Ask hundreds of landlord to describe their dream tenant, and most will come back to you with the same answer: someone who is responsible, pays on time, and looks after your property.
But while this may be a reality for many, others face a different scenario: a problem tenant, broken furniture, or missing payments.
That's why security deposits are crucial. Read on to learn three simple ways to make the deposit process work for your investment.
1. Familiarize Yourself With California Security Deposit Laws
In California, the state has outlined specific laws around security deposits. So, one of the first things you should do before handling deposits is to read the state legislation on tenant rights.
Currently, in California, you can only ask for a maximum of two month's rent for an unfurnished property. However, you can extend that to three months if you have a furnished home.
However, laws can change all the time, so you need to check the current legislation each time you get a new tenant.
When asking tenants for deposits, explain how your rules relate to the law.
That will help you avoid disputes later. And when your tenant moves out, you should also check current laws on the time limits for returning that money to the tenant. Currently, that's 21 days in California.
2. Try a Smart Deposit
A smart deposit is a figure that you adapt for each tenant.
It considers the tenant's reliability based on your tenant screening process. For example, you may ask for a smaller deposit for a tenant with an excellent credit history.
Conversely, you might ask for a figure closer to the maximum state law allows if that tenant has a poor credit history.
You might choose the same approach if you are taking on a tenant with a history of late payments with previous tenancies. If you pick this approach, be transparent with your tenant.
When used correctly, this option is the best way to create a fair and reasonable policy that works for you and your tenant.
3. Create a System for Managing Security Deposit Deductions
Security deposits protect you and your property, meaning you sometimes need to deduct money from the tenant after their lease expires.
That deduction could result from damage to the property to cover the cost of repairs. It could be to cover missing rent payments.
However, you can smooth over your relationship with tenants by having a transparent, written process about how you will handle deductions.
It means the tenant knows their responsibilities upfront and any costs they'll incur for problems such as damage.
When you make deductions, apply this process fairly and provide a detailed breakdown of all deductions, reasons, and an explanation of costs.
Security Deposits: Ensuring They Work for You
Security deposits are there to support your real estate investment journey.
It's not always easy to predict how things will go with tenants. But by taking a pragmatic and thoughtful approach, you can strike a balance between protecting yourself and building an excellent relationship with your tenant.
PMI Patron can help you with security deposits and much more in your Irvine rental.
Our property management team has a streamlined and expert approach to supporting landlords. Head here to find out more about what we could offer you.
