Hiring A Property Manager? Know How To Handle Security Deposits
If you're a new rental property owner, there is a lot that a property manager can help you with. They take on duties such as screening tenants, collecting rent and scheduling needed repairs. Because you are the owner of the property, it is best that you handle some of the finances yourself, specifically when it comes to security deposits. Even though you have a property manager, any liability in court is your responsibility. This guide explains what the law says about security, or escrow, accounts and who should handle the deposits, withdrawals and transfers.
What Does the Law Say?
Each state law is different concerning how a property owner should handle security deposits, but many states require a separate bank account called a securities account. This is an interest bearing account, so you make a little money to help pay for repairs along the way. Some states require that interest accrued on the account be paid to the renter when their lease is up and they move out.
Check to see if your state requires that a security deposit from each renter be kept in it's own account. This can mean extra tracking and paperwork on your part, but it could actually be easier if you run specials from time to time on the amount of security deposit you're charging.
With each renter's deposit in a separate security account, you'll know at a glance how much the renter is owed when they move out and how much interest the account earned.
What Does the Property Manager Do With the Security Deposit Accounts?
Typically, a property manager only deposits the security deposit checks into the securities account. They do not make withdrawals, send back deposits when someone moves or make use of any interest in the account.
Should the property manager need to use the interest to make repairs, they will send you an estimate of how much the work costs. You will then access the securities account and transfer the interest to the general operations account. Your property manager should have access to the operations account to make the needed repairs.
The security deposit remains in the security account until the tenant moves out. At that point, the property manager does a walk-through and notes needed repairs. In many states, the security deposit is not used for repairs unless the property manager can prove that the damage is extensive and the tenant caused it.
Check with your real estate professional to learn more about what the laws are on security deposits in your state and how much leeway you can give your property manager when they walk through a home. Because the liability of denying a tenant their security deposit back falls on your shoulders, manage your securities account yourself. Doing so allows you to defend yourself accurately if you have to go to court.
For more information or help managing a rental property, contact a company like CNY Property Management.