{"id":96129,"date":"2019-10-11T09:00:28","date_gmt":"2019-10-11T15:00:28","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=96129"},"modified":"2021-03-16T13:48:16","modified_gmt":"2021-03-16T19:48:16","slug":"10-security-deposit-tips-landlords","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/10-security-deposit-tips-landlords","title":{"rendered":"10 Security Deposit Tips, Tricks, &#038; Hacks for Landlords"},"content":{"rendered":"<p>Security deposits don\u2019t protect the average <a href=\"https:\/\/www.biggerpockets.com\/blog\/2016-07-30-how-to-be-a-landlord\" target=\"_blank\">landlord<\/a> as well as they think.<\/p>\n<p>In fact, for the typical landlord, the security deposit protects against only one thing: minor tenant-caused damage to the property.<\/p>\n<p>What <em>doesn\u2019t<\/em> it cover?<\/p>\n<p>To begin with, it doesn\u2019t cover major damage to the property. For example, the security deposit may cover recarpeting one room, but what if the tenants ruin the carpet in every room?<\/p>\n<p>Security deposits also don\u2019t cover unpaid rent. Some states go so far as to specifically bar landlords from using the security deposit to cover unpaid rent. But even in states where landlords can use it for that purpose, one (or even two) month\u2019s rent won\u2019t cover all the losses <a href=\"https:\/\/www.biggerpockets.com\/blog\/evicting-tenant\" target=\"_blank\">when a landlord is forced to evic<\/a>t. The eviction process takes a minimum of around three months from start to finish, and that\u2019s in a landlord-friendly state. In tenant-friendly Maryland, I\u2019ve had evictions take a full year.<\/p>\n<p>And then there\u2019s \u201cnormal wear and tear.\u201d The line between \u201ctenant damage\u201d and \u201cnormal wear and tear\u201d is blurrier than a Big Foot photo. But guess who judges tend to side with when it comes time to classify what counts as \u201cnormal wear and tear?\u201d (Hint: It\u2019s not you.)<\/p>\n<p>When you deduct repair costs from the security deposit, be prepared to have to prove to the judge that every cent went to fixing tenant damage. It will be an uphill battle, but documentation helps, as do the following ten tips and tricks.<\/p>\n<p><em><strong>Related: <\/strong><a href=\"https:\/\/www.biggerpockets.com\/blog\/renters-security-deposit-checklist\" target=\"_blank\">Follow This Moving-Out Checklist Before Tenants Leave<\/a><\/em><\/p>\n<h2>Before Signing a Lease&#8230;<\/h2>\n<h3>1. Tenant-Proof Your Property<\/h3>\n<p>Your goal: to make your property a defensible fortress against barbarian hordes. Make no mistake\u2014your property will be assaulted, day in and day out.<\/p>\n<p>Tenant-proofing is a lengthy discussion in itself, but here are a couple quick tips:<\/p>\n<ul>\n<li>When your carpets reach the end of their lifespan, replace them with bamboo or faux-wood flooring.<\/li>\n<li>Use glossy paint on all walls (it\u2019s easier to wipe clean).<\/li>\n<li>Install door stoppers behind every door.<\/li>\n<li>Put a shoe rack by the front door.<\/li>\n<\/ul>\n<p>Perhaps most of all, you can use aggressive lease clauses and requirements to demand good behavior. But we\u2019re getting ahead of ourselves.<\/p>\n<h3>2. Avoid Any Applicant Who Makes Noises about Not Having the Deposit<\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-108784\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/03\/empty-wallet.jpg\" alt=\"wallet-money\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/03\/empty-wallet.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/03\/empty-wallet-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>Ever have an applicant say something like, \u201cWell, I have $300 of the deposit now, but I won\u2019t have the rest for another two weeks\u201d?<\/p>\n<p>It\u2019s a big ole\u2019 fluttering red flag.<\/p>\n<p>What can you conclude about the person who said that? Either they only have $300 to their name, or they\u2019re a liar.<\/p>\n<p>Neither bodes well for them as a renter. Good renters are financially stable, and financially stable people have more than $300 to their name. They have an emergency fund, they have some savings (however modest), they have assets like stocks and bonds and mutual funds\u2014OK, well, that be asking too much.<\/p>\n<p>But you get the picture: Stable renters, the kind who will pay on time, don\u2019t live hand-to-mouth.<\/p>\n<p>Besides, if they\u2019re living hand-to-mouth and plan to give you all that extra money from their next paycheck, how will they be paying their other bills for the rest of the month?<\/p>\n<h3>3. Inspect Applicant&#8217;s Current Home As the Last Step of Tenant Screening<\/h3>\n<p>I mentioned this when I covered <a href=\"\/renewsblog\/advanced-tenant-screening-dont-be-fleeced-by-wolves-in-sheep-clothing\/\" target=\"_blank\">advanced tenant screening techniques<\/a>, but it\u2019s worth reiterating here.<\/p>\n<p>If you don\u2019t want to end up with more damage in your unit than the security deposit can cover, go see for yourself how this applicant treats their home.<\/p>\n<p>Some people are clean, respectful, low-impact. They take pride in their homes.<\/p>\n<p>Others are dirty, careless, and don\u2019t give a second thought to how they treat their homes. Which type of person would you like to entrust with an asset worth hundreds of thousands of dollars?<\/p>\n<p>Luckily, it\u2019s easy to tell the difference. Just spend five minutes walking through their current home, and you\u2019ll know how they\u2019d treat your property.<br \/>\n<em><br \/>\n<strong>Related:<\/strong> <a href=\"\/renewsblog\/disposition-of-deposit\" target=\"_blank\">How to Use the Disposition of Deposit as a Landlord [With Sample Form!]<\/a><\/em><\/p>\n<h2>The Lease Itself<\/h2>\n<h3>4. Reclassify \u201cNormal Wear and Tear\u201d<\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-main-slider wp-image-114195\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/06\/repaint-home-702x336.jpg\" alt=\"painter at work with a roller, bucket and scale, from below view\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>Landlords have a certain amount of leeway in what they require of tenants in the lease agreement.<\/p>\n<p>And sometimes, if they get extremely specific, they can shift some common forms of damage from \u201cnormal wear and tear\u201d to \u201ctenant damage.\u201d Read: able to be deducted from the security deposit.<\/p>\n<p>For example, at what point do drywall holes from wall hangings leave the realm of \u201cnormal wear and tear\u201d and become damage? You can leave it to the judge to draw that line\u2014or you can specify in the lease itself.<\/p>\n<p>\u201cTenants may not use screws or nails larger than 12\u00bd gauge to hang decorations on the wall. Tenants are further responsible for spackling and repainting (in the original paint: Duron DJT-355) all drywall holes created by wall hangings. Failure to do so will result in a deduction from tenant\u2019s security deposit.\u201d<\/p>\n<p>Will that clause hold up in court? Maybe. You can\u2019t know for sure what a judge will rule if it comes to a hearing. But it\u2019s much stronger than no clause at all and sets clear expectations for the tenant.<\/p>\n<p>Conscientious tenants do everything they can to adhere to the lease agreement, which means that if you\u2019ve screened your tenants well, they\u2019ll honor your lease clauses.<\/p>\n<h3>5. Don\u2019t Specify Uses for Different Types of Deposit<\/h3>\n<p>Know how some landlords list specific deposit types, like \u201cpet deposit,\u201d \u201ccleaning deposit,\u201d etc.?<\/p>\n<p>Don\u2019t do that.<\/p>\n<p>Under the law, all refundable deposits fall under the same umbrella deposit limits. For example, in many states the collectable deposit limit is two months\u2019 rent\u2014all refundable deposits fall under that limit collectively.<\/p>\n<p>So you\u2019re not doing yourself any favors by separating out these deposit types. In fact, you\u2019re creating self-imposed limits on what you can deduct.<\/p>\n<p>Say you collect $250 specifically as a pet deposit, and there\u2019s $500 in pet-related cleanup. The tenants could make a case that you can only deduct up to the $250 pet deposit for pet-related cleanup and not deduct money from the main \u201cdamage deposit\u201d unless the pet cleanup can also be classified as \u201ctenant damage.\u201d<\/p>\n<p>Charge one security deposit, and specify in your lease that it can be applied toward any damage, cleanup, unpaid bills, or other money owed upon move-out (within your state law\u2019s limitations, of course).<\/p>\n<h2>Upon Lease Signing<\/h2>\n<h3>6. Conduct a Move-In Inspection\u2014and Document Thoroughly<\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-main-slider wp-image-92285\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/09\/tablenotes-702x336.jpg\" alt=\"writing-inspection\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>If you do nothing else to protect your property using the tenant\u2019s security deposit, do this.<\/p>\n<p>Walk through the property with your new renter, and fill out a detailed move-in condition report. Mark every single pre-existing issue, however small. Initial each item, and have the tenant do the same. Sign it, date it, and keep the original.<\/p>\n<p>Take many, many photos, with the timestamp function turned on to document the date and time. Save these photos in your digital file for the tenancy, alongside a scanned copy of the signed lease and move-in condition report.<\/p>\n<p>One of the most common ways that tenants get out of having their security deposit dinged for damage is saying to the judge, \u201cThat was already like that when I moved in.\u201d<\/p>\n<p>Don\u2019t let them pull that trick. Document exactly what the condition is at move-in, so you can deduct for any damage caused after that date.<\/p>\n<h3>7. Put the Security Deposit in a Separate, Interest-Bearing Account<\/h3>\n<p>It\u2019s worth noting that in many states, this is legally required of the landlord.<\/p>\n<p>But even in states where it\u2019s not, there are several reasons to do so. First, it prevents commingling of funds for cleaner accounting. It also removes the temptation to spend the security deposit on other expenses.<\/p>\n<p>And, hey, you get to keep the interest if you\u2019re not legally required to give it to the tenant!<\/p>\n<h3>8. Inspect Regularly<\/h3>\n<p>Want to make sure your tenants are treating your property with respect and adhering to your lease\u2019s rules?<\/p>\n<p>Schedule quarterly or semi-annual inspections.<\/p>\n<p>Not only will you catch lease violations early, but it also sends a powerful message to your renters that you are paying attention and you take enforcing the lease seriously.<\/p>\n<h2>At Move-Out<\/h2>\n<h3>9. Address Repairs Immediately or Risk Losing the Entire Deposit<\/h3>\n<p>Each state has a strict deadline for when landlords must either return the entire security deposit or provide a written accounting of all deductions. Failure to do so means forfeiting the right to deduct anything at all from the security deposit\u2014and in many states even comes with financial penalties for the landlord!<\/p>\n<p>That means landlords must move quickly to get quotes, make all the repairs, put together a written statement, and provide it to ex-tenants.<\/p>\n<p>Really, landlords should be moving at lightning speed on turnover work anyway. Turnovers are a landlord\u2019s biggest expense, and cutting turnover times should be a landlord\u2019s No. 1 priority.<\/p>\n<h3>10. How to Deduct Your Own Costs from Security Deposits<\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-107535\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/calculator.jpg\" alt=\"businesswoman doing paperwork at office desk, working through finances, using calculator and making notes in her notebook with pen\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/calculator.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/02\/calculator-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>Do you do your own repairs? Or your own cleaning, when preparing a vacant unit to show to new prospects?<\/p>\n<p>There\u2019s nothing wrong with that\u2014it\u2019s a great way to save money. But how do you deduct these expenses ethically and legally from the tenant\u2019s security deposit?<br \/>\n<em><br \/>\n<strong>Related:<\/strong> <a href=\"\/renewsblog\/tenant-deposit-deductions\" target=\"_blank\">The Landlord\u2019s Itemized List of Common Tenant Deposit Deductions<\/a><\/em><\/p>\n<p>First, know what the market rate is for each type of work. Be able to back it up with real numbers\u2014what comparable contractors or cleaners charge by the hour.<\/p>\n<p>Next, keep detailed written records of exactly how many hours you spent on each task. Make these records as official as possible.<\/p>\n<p>Finally, separate out charges for different types of work. You may be able to charge one hourly rate for higher-skill work (like repairing drywall damage) but a far lower rate for the time you spent cleaning.<\/p>\n<p>If the tenants challenge you on your numbers, be prepared to show up in court with detailed records and evidence that your charges reflect market rates <em>for each type of work performed<\/em>.<\/p>\n<h2>The Non-Sexy Essentials<\/h2>\n<p>Like everything else in landlording, maximizing the protection afforded by a security deposit is all about two things: prevention and having every requirement and record in writing. The overwhelming majority of this work takes place long before you ever go to deduct from the security deposit. It\u2019s all about laying the groundwork in preventative measures and written documentation.<\/p>\n<p>That may not be the sexy side of the landlord business, but it\u2019s where landlords make or break their profits. It\u2019s why we focus again and again on systematizing property management practices with our course students\u2014the groundwork has to be laid months or years in advance for landlords to maximize their returns.<\/p>\n<p>But when you follow best practices at each step of the way, you\u2019ll find that not only fewer bumps appear in the road, but the few bumps you do hit don\u2019t jostle your profits nearly as much. Being a profitable landlord doesn\u2019t just happen. It\u2019s the result of careful execution and prevention, the non-sexy essentials.<\/p>\n<p><em>Note: We&#8217;re republishing this article to help out our newer readers.<\/em><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/webinars?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91217\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Have any security deposit tips or tricks to share? <\/em><\/p>\n<p><strong>Pass them on with a comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>How much security does a security deposit actually provide landlords? Less than most landlords think. Here are 10 tips &#038; tricks all landlords should know to protect themselves\u2014and their assets. <\/p>\n","protected":false},"author":158586,"featured_media":117543,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[],"class_list":["post-96129","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/96129","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=96129"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/96129\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/117543"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=96129"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=96129"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=96129"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}