On average, renters spend roughly $485 billion in rent nationwide each year. On top of that, rent prices increased in 91 of the 100 largest cities in the United States over the last year.
So, it's no surprise that many people interested in making extra income are looking into renting out their homes and investment properties.
Rental properties can be lucrative, but risky endeavors. No matter how carefully you choose your renters, there's always the chance that a tenant may damage your rental unit.
That's where rental deposits come in. Rental deposits are one of many important ways to protect your interests as a landlord. Keep reading to find out everything you need to know about rental deposits as a landlord.
Types of Rental Deposits
A security deposit is an amount of money the tenant pays to the landlord as proof of intent to occupy and care for the rental unit. Most landlords collect a security deposit equal to the value of the agreed monthly rent price.
A utility deposit is intended to cover the cost of water, electricity, gas, and other utilities in the event the tenant fails to pay for those services. Utility deposits are common for first-time renters who have no rental history.
A pet deposit is a refundable fee a tenant pays upon signing a lease. It is similar to a security deposit, but can only be used to cover the cost of repairing damage caused by pets.
Are Landlords Required to Collect a Security Deposit?
Colorado landlords are not required to collect a security deposit from their renters. However, it is highly common for landlords to do so.
It is in the landlord's best interest to collect a security deposit from their tenants in order to protect their property and interests.
Stay up-to-date on the changes to Colorado landlord-tenant law here.
Do Landlords Need to Keep Security Deposit Receipts?
Colorado law does not require landlords to keep receipts of security deposits. However, accurate record-keeping is important and it is a good idea to keep receipts of security and rental deposits.
Receipts are especially important if you need to withhold a rental deposit.
Pro Tips: Set Expectations and Document Conditions of Rental Unit
Ideally, landlords want their rental properties returned in the same condition they were in when the tenants moved in. If the property is damaged, the landlord can use the security deposit to pay for cleaning and repairs.
However, a tenant may dispute the charges for the damages you claim. The best way to avoid this is to document the condition of the rental unit when the tenant moves in.
Do a walk-through with the tenant and provide a move-in inspection report for them to fill out. When the tenant moves out, use that report to compare the condition of the apartment to the condition when they moved in.
Taking photographs of any damages is also highly recommended.
When Should Landlords Return a Deposit?
In Colorado, landlords are required to return a security deposit within one month of the tenant vacating the rental unit.
It is within the landlord's rights to set an alternative agreed-upon deadline with the tenant. However, the deadline cannot be more than 60 days after the date the lease ends.
When Can a Landlord Withhold a Security Deposit?
A landlord can withhold all or a portion of a security deposit in the event there is damage in excess of the normal wear and tear of residing in the unit. The landlord can also withhold the deposit to cover unpaid rent.
If the tenant does a poor job of cleaning the unit, the landlord can use part of the security deposit to pay for cleaning. Finally, if the tenant abandons the property, the landlord can withhold the security deposit.
In the event the landlord does need to withhold any portion of a security deposit, they must provide the tenant with an itemized statement detailing the reasons for withholding the deposit.
Consider Professional Property Management
Colorado landlords are not required to collect rental deposits, but it is in their best interest to do so. If a tenant does not return a rental unit in the condition it was in when they signed the lease, a security deposit is handy.
For the best results in renting and managing your investment property or a rental unit, consider using a professional property management service. Learn more by scheduling a free consultation today.