Running a Successful Rental Property Business: Rent and Security Deposit Tips

For many landlords, rental properties are more than an investment. Renting out properties is a business. And like any business, property owners want to make money while providing a service. To run a successful business, landlords must understand rent and security deposit rules.

This article shares helpful rent and security deposit tips that can help rental property owners run a successful business. The best tip of all is to enlist expert legal help if you run into an issue. Contact a local attorney for personalized business guidance and legal advice.

Rent Tips and Tools for Landlords

Rent is a sum of money a tenant pays a landlord, property owner, or property management company for the right to use the rental property. The best time to establish rent rules is before your prospective tenant moves into the rental unit. Your first step in establishing rent is setting the rent for a rental unit.

Set an Appropriate Rent Amount

Determining an appropriate rent amount is a delicate task. High rent may turn off prospective tenants, while low rent can harm the landlord’s cash flow. Many landlords and real estate developers rely on loans to purchase properties and must factor these costs into their decisions.

Landlords can use several tools to set an appropriate rent amount. These tools include, but are not limited to:

• Rental Market Analysis: A rental market analysis allows the landlord to compare their rental property to similar rental properties in their neighborhood.
• Rent Control Laws: Restrict how much a landlord or property manager can charge. Landlords should consult local rent control laws or a real estate attorney before they set an amount for rent.
• Online Resources: Zillow is one example of an online resource landlords can use to determine how much to charge for rent. Landlords and property managers can use Zillow’s rental property return on investment (ROI) calculator to set rent. Landlords can input their operating costs, including mortgage and expenses, to help calculate rent.

Business owners often benefit from professional legal help. A business and commercial attorney can help you set your rent amount, meet city requirements, and advise on other business strategies. Find local legal help.

Use Your Lease Agreement

The best way to set a rent amount is in a written lease.

Lease and rental agreements are binding contracts between a landlord and a tenant covering a tenancy. Ideally, leases should cover all aspects of the landlord-tenant relationship, including the monthly rent amount. A court will review the lease to determine a resolution to a dispute.

The lease agreement should include the following:

• Rent due date
• Rent amount
• Penalties for late or unpaid rent.

Leases and rental agreements are great tools for handling rent because they establish these rent basics. Receipts are another tool for handling rent.

Leverage Online Rent Payments

Landlords and property managers have several tools to help them collect rent. One popular tool is online payments. Online payments help streamline the rent collection process. Renters don’t have to withdraw cash or write checks to pay rent. Instead, they can pay online each month or set up recurring automatic payments and receive automatic receipts for each payment.

Landlords and property managers should also offer traditional methods, such as using a money order or check to pay rent.

Keep and Issue Rent Receipts

Rent receipts aren’t required in all states. But they’re good practice for any landlord or property management company. A rent receipt protects both the landlord and the tenant. It proves the renter paid their rent. Moreover, if you consistently issue rent receipts, that consistency can help you in a legal dispute.

A rent receipt should typically include the following:

• Date the renter paid rent
• Amount received
• Name of the tenant
• Tenant’s unit number
• Dates covered by the rent

As a best practice, landlords and tenants should keep copies of rent receipts for several years.

Security Deposit Tips and Tools for Landlords

A security deposit is money a prospective tenant pays the landlord before moving in. This payment is separate from the first month’s rent or application fees. A security deposit protects a landlord if a renter defaults on rent or damages the rental unit.

Know the Security Deposit Limits In Your State

Many states, like New York State, limit the amount a landlord may charge for a security deposit. In New York, a landlord cannot ask for more than one month’s rent as a security deposit. For example, if the rent is $2,000 monthly, the landlord cannot charge more than $2,000 for a security deposit.

Handle Security Deposits Carefully

Many states and localities regulate how landlords and property managers handle security deposits. If your state does not regulate how you handle security deposits, these regulations guide best practices.

Landlords should keep security deposits in a separate bank account. Many states require landlords to deposit the security deposit into an interest-bearing account, with the interest going to the tenant at the end of the lease term. Be sure to give your tenant a receipt for the security deposit.

Return Security Deposits On Time

Tenants have a right to get their security deposit back. Typically, a landlord or property manager will return the tenant’s security deposit after the tenant moves out, subject to an inspection of the rental property. Landlords can deduct from the tenant’s security deposit to cover the cost of repairs or cleaning.

Landlords can only use the security deposit to repair actual property damage, not normal wear and tear. Normal wear and tear includes, but is not limited to:

• Furniture marks on the wall
• Faded spots on the carpet
• Warped doors and windows due to age
• Dents in the walls from door handles
• Replacement of smoke detector batteries

The rules for returning the security deposit vary by state. In some states, landlords must give tenants an itemized list of repairs and their costs.

Security deposit laws also provide deadlines for returning a security deposit, so don’t delay making repairs when the tenant moves out. Landlords must return the itemized list and the security deposit balance before the deadline expires. Landlords should include language in the lease agreement requiring tenants to leave a forwarding address in writing as part of their written notice to vacate the rental property.

Don’t Use Last Month’s Rent as a Deposit

Last month’s rent is distinguishable from a security deposit. If you collect last month’s rent instead of a security deposit, you can use that money only as last month’s rent. Landlords cannot use the last month’s rent to pay for any of the following:

• Repairs to the rental unit
• Unpaid utilities
• Cleaning the rental unit

Get Legal Help With Your Rental Business

Real estate law can vary from state to state. If you have questions about handling rent or security deposits, speak to an experienced local landlord-tenant attorney. They understand the nuances of landlord-tenant laws in your state.

Get help reviewing your lease or rental agreement and get sound legal advice today. FindLaw’s directory of landlord-tenant lawyers can get you started. Because your state’s laws are relevant, your attorney should be licensed in the state where the rental property is. Enter your city or ZIP code for a list of legal professionals in your area.