As your property investment portfolio grows in size, managing the security deposit of your tenants can get complex. We will be breaking down security deposits and how to manage them when you have multiple tenants.
What is a security deposit?
A security deposit is a one-off, refundable amount of money. The landlord would collect this from a tenant in addition to their first month’s rent. Whilst a security deposit isn’t required by law, it acts as an insurance policy to potentially cover the cost of any damages made to a property. In the event that a tenant ends up renewing their lease, the landlord can roll over the security deposit.
Why is it important to keep a security deposit separate and secure?
It’s important to keep personal funds and tenant funds completely separate for legal reasons and logistical ones. Here are some issues that can arise by not keeping these funds separate:
- Confusion can occur and the landlord may end up spending the deposit of the tenant. If the tenant is within their rights to receive their deposit back and you can not provide it, this can cause many problems.
- It can be hard to track the tenant’s funds if they are not in a nominated account.
When the tenant transfers the funds, it’s now the responsibility of the landlord to keep it secure for the duration of the tenancy. When the property has been inspected prior to the tenant moving out, the landlord can then decide if they’ll return it in full or retain some (or all of it) due to property damages.
How can landlords manage security deposits?
The best way to manage these funds, is by having different accounts for each property. It’s also handy to have a business bank account for staff wages, repairs, mortgage payments and taxes.
Read our previous blog post here: Renting As a Freelancer: How Can I Do It?