As if investing in real estate wasn't risky enough, trusting renters to take care of your property and follow their lease agreements adds more risk to the mix.
Luckily, landlords in Maryland can charge security deposits to mitigate some of the risks that come with renting out your property. Security deposits can be used as a form of assurance that the tenant will protect your investment.
However, you have to know the laws to reap the benefits of security deposits. Keep reading to learn the dos and don'ts.
Do Know the Security Deposit Limit
In Maryland, there is a limit on how much landlords can charge for security deposits. State laws say landlords can charge an equivalent of two months rent.
Let's say that rent costs $1,500. If this is the case, the most the landlord can charge as a security deposit is $3,000.
If you overcharge your tenants, you could face legal issues. Not following security deposit limit laws means you might end up paying the tenant up to three times the amount you charged them.
Don't Store Security Deposits in Your Business Account
Your real estate investment should have a business bank account, but security deposits don't go into this account. Open an account solely for security deposits.
State law also says that landlords must place tenant security deposits into this account within 30 days of receiving the deposit.
Security deposits that exceed $50 must be stored in an interest-bearing account or a federally insured financial institution. Tenants may buy surety bonds to use as security deposits as well.
Do Know the Security Deposit Return Deadline
Landlords in Maryland have 45 days to make a security deposit return and any interest accrued on it. If you fail to return interest, you are liable to face penalties.
If a landlord sends only part of the deposit back, they have to include a written itemized list of deductions made. Property management services can help landlords comply with Maryland security deposit law.
Don't Make 'Bad Faith' Rental Deductions
Maryland landlords can keep all or a portion of the security deposit if the unit is left in bad condition or the tenant owes rent. Landlords should perform a property inspection when a tenant moves out.
It's important to know the legal reasons for withholding the security deposit, such as:
- Unpaid rent
- Unpaid utilities
- Excessive cleaning costs
- Lost rental income
If tenants fail to pay rent and utilities, landlords can make the appropriate deductions from the security deposit.
Tenants are also responsible for cleaning the unit before they move out to avoid cleaning and repair costs beyond normal wear and tear.
Lastly, a landlord can withhold some or all of the security deposit if a tenant breaks their lease early.
Property Management Services Can Help With Security Deposits
Understanding the dos and don'ts of proper handling of security deposits is essential to landlord compliance. Following the laws in Maryland mean you can avoid legal fees and other complications.
Hiring professional property managers can help you handle security deposits from start to finish.
Our team at PMI Chevy Chase has years of experience collecting security deposits, placing them in the right accounts, and returning them to tenants on time or making the right deductions.
Let's work together! Contact us today to get started.
