The Bay State is the place for landlords! The average rent price for a one-bedroom apartment in Massachusetts was $2,485 in February 2023. That's up by nearly 10.4% since February 2022.
You can make thousands of dollars a month off of renting out just one room in a house. But you can't just start renting your home out. To be a successful landlord, you must request and receive security deposits from your tenants.
Unfortunately, collecting security deposits is trickier than it seems. Here's what you should know about collecting security deposits in Massachusetts.
Massachusetts Security Deposit Laws
Part II, Title I, Chapter 186, Section 15B of the Massachusetts General Laws is the main law affecting the collection of security deposits. Your security deposit cannot be more than the first month of rent your tenant is paying.
You must place the security deposit in a bank account that a Massachusetts bank manages. The account must bear interest, and you must pay the interest to the tenant each year they live in your property.
You must repay the security deposit within 30 days of your tenant moving out. However, you can deduct money for damage to your property, unpaid rent or utility bills, or unpaid increases in real estate taxes.
These regulations do not apply to renters who are living in your property for less than 100 days for a vacation or recreational purpose. But they apply to all renters on your property for long periods of time. If you fail to follow any of these laws, you must pay three times the amount of your tenant's security deposit plus interest at 5%.
How to Collect Security Deposits
Before you start accepting tenants, you should decide how much your security deposit will be. You may want to charge less than the first month of rent to accommodate low-income tenants. If you're renting out a new property, you are less likely to experience wear and tear, so you can charge a lower security deposit.
Tell your tenants how you will start collecting security deposits in your rental listing. You should mention how much the deposit is, what the importance of security deposits is, and where their money will go. Talk to a property manager with rent collection services to help you manage rent and security deposit payments.
You're not done once your tenant has given you their money. Talk to the bank holding the deposit every year and see how much interest it has collected.
Spend the security deposit as a last resort. If your tenant misses a rent payment, they can pay two rental payments next month.
The Basics of Collecting Security Deposits in Massachusetts
Security deposits cover the cost of late rental payments, property damage, and rising real estate taxes. But you must follow laws that limit how much you collect and how you use the money.
You can only collect a deposit up to the first month of rent and you cannot collect more money once you've spent it. Be clear with your tenants about how much you are collecting and what you will use the money for.
If you're struggling with security deposits, turn to property management experts. PMI Spruce Tree serves New Bedford landlords. Schedule a free consultation today.