5 Ways to Deal With a Tenant Owing You More Than Their Deposit Will Cover

5 Ways to Deal With a Tenant Owing You More Than Their Deposit Will Cover

4 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

Instagram @beardybrandon
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Our first thought: There is a dead body in this refrigerator.

Of course, upon closer inspection, there was no dead body, just rotting food, garbage, and other unknown objects. The smell was unlike anything we had ever experienced before. The unit was left with garbage covering nearly every square inch of the floor, holes in the walls, doors missing, crayon on nearly every surface, and that smell that permeated every cubic foot of space. All in all, it took nearly $4,000 to get the unit fixed up and ready to re-rent, including the costs of lost rent.

Luckily, when the tenant moved in, we had collected a double security deposit due to a minor red flag when performing her tenant screening. But as any third grader can tell you, having a deposit for $1,000 and a bill for $4,000 means one thing: We were in the hole $3,000. So what now? Although it’s unfortunate, this will happen to you.

Of course, making sure you don’t get screwed over by a tenant starts at the beginning, by only accepting the best tenants, collecting the right deposit amount up front, and adequately training your tenant while they live there. But even if you have incredibly strict screening standards and give the tenant detailed instructions on how they should clean their unit when vacating, someday a tenant will end up owing you money. So let’s talk about some different options you have at this point. The option you choose will depend slightly on the situation itself, the amount owed, and the kind of tenant with whom you are dealing. But let us give you five possible choices you have for collecting that debt.


Related: 10 Invaluable Lessons I Learned From My Very First Tenant Eviction

5 Ways to Deal With Rental Damages That a Tenant Deposit Won’t Cover

1. Ignore it.

If the amount owed is very small, you may simply choose not to pursue it after sending the Disposition of Deposit and just move on. If they owe you $50, it might not be worth the hassle to try and collect it, so simply send the invoice, and if it is never paid, mark that in your tenant’s file for future reference. Someday you’ll get a reference request for that tenant, and at that point, the tenant will wish they had paid that small bill. Of course, you are not losing everything when you choose to accept that loss. The one thing you will gain is a valuable lesson, so take it gratefully! Learn from your mistakes and put systems in place so it doesn’t happen again, if possible. This might be far more valuable than the money owed to you.

2. Bill repeatedly.

If you don’t want to simply ignore it, but the sum is too small to take larger action, you can also set up a system that mails out a new invoice monthly, as a constant reminder that they owe money. Perhaps someday (like after they get their tax return), they will pay the bill. It might cost you a dollar a month to do this, but someday it might pay off.

3. Negotiate with them.

Recently, another of our tenants left his apartment unit in a hurry and ended up owing about $200 to us from the cleaning and repairs needed, above what his deposit would cover. Of course, we sent the Disposition of Deposit form to the tenant in the mail, and upon receiving it, he immediately called to complain. (“Complain” is a nice way of describing the words he used on the phone. We even had to hang up on him the first few conversations due to his rage.)

This tenant expected to get his entire deposit back, but luckily we had photos and documentation to prove every one of our repairs. (Which, of course, is why a well-documented Move-In/Move-Out Checklist is vital for any landlord.) Our in-house manager spent nearly a week negotiating with the angry tenant, and in the end, we agreed to accept 50 percent of what was owed. Three days later we received $100 in the mail, which we gave entirely to our manager to thank her for her efforts in collecting.

Sad businessman leaning on glass

4. Send it to collections.

Collection agencies are designed to pursue individuals for their past-due payments. They use a variety of techniques to get this money, including tracking down the tenant and calling them repeatedly until the debt has been paid. For their services, collection agencies typically charge a hefty fee—oftentimes 50 percent of the debt recovered. If you are fairly certain you won’t get the money from the tenant, you can send the invoice to collections and let them deal with it. Who knows? Someday down the road you might get a check in the mail. We will typically choose the collection agency route when the tenant owes between $1,000 and $4,000 and they ignore our attempts at collecting the debt on our own. In fact, this is what we did for the tenant in the previous story.

Related: Tenant Turnover Can Wreck Your Profits: Here’s the Simple Solution to This Costly Issue

You were probably hoping we had a happy ending to that story, but let’s be honest: Getting screwed comes with the territory when you are a landlord. Perhaps someday we will walk out to our mailbox and find a check for several thousand dollars. Unlikely, but we can hope!

5. Take them to small claims court.

If the money owed to you is substantial and you think you can get the money from the tenant if a court makes them, you could pursue a lawsuit in small claims court. This court is designed to help people sue others without the need for lawyers and a lot of money. Usually, for less than a few hundred dollars in fees, you can sue someone, and if you win, you will receive a judgment against them. This judgment could be used to garnish wages or tax returns. Plus, this judgment can follow the tenant around for years, even showing up on background checks when they apply for a rental property in the future.

[ This article is an excerpt from Brandon Turner’s The Book on Managing Rental Property. ]

How do you deal with tenants who owe you money?

Let me know with a comment!