Investing in real estate always involves large sums of money. If you want to be successful as a landlord, you must be aware of the laws and requirements. Not knowing the rules can result in a devastating loss that most new landlords cannot afford. One of the least understood areas of landlording is security deposits.

Every landlord who rents their property to a potential tenant has the right to collect a security deposit. The security deposit provides protection for the landlord against any possible loss caused by the tenant. All landlords should collect security deposits from their tenants.

Every state has different legal requirements for the collection and handling of security deposits. It is imperative that landlords learn the requirements for the state where their property is located. The law can dictate some items such as the maximum amount you can collect, whether or not you have to pay interest, and when you must return the deposit.

Some states limit the amount you can collect for a security deposit to an amount equal to one month rent. Other states require that security deposits be held in interest bearing accounts and the interest earned on the account must be paid to the tenant when the security deposit is returned. Some states require that security deposits be held in separate accounts from your checking account and that the account number be given to the tenants. As you can see the requirements can vary greatly state by state and it is important than you understand the laws in your state.

Noncompliance with the laws in your state can result in the court ruling against you in court. In some states the penalty for non-compliance is triple the amount of the collected amount of the security deposit! The worst thing that can happen to a landlord is to end up paying a tenant who left their property owing the landlord money or damaged your property.

Real estate investing can offer great rewards. Don’t be penalized by failing to follow the rules for collecting security deposits.

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Filed under: Landlord Tip • Landlording • Property Management • Real Estate Investing

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