An important part of owning a rental property in Harford County is charging tenants a security deposit at the start of every new lease term.
This deposit serves as assurance that your property will be cared for during the course of tenancy.
And, if by chance your property is not cared for, this security deposit will help alleviate the financial burden that has now been placed on you to repair your property.
After all, you want to place new tenants as soon as possible, so as not to lose money. Using the security deposit includes covering things such as property damage, failure to pay rent, and expenses incurred if a breach in the lease agreement occurs.
But how do you determine the amount of your rental’s security deposit?
At some point, you will need to seriously consider how much to charge your tenants for renting your Havre de Grace rental property.
In addition, you will need to determine how much to charge them for a security deposit.
For those who are unsure as to how to determine the right amount to charge for a security deposit, check out some of these helpful tips to guide you to a final decision.
How to Determine Your Harford County Rental’s Security Deposit Amount
1. Check Maryland Law
There is no denying there are many federal, state, and local laws applying to owning and leasing a rental property in Maryland.
Although there is no countrywide stance on security deposits as they apply to rentals, it is crucial you understand that how much you can collect in security deposits at the start of a tenancy is determined by the state where your property is located.
According to Maryland law, you are legally allowed to accept a maximum of two months’ rent from a tenant at the start of a lease term as a security deposit.
In addition, the following conditions apply:
- If you overcharge a tenant, they are allowed to recover up to three times the amount you overcharged, in addition to reasonable coverage of attorney’s fees
- A receipt must be given to the tenant at the time you collect the deposit
- Failure to provide a receipt will result in a $25 fine
- You must provide a list of existing damages, if requested by the tenant within 15 days of taking up occupancy, or else you will be liable for up to three times the security deposit
- You must place the security deposit in an escrow account
- During the lease, a simple interest accrual will be applied to the deposit at a rate, depending on the date the lease was initiated
It is very important that you and your Harford County property management company know that two months’ rent is the maximum amount that can be collected as a security deposit, in order to avoid legal trouble later down the road.
2. Evaluate Each Interested Tenant
Just because you can legally collect up to two months’ rent worth of security deposit from a tenant you are placing in your Havre de Grace rental property, doesn’t mean you have to collect that much.
Before setting an amount, consider the type of tenant you are trying to attract for your rental.
For example, let’s say your property is located in an area that boasts an average, middle class income at best.
Charging a tenant first and last month’s rent, plus a security deposit worth two months’ rent, in addition to any other miscellaneous fees that may come included with renting a property from you (e.g. pet deposits, cleaning fees, and application fees), may greatly limit your tenant pool.
If you charge the maximum amount in security deposits every time you lease your property, you may find that you are excluding a group of tenants that may otherwise be perfect.
In addition, charging the maximum just because you can, may unknowingly spread your tenant too thin, leading to unpaid rent in the near future.
In order to keep your Harford County tenant turnover rates low, you might want to consider not charging quite so much up front if the tenant screening process you performed on a prospective tenant revealed an otherwise great tenant.
If their inability to come up with such a huge security deposit is the only red flag in your thorough tenant screening, they may still be a good long-term tenant.
3. Assess the Value of Your Property
Another consideration to make when determining the amount of security deposit you should charge your tenants is the overall value of your property.
Paired with this, you should consider how much money you might potentially have to come up with, should anything happen to your valuable rental property.
For instance, if your property has custom upgrades or comes furnished with expensive antiques or irreplaceable furnishings, you might want to charge the maximum amount in security deposits.
In addition, if your Havre de Grace property comes with lavish amenities such as major appliances, private parking, or a pool house in the backyard, again, you might want to consider charging the highest security deposit you can.
If, after evaluating the value of your property, complete with professional estimates if necessary, you feel that fixing minor damages such as a dent in the wall, scratched floor surfaces, or non-working (and top-of-the-line) appliances will cost you a large chunk of change, making sure you charge the highest security deposit will be in your best interest.
4. Know the Market
Nearly all tenants know the market they are entering when they are looking to lease a rental property.
This is why you too should know the market, to prevent interested tenants from going elsewhere to rent.
Knowing what other rental properties are charging in terms of rent and security deposits will help you stay competitive in the tough Harford County rental market.
After all, people want to take advantage of all that Havre de Grace has to offer, without spending a penny too much on monthly rent payments.
In addition, tenants don’t want to come up with thousands of dollars at the start of their lease term if they don’t have to.
To stay competitive and keep your rental property leased at all times, make sure you find the perfect balance of rent amounts and security deposits.
5. Market Demand
In line with the above-mentioned considerations is the fact that if there is a high demand for your rental property, it is probably safe to say you can charge the maximum amount in the security deposits, and still land a high-quality tenant.
If, however, your rental is not in high demand, – for whatever reason that may be – undercharging on a security deposit is one way of keeping your vacancy rate lower, and placing a tenant in your property quicker.
If you charge a lower security deposit than your competition, you effectively set yourself apart and make your similar rental more appealing to prospective tenants.
Sure, you might not have as much in the end to cover property damages, unpaid rent, and legal fees. However, the idea is to weed out problem tenants in the first place by conducting thorough tenant screening so that you don’t have to deal with property damages and other problem tenant issues.
If you own rental property in the Havre de Grace area and are concerned about how much you should charge tenants when it comes to a security deposit, get in touch with Bay Management Group today.
Bay Management Group’s talented staff has the knowledge and expertise to draft legally complaint lease agreements that follow Maryland’s laws regarding the collection, holding, and returning of security deposits to tenants.
As Harford County’s best property management company, we can help you with all considerations, and set your security deposit at a competitive rate that will also keep you covered, should the unthinkable happen.
