To invest in rental property, investors need a sizable down payment of 15 or 20% sourced from their own accounts. Becoming a real estate investor means spending money to make money, but there are still risks involved.
One of the main risks is renting to bad tenants that don't pay rent. To mitigate this risk, require tenants to pay security deposits.
Landlords who do this must follow security deposit laws in Colorado Springs. Keep reading to learn what they are.
Storing Security Deposits
In Colorado Springs, there are no specific requirements for how a landlord must store a tenant's security deposit. This means a landlord doesn't have to place the deposit in a financial institution, nor does the deposit have to earn interest.
Even so, it's in the best interest of the landlord to place tenant security deposits into separate accounts to ensure there are no problems when it is time to return the security deposit.
There are also no limits on how much a landlord can charge a tenant as a security deposit. It's typical to charge one month's rent unless the tenant is a higher-risk renter.
A security deposit is always refundable because it is considered tenant property. The landlord only holds the deposit as security in case the tenant violates the terms of their lease.
Keeping Security Deposits
It's important to follow landlord and tenant rights when handling security deposits, but there are instances where landlords can keep the deposit. In Colorado, a landlord can keep the whole deposit or a portion of it to cover:
- Unpaid rent
- Unpaid utility bills
- Unpaid cleaning bills
- Unpaid repair bills
- Damage cover normal wear and tear
- Lease termination
Before a tenant moves out, a thorough inspection is not required by the state of Colorado, but it's a good practice for landlords to follow. Completing move-in and move-out inspections will help landlords determine if there are any damages.
Returning Security Deposits
To stay compliant, landlords have to return security deposits within a certain time frame. Generally, a landlord has one month from when a tenant moves out to return the security deposit.
If there is a clause in the lease agreement that both parties agreed to state a landlord has longer to return a security deposit, the timeframe is usually 60 days. This is also the maximum amount of time a landlord can take.
Landlords can withhold part or all of the security deposit for damages, but they must send a written itemized statement to the tenant. The statement must list each deduction reason and the amount deducted.
The landlord forfeits their right to keep the security deposit if they do not include a written statement.
How Can a Property Management Company Help?
To earn rental income, you need to protect your real estate investment by asking tenants for security deposits. Although this money still belongs to the tenant, landlords can use it in the event of property damage or lease violations.
If you don't have a system in place to properly handle security deposits, a property management company can help. Our property managers at Colorado Casa PMI have the experience to handle various rental property tasks.
We can help you lawfully handle security deposits and tenant management. Connect with us today to learn more about our services.