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Inside T&H: Handling Security Deposits

Mar 24, 2019 10:00:00 AM

At T&H Realty Services, a key part of our Property Management service is to provide our Owner Clients with the highest degree of protection for their asset.

Clearly, obtaining a proper security deposit from your Tenant is a big part of this.

A security deposit is one of the most important lines of defense for Landlords. A security deposit not only protects the property, but also the Landlord’s finances should anything be damaged during their renter’s lease period.

Let’s dive a little deeper into how we handle this very important issue for our Clients.

How Much Does T&H Charge for a Security Deposit?

In our previous Tenant Screening blog, we discussed how we determine what each Tenant's deposit will be. To quickly recap, we use  a risk-based model. Depending on various factors such as credit score, rent to income ratio, and previous rental history, we will require either 1, 1.5, or 2 month’s rent as a security deposit.

security-265130_1920We firmly believe that you should never charge less than 1 month’s rent, no matter what.

I know... lowering the deposit is oftentimes used as an incentive to attract Tenants. But, trust us, it can burn you big time in the long run. 

Indiana Security Deposit Laws

First and foremost, the most important thing to understand about security deposits, is how they can be used. We have a comprehensive blog available about Indiana security deposit laws that I highly recommend you read through. It will give you a more well-rounded understanding of our entire process and why we do things the way we do.

How Does a Security Deposit Work in Indiana?

Collecting the Security Deposit

So, after we’ve screened and approved a Tenant and determined what their deposit will be, we require them to pay the amount in full, within 24 hours of signing their lease.

If a Tenant balks at paying a deposit or wants it divided up into three different payments over a few months, that’s a red flag. It’s always a concern if a Tenant does not have the financial resources to pay for a Security Deposit and the first month’s rent.

Processing the Security Deposit

At move-out, your assigned Property Manager will conduct a thorough walk-through of the property to determine if there are any Tenant charges that should come out of the security deposit.

There are some basic, obvious, parameters for disbursing the security deposit:

  1. If the Tenant owes rent, or other fees, the security deposit will be used to pay those charges.

  2. If the property requires significant cleaning, the security deposit will be used to clean the home.

  3. If the property has damages outside normal wear and tear, as a result of the Tenants or their guests, the security deposit will be used to make the repairs.

Items #1 and #2 are generally easy to define. The third item can be trickier, the definition of "normal wear and tear" can vary greatly, so we work hard to establish standards and expectations so we are on the same page with both you, the Owner, and the Tenant.

We will then create an itemized report detailing all issues and charges along with a check for the amount of money the Tenant is entitled to (if any), and send it to them within 45 days as the law requires.

Security Deposit Disputes

As a 3rd party Property Management company, we occasionally find ourselves directly in the middle of security deposit battles.

Our Tenants, naturally, want all of their deposit back and our Owners, naturally, want to keep the entire deposit.

Remember, the security deposit is the Tenant’s money.

Contrary to what you may think, it's actually better when you end up giving the Tenant back the communication-1082657_1920full (or close to full) deposit because that means the Tenant left your property in good condition which means less turnover work for you.

It's a win-win situation!

In the event that your Tenant wants to dispute the charges, we have a streamlined process for them to do so.

They must contact us within a short time after the 45-day letter is received.  Tenant’s must provide documented proof of why the charge was not appropriate. It’s not just a matter of “it’s not fair”.  

We will provide them an additional review of how their deposit was processed to make sure there were no procedural errors.  

We always try to be as accurate as possible in our move out assessment, but sometimes there are “gray” areas of interpreting Tenant/Deposit statutes in Indiana and some issues are judgement calls.  

In all cases, we always act in your best interest, but if a need for an adjustment is found, we will run it by you for your approval.  

Conversely, if the review verifies everything was processed correctly, we will let them know the deductions stand and are final.  

But please remember, sometimes concessions are warranted and could be the best option to avoid the risk of further litigation and potential additional cost.  

For any questions on your end, we ask that you discuss with your assigned Property Manager to come to a resolution. At the end of the day, our goal is to be fair for all parties.


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Devon L. Hicks

Written by Devon L. Hicks

As well as being a licensed Realtor, Devon has her Bachelors in Marketing from Missouri State University and utilizes her skills in a variety of ways to educate and advise real estate investors in the Central Indiana region.