Security Deposits: What Can Investors Deduct? Plano Property Management Answers!

Security deposits, which many people commonly refer to as "damage deposits," are a pretty universal practice in Plano property management (and anywhere else in the nation). The premise is simple:

• A security deposit is a sum of money that a tenant gives to their landlord.
• This money functions as a form of insurance against damage or loss of income that may result from that tenant.
• It's not uncommon for a landlord to ask for a month's rent upfront to serve this purpose.

However, Texas law has a few specific provisions that cover this type of payment. Investors who are actively engaged in growing their portfolio of properties need to know how to address security deposits successfully as a component of their duties as a landlord.

So, what do you need to know as an investor concerning security deposits? Let's dive into the topic with a bit more depth so you can be prepared.

A quick note: This article is not intended to supplant advice received from your legal counsel. When in doubt, working with an attorney or Plano property management expert can help you navigate security deposits with ease.

Security Deposits in the Lone Star State

• Under our state's Property Code, there is no statutory limit on what a landlord may charge for a security deposit.
• However, be aware that city or local ordinances can stipulate their limits.
• Be sure to look up specific legislation concerning security deposits in Plano and any other cities you operate in.
• Under Texas law, a landlord must refund a security deposit within 30 days of the tenant vacating or surrendering the premises. 

You may deduct damages and other charges for which the tenant is liable from the security deposit before you return the remainder. Still, you cannot retain any portion of the deposit to cover normal wear and tear.

It's also worth noting that a tenant cannot withhold any part of their last month's rent on the premise that they can use the security deposit to cover unpaid rent. They should pay their rent as usual and use the security deposit to cover damages. Now that you know a little about the legal basics let's go back over the concept of "normal wear and tear." From the perspective of Plano property management, it's crucial that investors know what they can and cannot deduct from a security deposit.

What Can You Deduct?

• You are permitted to keep some or all of a tenant's security deposit if they breach the terms of the lease in some capacity or damage the property beyond what could be considered "normal wear and tear."
• If a tenant tries to "live out" the deposit or use it to pay the last month's rent, you can hold them liable for up to three times the deposit amount.
• You can also keep the deposit in its entirety if your tenant does not give you advance notice before vacating the unit.
• However, be careful: you must spell out this provision in the lease with either underlined or bold print.

Let's talk a little bit about "normal wear and tear." This term refers to wear or damage that occurs to a property as a result of regular use. Wear and tear does not cover damage resulting from neglect or abuse of the property. Normal wear is your responsibility to repair, and you cannot deduct it from a security deposit. Here are some common examples:

• Broken plumbing or appliances resulting from regular use
• Faded paint, wallpaper, or curtains resulting from sunlight
• Dents in walls from doorknobs or handles
• Holes in walls from hanging pictures, so long as they aren't excessive
• Warped doors or windows caused by age, temperature, or moisture
• Wear on rugs or carpets from regular foot traffic or furniture placement
• Replacement of light bulbs, batteries, and air filters.

While you are required to fix normal wear and tear, you are not obligated to repair damage caused by tenant misuse of the property. Here are some common examples of damage that goes beyond normal depreciation:

• Broken walls, doors, windows, or locks
• Removing paint from unauthorized paint jobs
• Cracked tiles or fixtures in bathrooms
• Excessive dirt, mold, or mildew in bathrooms
• Clogged drains or stopped toilets resulting from misuse or neglect
• Appliances that have broken due to negligence
• Tears, holes or burn marks in carpets or curtains
• Excessive holes in walls from pictures or posters
• Animal stains in the carpet
• Flea and pest extermination.

What About Returning a Deposit?

• You have 30 days from the date that a tenant moves out to return their deposit (unless they fail to provide you with a forwarding address).
• If you have made any deductions, take note: you are required to send the balance of the deposit and a written itemized list of any damage and repair costs.
• If the tenant owes you any rent at lease termination without any disagreement as to what the tenant owes, you are not required to send this list.

The security deposit itself is always refundable after you make deductions for repairs. You may add other non-refundable fees, however. If you do so, you must spell them out in the lease and note them as non-refundable.

It's essential to get these rules right: a tenant can hold you liable for up to three times the amount of a withheld deposit plus any attorney's fees if they find that you have wrongfully withheld their deposit. 

RentHub Can Take Care of You!

Your financial future is the whole reason you entered real estate investment, and your property portfolio cannot succeed without careful Plano property management. If you're uncertain about the legal framework surrounding security deposits, reach out for some professional help!

RentHub Property Management is a full-service property management company that can handle so much more than just the legal legwork to make sure that your investment properties are on the level. While we're tackling the legalities of your investment property, you can get back to doing what got you into this business: growing your portfolio!

When you're looking to expand, starting with the right information is crucial. That's why we recommend that investors download our FREE guide to real estate investing! Grow your portfolio the right way—and when it's time to add a new property, our professional management services make integration easy!

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