Security deposits—and how they’re handled—may be one of the most misunderstood topics for landlords and property managers alike. Part of this confusion stems from the fact that security deposit laws vary from state-to-state. For example, many states have limits on how much the landlord can hold, but the actual amount can vary by state. Another example: some states require landlords to pay interest on security deposits while others do not. That’s why it’s important to learn your state’s specific rules. Mishandle a security deposit and you could lose your right to keep any of it, no matter how much damage the tenant has caused. Worse yet, you could find yourself on the wrong side of a judge’s verdict, owing your tenant double or triple the amount of the deposit.

What follows is a general discussion about handling security deposits. At the risk of sounding like a broken record, also be sure to check the laws in your state.

Deposit amount
Several states (like Massachusetts, for example) impose limits on the security deposit amount landlords can hold, while others (like Florida) do not. When a limit is imposed, it’s generally equal to a certain number of months’ rent. For example, landlords in California can collect two months’ rent.

Bank account
Where you hold the security deposit can also be a matter of law. In some states you are required to hold security deposits in a separate bank account “for the benefit of the tenant.” You may even be required to pay interest, depending on your state. In Massachusetts, for example, you are required to pay 5 percent per year or the amount of interest earned (whichever is less).

Statement of condition
Whether your state requires it or not, it’s a good idea to give your tenants a written statement about the condition of the property. (Also be sure that both you and your tenant sign the statement.) Better still, do a walk-through with your tenant before he moves in, noting any pre-existing damage along the way. That way there will be no question about whether or not that hole in the wall was there before the tenant moved in.

Deductions for damage
When a tenant moves out, you have the right to deduct money from the security deposit for any damage he caused. Do a final walk-through of the property with the tenant, noting any new damage. You can’t deduct for “normal wear and tear,” so be sure to exclude those issues. It’s a good idea to bring along a digital camera so you can justify any deductions in case there’s a dispute. Depending on where you live, you may be able to deduct for unpaid rent as well. Again, check the laws in your state to be sure.

Refunds
Whether you deduct for damage or not, many states have rules about the allotted timeframe for refunding a security deposit once a tenant moves out. For example, in Massachusetts landlords must refund security deposits or provide tenants with a detailed list of damages and the cost of repairs within 30 days. If a landlord fails to do this he loses his right to deduct anything … no matter how much damage the tenant caused.

Security deposits are a valuable tool that can help protect landlords against damage caused by tenants, but they do come with a certain level of responsibility. Handling them correctly will keep things running smoothly and ensure you stay on the right side of the law.

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• Many people are being displaced due to the current financial crisis. The Chicago Sheriff’s Department is doing something about it by suspending all foreclosure evictions.
• Have vacancies? Check out these 16 ways to market your properties.
• Here’s a shoutout to one of my favorite real estate blogs, the Real Estate Outpost. Be sure to check it out.
• NOLO is always a great resource for property managers and now they’re offering these 10 great tips to help us manage our properties.
• Does this sound familiar? “I can’t pay my rent because my daughter needs school supplies.” Are the excuses real or smoke screens? This landlord thinks they’re red flags … and here’s why.

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I don’t know about you, but I hate filling vacant units. Maybe hate is a strong word, but searching for tenants, screening tenants, and doing showings just to fill a single vacant unit is a major pain.

So what’s the easy answer to avoiding all this time and expense? Simple. Avoid vacant units in the first place by getting your current tenants to stay put.

Why spend the time and money to repaint, clean, and advertise the unit when you already have solid tenants who pay their rent on time? Though not always easy, in the long-run it’s almost always cheaper to retain great tenants than to find new ones.

So how do you keep great tenants? Again, the answer is simple. Just make sure you’re doing the commonsense stuff … that’s not always so common.

Make things easy
Let’s face it—life is complicated. But renting from you doesn’t have to be. Look for ways to make things easier for your tenants by taking advantage of the Web. For example, instead of making your tenants pick up the phone every time they need something from you, let them report repair items online. Instead of having them mail their rent check each month, let them pay electronically. Don’t have the mad programming skills to do it yourself? No problem. You can find a number of low cost options online.

Ask for feedback
It sounds simple, but the best way to know what your tenants are thinking is to ask them. Ask them how you’re doing and what you could do better. Ask them for their ideas and suggestions. And when you do get feedback from your tenants, acknowledge it and tell them how you plan to address their comments and suggestions. You don’t have to do everything they suggest but if you commit to doing something be sure to follow through.

Invest in the property
Many inexpensive improvements can go a long way toward making your tenants happy. Whether it’s repairing a broken light or repainting the hallway, improvements like these show you care while maintaining property value.

Explain rent increases
You may have happy tenants today, but their happiness will likely wane if you increase rents without first doing your homework. Be sure to check out your competition. (You can do this with just a few mouse clicks by going to Craigslist.org to see what similar units in your area are renting for.) Then if your tenant balks, you’ll have the data to back-up your increase.

Give incentives to stay
Giving a free month’s rent is almost always an unwise decision but you may need to offer some kind of concession to compete with other properties. If competitors are offering incentives to get your tenant, a small incentive to keep them might be a wise investment. Sometimes leaving rent untouched is incentive enough. If your tenants know you’re refraining from raising their rent to keep them happy, they’ll likely see their stable rent as an incentive to stay.

So what’s the bottom line? It’s simple. Retaining tenants minimizes vacancies and turnover, saving you time and money. By making things easy for tenants, listening and responding to their feedback, maintaining your properties, explaining rent increases, and offering incentives, you’ll help keep those vacancy rates low—right where they belong.

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• How do you advertise your rentals? James Orr of AnalyzedDeals.com has a great recommendation … use Craigslist.
• Prevent your house from becoming a drug house.
• See what tenants are saying about bad landlords.
• Can you take a delinquent renter’s furniture as collateral? It depends.
• The National Apartment Association (NAA) can help property managers. Check them out.

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Chances are at some point in your property management career you’ll have to evict a tenant. Whether it’s because he hasn’t paid his rent, threw one too many late-night parties, or violated any other term of the lease agreement, the bottom line is you’ve come to the point where you want him out. Now the question is, how do you go about evicting him?

First and foremost, remember that your state’s specific laws may require different procedures than the general advice recommended in this post. Begin by familiarizing yourself with state laws and be sure to get yourself a good lawyer—preferably one that specializes in landlord-tenant disputes.

With the legal disclaimer stuff out of the way, let’s look at some of the more general eviction guidelines that apply to many states. As the real estate law section of FreeAdvice.com says:“The process of eviction is a very fast one compared to other kinds of legal action. The trade-off is that the landlord must do everything exactly right.”

Step 1: Give your tenant notice.
The very first step is to give your tenant notice that he is being evicted. This notice can take many forms.

• Nonpayment of rent: If your tenant has breached a lease provision for rent payment timelines, you’ll typically send a “pay rent or quit” notice stating that you’ll begin the eviction process if the breach isn’t resolved within a certain number of days. Essentially, this is just a fancy way of saying “pay up or ship out.”
• Violation of occupancy rules: If your tenant has violated any other occupancy rules—such as housing people who aren’t on the lease—you may be able to send him an eviction notice under current law even if it’s not explicitly called out in the lease. However, as with past due rent, you may have to give him a specific number of days to correct the problem before proceeding with the eviction. Your best bet is to check with a lawyer.
• Unconditional notice: In some states, you can give notice of eviction for any valid reason without providing your tenant with an opportunity to “cure the breach.” You’ll send this type of notice when you don’t want your tenant to fix the problem; you just want him out. Again, check with a good lawyer to see what the laws in your state say.

Step 2: File the action in court.
If you’ve sent the required legal notice and your tenant still hasn’t fixed the problem within the specified number of days, then it’s time to file an eviction action in court. Depending on where you live, filing an action can be as simple as filling out a form online or as complicated as requiring a personal appearance in court. In either case, once your tenant is served, he generally has a certain number of days to respond before additional action is taken.

Step 3: Fight or flight.
If your tenant does not respond to the eviction action within the allotted time, you’ll receive a default judgment in your favor. If your tenant fights the action, you’re on your way to court. If you have not yet found yourself a good lawyer, now is the time.

Step 4: Getting on with the eviction.
If the court rules in your favor, the next step is contacting your local Sheriff’s Department to enforce the ruling. Resist the temptation to change the locks or remove the tenant’s personal property; taking matters into your own hands will almost certainly lead to trouble. Let the Sheriff’s Department do its job. They’ll post a notice on the door and remove your tenant’s belongings after waiting the appropriate period of time. That’s when it’s time to call the locksmith.

So what’s the bottom line? Get to know the laws in your state before you begin an eviction or, better yet, find yourself a good lawyer who knows all the ins and outs of eviction. As tempting as it may be to put this step off for as long as possible, it’s important that you don’t wait for an eviction before contacting a lawyer. The more advance preparation and knowledge you have, the better you’ll be able to handle an eviction situation effectively and efficiently when it arises.

10/6/2008 Update: Evicting in North Carolina? I just came across a great post on the Catawba Valley Real Estate Blog by Joseph Griffin about evicting in North Carolina.

10/14/2008: Evicting in Ohio? Jason Opland of The Opland Group posted a great blog about the tenant eviction process in Ohio.

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