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Collecting
Security Deposit and
Handling Lease Security Deposit Interest PART 2
Collecting
and holding lease security deposit seems straightforward enough, but
the truth is that it's not as simple as most landlords think. Take a
wrong step, and you could lose all rights to collect security deposit
or worse, be sued for up to 3 times the deposit amount. Learn what's
the best way to collect security deposit and whether you have to pay
security deposit interest now.
Have You Read Part 1? If
No, Click here for Part 1 of this
Rental Security Deposit Guide.
How and When
to Collect Security Deposit from Your Spanking New Tenants
"When
is the best time for collecting security deposit?" - This is a
question that we get asked time and time again... and it's a good
question that deserves a complete answer:
There's
actually not one, but two good opportunities for you to snap up those
juicy lease security deposits. The first chance presents itself during
the all-important signing of your lease agreement form. Just be sure to
inform your tenant well in advance so there's no space for him or her
to squeeze out a last minute excuse.
If you have missed this
first chance, then grab the second one: Before handing over the
keys to the tenant. The idea is to have the security deposit safely
tucked away before the lease begins.
"Should
I accept security deposit by installments?"
- It's a firm "No" from us, unless you got a rock-solid reason to back
it up. It always worries us when a tenant is not able or willing to
fork up the lease security deposit in full - It might be an early hint
that the tenant doesn't earn enough to afford the rent or simply
overspends.
Forging ahead on this how to collect security
deposit journey, it's a good practice (and a legal must in some areas)
to issue your tenant a written security deposit receipt.
Some tenants are particularly edgy about their lease security deposit
(and who can blame them?) so this simple receipt will go miles to show
them that they are dealing with a responsible, professional landlord.
Now
that the Deposit is in Your Hands... What is the Right Way to Hold it?
The
issue of holding security deposits is largely neglected by landlords
and it's a real shame... because that's often how they land themselves
in trouble.
So what's the correct way to handle lease security
deposit that's in your
hands? The answer is written in your lease security deposit laws.
Some
areas aren't picky at all - As long you don't swallow the deposit
money, they don't really care if you stash it under your pillow. In
other areas, you will have to promptly deposit the money into a
separate interest-bearing, state recognized account.
What about
the security deposit interest? Thankfully most areas don't require you
to pay interest on security deposits but there's always the few
tenant-friendly exceptions. The security deposit interest rates are
either fixed rates decided by the local authorities... or pegged to the
interest rate of the account where the tenant deposit is kept.
If you live in the U.S., Click
here for your state security deposit laws on security deposit interest
and required holding methods.
* While we are on this topic, here's a little bummer: It doesn't
happen often, but a few U.S. cities do impose their own city laws that
overwrite the state laws. We know it's a pain, but please take that
extra few minutes to double check your city laws too.
Now
for the final (and possibly most important) Part 3: Taking security
deposit refund and deductions by the horn and emerging as the ultimate
winner:
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