According to Investopedia, the 1% rule states that you should set at least 1% (or up to 4%) of a property's value aside each year to pay for repairs and replacements.
Of course, if your property has experienced an excessive amount of damage, repairs could be more expensive. This may happen if your tenants damage your property.
Fortunately, a security deposit could help protect you in such a case. With that said, it's important to follow the correct guidelines regarding security deposits to ensure you avoid any issues.
Let's take a look at some key property deposit rules all landlords in Frisco, TX, should follow.
1. There's No Legal Maximum for a Security Deposit
In many states, there are maximum limits for security deposits, and these are often equivalent to one or two months' rent. In Texas, however, there is no limit. Technically, this means that you can charge whatever you want for a security deposit - but that doesn't mean you should.
If you ask for too much, many potential tenants will be put off. It's best to stick to one or two months' rent as this is what most tenants will expect.
2. Deposits Don't Cover Wear and Tear
If a tenant has damaged your property intentionally or excessively, you're within your rights to pay for the repairs using their security deposit. However, this doesn't apply to general wear and tear.
Minor issues can include:
- Fading paint
- Loose door handles
- Stained bath fixtures
- Worn carpet
- Minor scuffs and scrapes on walls
- More
These occur naturally with time and aren't considered the tenant's fault, so you're responsible for paying to deal with such issues.
3. Return Deposits on Time
Rental security funds should be returned to tenants appropriately. This typically means within 30 days of the tenant leaving the premises. If there are any deductions, you also need to provide an itemized list within the same time frame.
If you fail to return the deposit, you may have to pay a $100 fee plus three times the deposit amount. You might also have to pay for the tenant's attorney fees. Note that you're not obligated to return the deposit if the tenant fails to provide a forwarding address.
4. Understand What Deductions Are Allowed
It's vital that you understand what deductions are allowable so you can pay for what's needed without breaching any rules. In Texas, a security deposit can cover the costs of the following:
- Damages due to lease breaches
- Damages not caused by normal wear and tear
- Unpaid rent
- Unpaid utilities
- Cleaning fees to return the premises to the same level as when the tenancy began
- Changes made to the premises
- Charges to the deposit that may have been provided in the lease
Make sure you outline the details of security deposits in any tenant lease agreements to avoid confusion.
Managing Security Deposits Properly
Efficient security deposit management is essential if you want to avoid issues and ensure any damages or other charges are covered. It can be a good idea to work with a property manager and have them handle security deposits on your behalf.
PMI Frisco is a full-service real estate asset management company based in Frisco, TX. Our experienced team is on hand to provide real-time assistance for any property management needs. Take a look at our residential property management page for more information.
