Security deposits - an important expense to consider when renting
Security deposits are often overlooked when planning to rent a piece of property. The cost of a security deposit can be significant. Learn how much is expected and what happens to the security deposit once it is made.
Many people are considering renting instead of owning a home due to uncertain economic times. Many young adults live in rental units while going to college or when they first move out of their childhood home. More senior citizens are selling their homes as they age due to high utility bills and their inability to maintain the property themselves. Often, the first step in securing a place to rent is fulfilling a landlords request to place a monetary security deposit on the rental unit.
A security deposit is an amount of money paid by a renter or tenant to the landlord, typically as an assurance that the renter will leave the owner’s property in good condition when they vacate the property. The renter should receive the full security deposit back when they leave as long as they have paid their rent in full, does not owe the landlord money for utilities, or has not caused any damage to the rented property beyond reasonable wear and tear.
According to the MSU College of Law – Housing Law Clinic, a landlord cannot charge more than one and a half times the monthly rent for a security deposit. Any extra refundable fees or deposits made to the landlord would be included in this amount. Fees may be charged for holding the property, credit checks, for pets, for cleaning, for keys, mailboxes, or storage are examples of other fees charged. If these fees are otherwise refundable then they would be included in the security deposit amount.
Once a landlord has received a security deposit, they are to either deposit the money in a bank or credit union, or deposit it in a cash bond or surety bond to secure the entire deposit. The bond assures that there is money available to repay the tenant’s security deposit. The security deposit is considered the lawful property of the tenant until the landlord establishes a right to it by obtaining a judgment in a court of law. The landlord is to notify the renter with information about where the security deposit is being held.
When you are considering renting, do not forget to add the expense of the security deposit in your initial budget. This can be a considerable amount of money to have ready for the landlord. For more information on money management and homeownership, visit MI Money Health from Michigan State University Extension.