An important thing that landlords need to understand is that a security deposit is a tenant’s money. It does not belong to the property owner. That security deposit can only be used once the tenant has moved out of the residence, and it can only be used for past rent and damages.
Security Deposit Amounts
Landlords are often unsure of how much to charge for a security deposit. The law varies from state to state. In Michigan, the maximum amount a landlord can charge is the equivalent of one and a half month’s rent. So, if you have a property that rents for $1,000, the most you can charge for a security deposit is $1,500. If tenants have clean records and good credit, it’s usually adequate to ask for one month’s rent. There are some triggers that would make a security deposit of a month and a half more appropriate.
Pets and Deposits
When tenants move in with animals, it’s a good idea to collect a deposit that equals a full month and a half. Each Grand Rapids property management company handles pet deposits in different ways. Sometimes, tenants will be charged a fee instead of a deposit.
The security deposit money must be kept in a trust account. It cannot be used for a landlord’s spending and it cannot be used to make repairs around the house while the tenant is still living there. That type of activity is illegal. Some tenants will ask if their deposit can be used for the last month’s rent. Your answer should always be no. It’s possible they won’t pay you their last month of rent, and you’ll have to use it, but the answer to a question like that is no. Keep the deposit in a trust account until the end of the lease, at which point you can determine how much of the security deposit you will need to keep so you can pay for unpaid rent and damages.
If you’re not sure about the laws and regulations involved with security deposits, please contact us at United Properties for more information.