There are a lot of methods you might know to be obvious when trying to avoid high turnover costs with a rental property, such as proper tenant screenings and conducting regular inspections.
But there’s one thing, in particular, that could be the difference between having to give your tenant their security deposit back or not. It can also determine whether you can take your tenant to court to recoup the turnover costs due to damage or neglect.
And that one thing likely isn’t the first thing that pops into your head when you think about ways to avoid turnover costs.
The move-in inspection.
Feels anti-climactic? Hear me out.
Yes, a move-in inspection is a standard to-do item when renting a property to new tenants. But how much thought and effort do you put into your move-in inspections? I would guarantee you’re doing the move-in inspection wrong, and it’s possibly costing you thousands at your next turnover.
If you think I’m being dramatic about a wrongly conducted move-in inspection costing you thousands of dollars, allow me to tell you the unfortunate story of how I know this to be true.
Real-Life Consequences of a Poor Move-In Inspection
Most of my rental properties are out-of-state, and because of their distance from me, I have property managers who handle them on my behalf. Property managers are a unique breed, and in my experience, it’s fairly standard for a good property manager to, at some point, become not-so-good, and I end up having to fire them and hire a new one.
A few years ago, sure enough, my favorite property manager turned terrible, and I had to hire a new one. Shortly after the new property manager took over my properties, a tenant in one of the properties stopped paying rent and moved out. After the tenant moved out, the property manager went to the property to initiate the turnover so we could get it rented back out as quickly as possible.
Before the property manager even walked into the property, she knew we had a problem. The tenant had left most of her belongings in the front yard. Based on this, one could only imagine what would be behind the front door.
Sure enough, there were big scuffs on the walls, parts of carpet were torn up, broken kitchen appliances, missing light covers, and the house was just in a generally less than pleasant condition. It could’ve been in worse condition, but there was enough damage to trigger a high turnover expense that was coming my way.
Naturally, the property manager and I agreed to withhold her security deposit refund. Additionally, we were preparing to file a judgment against her for the additional expenses.
But we were stopped dead in our tracks. The tenant responded to the letter about her security deposit being withheld by saying, “All of those things were like that when I moved in.” A simple response, but a powerful one. Because if that were actually true, we wouldn’t be able to withhold her security deposit, and we certainly couldn’t take her to court for damage expenses.
I knew she was lying because the property was in fantastic condition when she moved in, so right away, I went looking through my files for the move-in inspection report from when she had moved in. Because I had switched property managers during her tenancy, the new property manager didn’t have this information immediately on file. I was nervous looking for the report because I knew it would be my only hope of being able to pursue her for the expenses I was now incurring.
I held my breath until, all of a sudden, I found the inspection report. I saw the file name jump out at me on my computer, and I sighed a breath of relief. I opened the document, feeling confident we could now prove the tenant was lying.
My breathing paused again, however, as I looked at the document. All I saw was a bare-bones checklist of rooms—only a single checkmark for an entire room if it was in “satisfactory” condition—and three of the world’s smallest and blurriest pictures that had ever been taken since the advent of the camera.
Sure enough, we had no usable proof the tenant was lying. We could’ve continued to fight her on the security deposit refund, but we knew if she took us to court over it, we couldn’t prove that she was, in fact, lying. We ended up only being able to charge her the $250 for the trash in the yard, and we had to reimburse her the rest.
I lost big time. All because I didn’t have a proper move-in inspection report that would’ve proved she was lying and allowed us to withhold her security deposit and go forward on filing the judgment against her.
If you’re wondering, that turnover cost me over $14,000 in repairs, and the tenant got off scot-free.
The Rights and Wrongs of Move-In Inspections
Obviously, the biggest mistake rental property investors make with move-in inspections is if they don’t do one.
But what about when you’re responsible enough to do the move-in inspection—is there a right way and a wrong way to do it?
What 99% of investors do during a move-inspection is document and take pictures of what’s flawed or damaged in the property.
This is the wrong version of how to do a move-in inspection.
When current flaws or damages are documented when a tenant moves into a rental property, the only person that helps to protect is the tenant. Later, when the tenant moves out, the owner can’t charge the tenant for those flaws or damages because there’s proof that those issues existed at the time the tenant moved into the property.
What an owner of a rental property needs to be concerned with, instead of what is already flawed or damaged, is what is in flawless condition at the time the tenant moves in. Meaning, the documentation needs to be more focused on what’s right with the property rather than what’s wrong with the property. Of course, what’s wrong with the property can still be documented, but that documentation only protects the tenant from undue charges; it does nothing to protect the owner from expenses due to issues caused by the tenant.
The best way to conduct a move-in inspection is to include detailed information on the full condition of the property, emphasizing what’s in good or flawless condition at the time of move-in.
Textual documentation is helpful and should be included, but the powerhouse of a move-in inspection is photographs of everything in good condition. While textual descriptions can be contested, photos can’t be disputed as easily, if at all.
To have the most rock-solid move-in inspection report that will offer the greatest chance of fighting undue expenses caused by tenant damage to a rental property, consider the following:
- While documenting what’s right and wrong with the property’s condition, the primary focus should be on what’s right with the property rather than what’s wrong with it.
- Photographs should be the primary form of documentation rather than textual descriptions.
- Take pictures of absolutely everything you can, focusing on what’s right with the property more than what’s wrong with it.
Best Protections Against High Turnover Costs
Obviously, the move-in inspection is one of the critical efforts to help prevent high turnover costs, if not the most critical. Additional efforts you can consider to help minimize turnover expenses between tenants include:
- Thorough and strict tenant screening
- Regular property inspections during all tenancies
- Installation of heartier materials that tenants can’t as easily destroy
There is no 100% protection guarantee against high turnover costs due to tenant neglect, no matter how much effort you put forward. All you, as the owner of a rental property, can do is to do the best you can and exercise as many actions as you can towards helping to prevent high turnover costs.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.