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The Importance of Security Deposits for Landlords

The Importance of Security Deposits for Landlords

The Census Bureau reports nearly 20 million rental properties across the United States. Many larger conglomerate companies own these rental properties. A growing number of these are now owned by prospective real estate investors looking to grow their wealth. 

With rental properties growing as a form of passive income, this number is anticipated to grow in the coming years. Before you dip your toe in rental properties, you need to understand how to safeguard your properties from reckless tenants. 

Real estate can be a risky market to get into, however, you can lower the risk by requiring security deposits from your tenants. Keep reading to learn what is a security deposit and the benefits of demanding insurance from your tenants. 

What Is A Security Deposit? 

A security deposit is money that is exchanged between the landlord and seller. These funds are given as proof of intent to move in and care for the property. Depending on the property manager this lump sum may or may not be refundable. 

Security deposits are intended to reassure that tenants do not skip out on rent payments or damage rental properties beyond repair. Security deposits act as insurance against losses that may occur if you have a reckless tenant or if your tenant is no longer able to pay rent.

Cover Damage to Property 

Landlords leverage their collected security deposits to cover any damages caused by tenants. Rental properties experience wear and tear over the years, but sometimes tenants may inflict damage. These collected funds help pay for repairs.

This reigns especially true for short-term rental properties. If spring breakers rent one of your properties, you may need to use the security deposit to offset the costs of damages. Some common damages from rowdy renters include broken furniture or windows. 

Excess Cleaning Costs 

Once a property is vacated, it is the landlord's responsibility to clean up the property before renting it to a new tenant. Your security deposit can cover the costs of bringing in professional cleaning services to get the property ready for new tenants. 

Protection From Unpaid Bills

Your tenant's financial capabilities may shift over time and leave them unable to pay their rent. If a landlord must evict a tenant, the collected security deposit will help offset the landlord's losses. 

These funds can help ease the financial losses if a tenant breaks the terms of a lease. This protects landlords even if they typically return security deposits. If a tenant terminates their lease early, the money remains in the landlord's account.

Best Landlord Advice: Require Security Deposits 

If you are investing in real estate properties, it is essential that you seek out security deposits from your tenants. These securities will allow you to maintain your finances, even when tenants destroy property or default on their lease. 

Contact us at Verandah Properties for all of your property management needs.