One of the most important things property management companies in Phoenix recommend landlords do is collect a security deposit. Though not required by law, a security deposit protects you from costly expenses should your tenant fail to pay rent or damage your property.
And trust us, all property management companies in Phoenix will tell you it’s the best thing you can do.
If you don’t want to be responsible for the actions of your tenant, read on to find out exactly what a security deposit is. In addition, discover why it’s crucial you collect one every single time.
What is a Security Deposit?
A security deposit is a sum of money paid by your tenants at the start of their tenancy. It’s collected before they move into your rental and is not to be confused with first and last month’s rent.
Under Arizona law, landlords can only collect one and a half times the rent rate for a security deposit. Additionally, they must return the security deposit to the tenant within 14 days after the tenant has moved out. If there is damage to your property, you can withhold some of the security deposit. However, you must provide your tenant with an itemized list of deductions.
You can only use the security deposit to cover damages to the property that go beyond normal wear and tear. And your tenant has the right to be present during the final inspection.
If your tenants don’t pay rent, you have the option to use the security deposit to cover things like lost rent and eviction proceedings. Just make sure you and your Phoenix property manager follow the law when it comes to evicting a tenant to avoid legal trouble.
Top Reasons to Always Collect a Security Deposit
1. Protection Against Property Damage
There’s nothing worse than investing time and money into a rental property, only to have your tenants damage it.
But it happens.
To offset the cost of damaged rental property, it’s important you collect a security deposit from your tenants to pay for those damages.
Security deposits can be used to cover damage by:
- Your tenant’s family
- Friends, employees, or other guests
In addition, a security deposit can be used anywhere on your property. This includes surrounding areas, major appliances, and even furnishings that you own.
Just remember, as we mentioned above, the security deposit cannot be used for normal wear and tear. For instance, you might want to re-carpet your rental before placing a new tenant in it. And that’s great. But your previous tenants are not responsible for paying for that carpet unless it was severely damaged.
2. Making Up For Excessive Cleaning Costs
When you place a tenant in your Phoenix, AZ rental property, you expect your tenants to care for your property as though it were their own home. You also expect the property to be returned to you in the same condition as it was at the start of the tenancy.
But we all know that doesn’t always happen.
Your tenant’s idea of what it means to care for a home might not match yours. And since your tenants don’t own that property, there’s always a chance they might trash it while living there.
To make up for excessive cleaning costs, you can use the security deposit you collected to clean up after your old tenants. We just hope it never gets to that point.
3. Paying Unpaid Utilities
When your tenants move out, you’ll have to transfer some of the property’s utilities back into your name. For example, the water, gas, and power will have to be under your name so you can clean and show the property.
But what happens when you transfer the utilities back into your name and there are unpaid bills?
That’s right, you’ll have to pay for the outstanding bills.
Because this is unfair to you, and not a part of the lease agreement, you can use your tenant’s security deposit to pay for unpaid utilities.
4. Non-Payment of Rent
Whether your tenant leaves mid-lease or doesn’t pay their last month’s rent, you’re entitled to that money.
Collecting a security deposit at the start of a tenancy helps buffer some of the loss you experience if this happens to you. Of course, it might not cover all the money owed to you, but it will definitely help.
Just remember, if your tenants fail to pay the rent, but don’t move out of the property, you have a different situation on your hands.
This is where property management companies in Phoenix come in handy. Property managers are knowledgeable about landlord-tenant laws, including non-payment of rent. And while it may be tempting to grab that security deposit and use it right away, this is not the time to do this.
You or your property manager will need to follow proper eviction proceedings. This usually involves official notices, chances for your tenant to pay up, and possibly a court date.
5. Early Termination of the Lease Agreement
If you use an experienced property manager to draft your lease agreements, it’s likely they’ve added a provision to the lease outlining what happens if your tenant breaks the lease early.
Lease agreements are legally binding contracts. So, when your tenant signs it, they’re agreeing to the rules. They’re also indicating that they understand what will happen if they breach a part of the lease.
If your tenants want to break the lease early or breach a lease provision, you can use the security deposit to:
- Make up for lost rent
- Advertise your property as available
- Screen new tenants to replace the ones that left early
- Repair damages to your property
- Cover legal fees associated with non-payment, abandonment, and/or damages
It’s important to know that once you’ve replaced your old tenants with new ones, you can no longer use the security deposit to recoup lost rent. For example, if you collected one and half times the rent rate and it only took you one month to re-lease your property, you owe the one-half remaining to your tenants.
[cta]Are you in need of Phoenix Property Management to help with security deposit collection?[/cta]
At Stratton Vantage Property Management, we pride ourselves in our tenant screening processes. We also understand the importance of collecting security deposits, drafting airtight lease agreements, and following up on non-payment of rent or property damage.
So, stop worrying about what will happen if your tenants break their lease agreement, damage your property, or stop paying their rent. Let us help you manage your rental so that if the unthinkable happens, you have a security deposit to help offset your losses. In addition, rest assured the problem will be resolved quickly and those new tenants will be placed in your rental as soon as possible.