There’s no denying that owning rental property is a great way to build cash flow and wealth but it can be a hassle at times especially when it comes to security deposit returns because there’s always one tenant who expects all or most of their security deposit returned to them but the good news is that this problem can be avoided by following this simple process.
Be sure that deductions qualify. Most states allow a landlord to use security deposit funds to recover the costs of unpaid rent and damage to the unit above normal wear and tear. That’s the case in Connecticut. However, in some states, like Indiana, landlords can recover unpaid sewer and utility bills. Iowa law allows landlords to keep the security deposit to put towards the cost of recovering possession where the tenant withholds “in bad faith.” In other states, eligible expenses are not governed by statute at all, but rather by the terms of the original lease agreement.
Document all damages. Interestingly, not all states require a walk-through inspection before making a claim against the security deposit. Even though it may not be required, it’s usually best practice to do so anyhow. If the tenant hasn’t moved out yet, try to arrange for them to be present at the inspection—this will go a long way toward minimizing deposit disputes. Take pictures of all damages (ideally, you will have “before and after” pictures of the unit to offer as a comparison in the event the tenant disputes your claims). Also, keep a record of all unpaid rent, utility bills and other expenses that are not necessarily “damage” related so you have that proof as well.
Prepare an itemized list of all deductions. The itemization should be in writing and state how the deposit will be applied toward back rent, cleaning, repairs, or other financial obligations required under your lease or rental agreement. List the item (such as repainting the living room or five days’ unpaid rent) and the dollar amount of the deduction. Attach receipts and invoices for all repairs, or include a reasonable cost estimate for those repairs.
Source – Buildium
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