Handing your property keys to a tenant is more than a simple milestone for many landlords. You are handing over the responsibility of an expensive and important financial investment.
That shouldn't be nerve-wracking. You can protect your money by using a security deposit.
This article outlines your rights and responsibilities as a landlord when collecting security deposits from your tenants. Read on to learn how to set the correct amount and how to store and return that deposit.
Security Deposits and the Law
You must adhere to state laws in New Jersey when organizing security deposits. The most relevant act is the Security Deposit Act. This law states landlords can't request more than 1.5 times a month's rent as a security deposit.
After year one, they can increase this by no more than ten percent annually. The law also has specific guidelines on storing and returning the deposit. We'll cover that later in this article.
Laws on property change fairly regularly, so always check the latest legal documents to ensure you follow regulations.
Choosing the Ideal Amount for a Deposit
When choosing a deposit, some landlords go for an amount in line with the maximum by law. For Morristown, that's 1.5 times the monthly rent.
Yet it's useful to do so analysis before setting this amount for your security deposit collection. Your deposit figure must balance your interests while not burdening your tenant too heavily.
Consider factors such as the condition and value of the property. Check local market demand, too.
Finally, you may consider adjusting the deposit based on the tenant's financial background. For example, their previous rent payment history and their credit score. That helps better protect you.
How to Collect Security Deposits
You must keep a security deposit in an interest-bearing account when you collect it. And you must do this within 30 days of receiving the money. That is something that is stipulated in the New Jersey laws.
You must tell your tenant the name and address of where you hold the money and the interest rate paid. When the lease finishes, you have 30 days to return that security deposit to your tenant.
However, you can deduct money from this as long as it falls within legal guidelines and what's in your tenancy agreement. A good example is a burn mark on an item of furniture.
When You Can Withhold a Deposit
You can legally keep some or all of the deposit to cover specific problems during a tenancy period. That includes:
- Unpaid rent
- Damage that's not wear and tear
- Lease violations
- Unpaid utility bills
You must provide a written outline of why you have made the deductions. Show photographic evidence, if possible, and itemize the issues and the associated costs.
Security Deposits: Protecting Your Property
It's vital you know the legal framework for security deposits, as well as the admin details. Use our guide to security deposits in New Jersey as your starting point. If you want more support, then reach out to our property team.
Our property management services in North Jersey may be the perfect solution for your real estate investment.