Security deposits come up in almost every conversation I have with new landlords. Small investors especially want to know the rules so they don’t get hit with penalties or disputes down the road.
I’ve managed my own 13 doors in the West Metro for years. Here’s the practical breakdown I give my clients.
How Much Can You Charge?
Minnesota has no statewide cap. You can ask for whatever makes sense for the property. Most people go with one or two months’ rent.
Watch out for local rules though. In Minneapolis, if you’re collecting first month’s rent plus a deposit, the deposit can’t exceed one month’s rent. If you’re also taking last month’s rent upfront, it drops to half a month.
Check your city before you set the amount. High deposits can scare off good tenants anyway.
Interest on Deposits
You owe tenants 1% simple interest per year on the full deposit amount. This applies even if you just keep the money in a regular checking account. You don’t have to put it in a separate interest-bearing account.
The tenant has to request it in writing each year. It’s not automatic. When they ask, you have 30 to 60 days to pay it.
Miss this and they can complain to the Attorney General.
What You Can Deduct
You can only take money out for actual damage beyond normal wear and tear, unpaid rent or utilities, or excessive cleaning if they left the place significantly dirtier than when they moved in.
- Holes in walls from abuse
- Broken appliances they caused
- Pet damage that requires more than basic cleaning
- Unpaid rent or fees
Normal wear and tear is on you. That means faded paint, minor scuffs, worn carpet from regular use. You can’t charge for that.
Returning the Deposit
You have 21 days after the tenant moves out and returns the keys. Send the remaining money plus a written list of any deductions with reasons.
If you miss the deadline or withhold in bad faith, the tenant can sue for the full deposit, interest, and a penalty of at least $500 or the amount you wrongly kept.
I document everything with photos at move-in and move-out. It saves headaches later even though the state doesn’t require a formal walkthrough.
Practical Tips from Running My Own Rentals
Keep good records. Note the condition when they move in. Take dated photos. When they leave, compare and only deduct what you can clearly justify.
Small investors get burned when they try to nickel and dime or forget the interest rule. Keep it clean and you avoid court.
If the property sells, the deposit goes with it to the new owner. Make sure you transfer the funds and records.
If you are a small investor in the West Metro wondering about security deposits, call me at 952-994-4451 or use the contact form on this site. I manage 13 doors myself and I keep it straightforward.