Thursday, September 17, 2009

"News of Interest": Interest on security deposits in Maryland and DC

If you are renting a property or are considering renting a property,become familiar with the local rules and regulations on security deposit laws,which are also tide to how a landlord may deduct from the security deposit due to damages by the tenant. I focus on Metro DC
since that is where I practice real estate. Sometimes getting your security deposit back from a landlord can be a hastle, which is one reason to consider buying verses renting: no responsibility or ties to a landlord;only pay your mortgage and HOA if there is one (and of course follow by-laws).

If you are a landlord,this information is important. You don't just give back the security deposit,you have to give back security deposit with interest. If you are deciding to hold onto your home and rent it while buying another place in order not to "sell low/sell in a down market",keep in mind that you have to deal with (1)paying the mortgage while your home is on the market for rent--as you would do anyway while your home is on the market for sale if it isn't paid off;(2)it may cost you if the rental market value of your home is less mortgage rate---doesn't cover your monthly mortgage payment if you have one (and/or your HOA/Condo fee);
(3)you aren't just paying back the security deposit,but paying interest; (4)you are dealing with possible damage to your home which could cost more than the rental income you collect;(5)you also could deal with tenants being late on rent,not paying rent and having to deal with collecting,and evicting which can be difficult in a tenant friendly town;
(6)we don't know how long it will take for the sales prices to rise to where you want them to be and it could end being years which could cost you your capital gains benefits; (7)you may deal with days on the market and paying mortgage/hoa when you put the home back on the market for sale. There are many issues to consider.

Back to security deposit interest for landlord. You also need to keep a receipt that you gave the security deposit back for 2 years to protect yourself. If you deduct money from the security deposit due to tenant negligence,mess,damage,you must itemize what you are deducting a show receipts. The interest on security deposits,depending on where you live has been 3-4% and every 6 months you multiply the security deposit by the interest. This can add up. So you should read and consider the link below.

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