As you begin your foray into rental property ownership, you can't wait to start generating cash flow from your property.
You're not the only one taking advantage of the real estate field. Research shows that individual investors in the United States own around 23 million rental units.
Before you start collecting a rent payment, though, you need to collect a security deposit from your tenant. Security deposits are a way for new tenants to secure a lease.
Here's a rundown on everything you need to know about security deposit collection.
Let's get started!
Know Your State Law Regarding Security Deposits
Before collecting a security deposit, you'll need to research what your state laws require from landlords during this process.
For instance, you may need to put your tenant's deposit in an account that bears interest, then provide the tenant with a receipt.
You might also have to send the tenant a letter if part of their security deposit is utilized to cover repairs for any damage that the tenant has caused. Likewise, you may need to notify the tenant if you use part of the deposit to cover a missed rent payment.
Collect the Security Deposit and Rent Payment Separately
When collecting your tenant's security deposit and first rent payment, be sure to do these transactions separately.
If the tenant pays the security deposit but doesn't pay the rent right away, your records should clearly indicate this. By keeping the two transactions separate, you make it easier to track what you're owed.
Also, security deposits usually have to be placed in their own account rather than being comingled with other assets based on state laws. Collecting deposits separately will make it easier for you to fulfill this requirement. Then, you can simply deposit rent payments in an account you have created solely for rent payments.
Collect the Security Deposit After the Signing of the Lease
Finally, avoid collecting a security deposit until after your tenant has signed their lease.
This is important because it ensures that the tenant understands the terms of the lease and agrees to them. This is necessary before you hand them your keys.
Collecting the deposit after your tenant has signed the lease also protects them. After all, they shouldn't give up any money until an official lease agreement is in place featuring signatures from both parties.
How We Can Help
As you explore how to collect security deposits, be sure to review your state laws to determine the proper steps for receiving this type of payment after your tenant has signed their lease. In addition, you'll need to collect the deposit separately from your tenant's rent payments.
At HomeRiver Group Kansas City, we can help you to manage your rental property by collecting security deposits and rent payments. We can also handle the process of finding tenants and dealing with property maintenance.
Contact us to learn more about how we can take your experience as a landlord to the next level in the coming years.