor lease or a Greater Charlotte Apartment Association lease, make sure the fees you’re charging are not referred to as deposits, and the deposits aren’t referred to as fees. It’s very important to keep them separate.
How Much Security Deposit Can a Landlord Charge?
Basically, you can charge between $0 and the equivalent of two months’ rent as a security deposit. The amount depends on the length of the lease. You want to charge enough to use it as a screening tool. We typically charge the equivalent of one month’s rent for an average security deposit. That will immediately disqualify a lot of candidates who don’t have the first month’s rent plus the security deposit. This will help you attract renters who have enough cash in the bank to meet the financial demands of your property.
Always Collect a Security Deposit
Always charge your tenants a security deposit. There should be no exceptions. First, for legal and compliance reasons, you don’t want to charge some tenants a deposit and then not charge other tenants. You need standards and policies in writing so you don’t violate fair housing laws. I’m often asked about renting to friends and family members. I think that’s usually a bad idea. However, if you don’t take my advice, and you rent a property to your friends anyway, make sure you collect a security deposit. It doesn’t matter who you’re renting to; you need that deposit.
Tenant Security Deposit Act: Trust Accounting
The Tenant Security Deposit Act and the North Carolina Real Estate Commission says you need to use trust accounting even as a DIY landlord. If you have professional property management services, your managers should use trust accounting as well. If you need more information about what this means, please don’t hesitate to contact us, and we can explain it to you in detail.
Handling the Security Deposit
Ideally, you want to return the full security deposit to your tenants. That’s what success looks like.
Educate your tenants throughout the process. Talk to them when they move in, during the tenancy, and when they move out. Tell them about the things that normally cost people their deposit, and explain what normal wear and tear looks like. When tenants receive their full deposit, it’s less work for everyone. The end result is happier tenants, and as an owner, you will be happier as well. You can keep the deposit or a portion of the deposit for things such as unpaid rent, court costs, and any costs related to terminating a tenancy early.
Returning the Security Deposit
There’s a timeline to follow, regardless of what the tenants are receiving from you. The deposit must be returned by the legal deadline. That money belongs to the tenant, so make sure you are giving it back in accordance with state law.
These are the main tips and tricks for tenant security deposits. If you would like to know more about security deposits, or you have questions about anything pertaining to Charlotte property management, please contact us at Sunnon PropertyManagement.