Handling Tenant Deposits

Are You Handling Deposits Properly?

If you are a rental property owner in the Phoenix area it is likely that you have handled your fair share of security deposits or hold deposits. What you may not know is whether you handled them properly. While the laws of various states can be confusing, Arizona's are fairly straightforward. You can only ask for one and a half months' rent, you must return it within 14 days of vacating (along with an itemized statement of any deductions), and you cannot discriminate where deposits are concerned. In other words, you cannot demand that someone with children pay more than someone without.

In addition, you will also need to keep the security deposit in a separate account and provide tenants with information about the interest earned. Obviously, there are a lot of administrative tasks associated with deposits beyond simply collecting them. Therefore, you may be better off having a property management company handle them for you.

How a Property Management Company Can Help

To gauge whether or not a property management company would be of use to you, let's consider a few questions about security deposits.

  • Can the deposit be used in lieu of rent?
  • Should the deposit be put in a regular savings account or should it be in a trust?
  • How should pet deposits be handled?

Your ability to answer these questions, and others like them, will impact you both legally and fiscally. If you don't know the appropriate answer for just one of them, it is likely that your best bet is to depend on the help of a property manager.

The Answers

Now that your time is up and tests have been turned in, let's take a look at the answers to those questions.

Question one: the simple answer is no. The security deposit is never to be mixed with regular operating funds and is to remain in place to pay for damages that may be done by the tenant. The funds are to be used only when a rental has been vacated and formally inspected. A property management firm can inspect the residence both during and after occupancy to ensure that damages are minimal and handled quickly when they occur. This will keep your property in top shape and help you evaluate whether or not you want to keep a particular resident.

Question two: you must never place the deposits into a regular savings account. These are unprotected if something goes wrong with the rental business they can be lost to creditors. The use of a trust protects them and allows tenants to receive their money in full should anything untoward occur.

Question three: pet deposits are entirely different from security deposits, but still need to be handled carefully. They are to be used only in the event that a pet does damage, and some landlords are now charging regular monthly pet rental payments rather than a one-time deposit. This can bring in a much higher amount and ensure that any damages are more likely to be covered. With either of these options the funds need careful tracking and administration, and though it is basic paperwork it can be a time consuming task.

Ultimately, you need to make sure you are meeting your legal obligations where security deposits are concerned. If you couldn't answer some of the questions here, it is a sign that you may not have the knowledge or experience to appropriately handle deposits. However, the good news is that you can always turn to the experience and knowledge of a property manager to handle such issues easily and effectively.

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