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How to Handle Security Deposits So You Avoid Getting in Trouble with State Authorities!

By Michel Lautensack

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Security Deposits

Security deposits and how to deal with them is a very important area for landlords. It's important to understand that security deposits are not your money as an investor or as a landlord. They are not for you to be spending on fixing things up or going on vacations or whatnot.

They are the tenant's money, and you need to treat those appropriately, and if you don't do that, you could potentially run into some issues where your real estate commission ? every state's got a real estate commission of some sort ? they could in theory send you a letter or knock on your door and say, "I want to examine your financial records to see what you're doing with security deposits."

That is not something you want to have happen. We'll talk about how to prevent that from happening. Also, how to deal with security issues once the tenant leaves. It's very important that you document things properly with letters or whatnot, even photos in some cases, and that you comply with your state laws in terms of how to handle security deposits.

For example, in Pennsylvania you have to return a security deposit back within 30 days and you need to understand what your state's rules and regulations are to make sure you're in compliance with them.

Again, that's one of the things that you can do at any point is to go to Google and type in your state and you could put "landlord or tenant regulations" and most likely you'll be taken to your state's statutory rules and regulations.

Hopefully, you can get to your state's landlord/tenant rules and regulations, and as a professional real estate investor you should take some time and read those regulations. Make sure you understand what's required in terms of escrows and security deposits and things of that nature. It's very important that you educate yourself on what's allowed and what's not allowed in your particular state.

Handling Tenants

One of the things we'll do on the second night is how to handle tenants, because I think this is a particularly critical topic. Handling tenants is not easy. In some respects I'm going to teach you, but at the same time I've learned this through thousands of interactions with tenants, and this is not an easy topic to teach.

Dealing with tenants at times can be very, very difficult. They will test you. They will poke and probe and see how good you are. Tenants know the laws far better than you'll ever know it, I guarantee. They sit out on their steps at night and they talk to each other about ways to try to wiggle around different rules and regulations.

You need to be very, very professional, very factual when dealing with tenants. It's important that you are not becoming their friend. I see this over and over and over again where people put family or friends into it, and almost universally it ends up being a bad situation.

There are times when you need to be very firm, very harsh, and there are times when you need to just back off and be very compassionate and try to work it out. One of the things that people hired me to do and one of the primary values that I bring to my clients in my ability to manage through difficult situations.

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