Renting can reap rewards. The median asking rent in 2021 was $1,203.
Yet this is just one payment you can receive when you rent out a property. You can make money off of a security deposit, once you figure out how it works.
What is a security deposit? How much should you ask for? How can you deposit and use the money?
Answer these questions and you can turn a profit on renting a property in little time. Here is your quick guide.
The Essentials of a Security Deposit
A security deposit is a payment that a tenant gives to a landlord as they move in. It is also called a "rental deposit." The deposit is separate from rent payments.
The purpose is to help the landlord cover their losses. A tenant may damage the property during the first few days of their rental. They may skip or delay a rent payment.
Tenants have deposit rights in Pennsylvania. A landlord can collect up to two months' rent for a security deposit during the first year of rental. If the tenant moves out, the landlord must return the deposit within 30 days.
Determining the Deposit Amount
You must abide by the cap on your security deposit for rent. Yet you still have a lot of freedom to decide how much you want your rent deposit to be.
Perform a tenant background check and examine their income level. Think about how much they can give you on top of their rent payments.
If a tenant seems financially responsible, you can keep your deposit to a minimum. But if they have a lot of money and/or less financial knowledge, you can ask for a higher deposit. A moderate amount tends to work best as you won't scare your tenant away.
Depositing Money
You can deposit your money through an escrow account. The bank you use must be regulated, though your account can be interest-bearing.
You can also post a guarantee bond based on the security deposit. You must use a regulated bank that can do business inside of Pennsylvania.
Whichever option you use, make sure you can access your money quickly. Be transparent with your tenant about where you have deposited the money.
Using a Deposit
You can use your deposit for any form of property management. Most landlords use deposits to cover damage to their property, especially broken appliances and windows.
But you can use the deposit to cover cleaning costs and nonpayment of rent. You can also keep the deposit should your tenant violate their lease in some way.
So What Is a Security Deposit?
Many people have questions about property management. What is a security deposit? It is a payment that you accept so you can cover losses during the lease.
You should look at your tenant's income level and determine a good amount. Don't go too low or too high.
Put your deposit in an account with a trustworthy bank. Then use the money if the property gets damaged or your tenant fails to pay their rent.
You're not alone when you're managing property. HomeRiver Group offers premium services for Pittsburgh property managers. Contact us today.
