You can make a reliable recurring income from rental properties, but you need to ensure you follow the right practices and procedures.
Collecting a security deposit is necessary when someone moves in, but you don't treat this like rental income. There are certain rules regarding security deposits, and they vary by state. It's important to know the security deposit laws in Tennessee so you can handle things properly.
Let's take a look at the basics of security deposits to make sure you know what's involved.
What Are Security Deposits?
There are various ways to protect your property, and a security deposit is one of the most basic. It's a sum of money that a tenant needs to pay before they move in. You then hold this deposit for the duration of the lease and return it to the tenant when they move out.
If the tenant causes any damage while living there, you can pay for it using the security deposit. It also ensures the tenant won't leave suddenly before their lease is finished, as if they do, you're entitled to keep the deposit.
Protecting your rental property is essential, and a security deposit is a key part of this. If you accept a tenant without having a security deposit fee, it could lead to various issues.
If they caused damage and left before you noticed it, you'd probably have a very difficult time getting them to pay for it. It also stops people from leaving without providing any notice. This would leave you with an empty property so you'd stop making money until you could find new tenants.
Security Deposit Laws in Tennessee
Each state sets its own security deposit laws, and while they're often very similar, you should be aware of the rules that apply to you. The first thing to know is that there's no maximum limit, so you can technically charge whatever you want.
With that in mind, if you charge too much, you'll struggle to get tenants. Most landlords charge either one or two months' rent, so you may want to do the same.
You need to keep any security deposits separate from all other money, so place them straight into a separate account. This account can only be used for security deposits and needs to be held with a bank or recognized lending institution.
At the end of the tenancy, you may be able to make deductions for the following:
- Cost of damage not found during inspections
- Unpaid rent
- Other amounts the tenant refuses to pay
Note that you can only charge for damages found either within 30 days of the tenant leaving or within seven days of a new tenant moving in. You can't make deductions from normal wear and tear such as faded flooring/paint, mold, gently worn carpet, etc.
Managing Your Investment Property Effectively
Security deposits are a small part of owning rental properties, and a lot goes into managing them. It can be very difficult to do this alone, so working with a property management company could be your best bet.
PMI Hometown Living is a property management company serving Dickson and surrounding communities. Our services include marketing, tenant screening, maintenance, rent collection, and more. Take a look at our property management page to see more about how we could help you.