Michigan Security Deposit Questions.

5 Replies

So we received the security deposit on our first rental and now we are unsure what the next legal steps are.   

I think I need to open a separate interest account (escrow?) and then provide the tenant with the bank and account number,   Can someone let me know what steps I need to take next.    

THANKS!!

You put their Security Deposit in a separate bank account called...Tenant's Security Deposit Escrow Account.

You DO NOT give them access to this account.  NO BANK NAME OR ACCOUNT NUMBER PERIOD!!!

I will try to find my blog about what things you need to know and do as a landlord and post it here.

Good Luck

Nancy Neville

A Lecture for New Investors by Nancy Neville

Okay, I understand it. I’ve been there.You’re tired of working for somebody else.You want to be your own boss.You want to make money.Houses are still selling rather cheap, depending on the area, and you think, now is the time to become a Landlord!Just buy a house, rent it out and money rolls in, just like that.

I’ve been on Bigger Pockets for several years and I cringe when I read that someone has just bought a house or a duplex, or a 4plex and they are soooooo excited, that they are about to burst, and then they ask the question.“WHAT DO I DO NOW”?

Oh my goodness!You mean they’re asking this question now, AFTER they purchased a home!Yikes!!!!

I see more and more people buying buildings for rentals and don’t have a clue what to do with them once they have them.

Being a Landlord is a very serious business!!!!I can’t stress this enough.The life of a landlord can be exciting and challenging, but it is 24/7 and it is a business of people management, and doing things legally and doing things right, and making decisions, bad or good.

This is a business of evictions, of fires, of break in’s, of damages, of being responsible for other people’s lives.What THEY (your tenants) do affects YOU!

There are laws to follow in order to make your building legally rentable.One is to have a C of A(Certificate of Acceptance) this is decided upon by the state, or county or city where you live.They have to approve this home to be a rental.Then you receive a C of O (Certificate of Acceptance) decided upon again by the local or state or county authorities. This states the home has been approved and available to be a rental.And some of these must be applied for every time a tenant moves.So check your state laws.

There are Landlord Tenant Laws, Building Codes, and laws that are not laws at all but based on a Judge’s opinion of whether or not a tenant did wrong or not.For instance, normal wear and tear.Judges have various opinions on what they deem normal wear and tear.

This is an Industry of thinking skills.This is an industry of holding your temper and implementing your lease agreement no matter what.You need to think like a Judge.You need to think reasonably.

You need to be a good listener.You need to be in control.

Once you buy a house you need to know how to keep that house and how to keep your tenants long term.

You need to know how to be all things in order to keep your tenants happy, yet make them know the rules of landlording and how to be good tenants.

I always say that one is only as good as the tools they have.You could be the greatest landlord in the world in mind and action, but if you don’t have the equipment, or the education, or the money to invest in the proper tools to make you successful, then you will never make it in this business.

It takes my breath away to read the stuff on here by new investors.And I understand that how can they know what they do not know?That is why I wish there was a Sticky Note on here for New Investors to post posts like mine (and maybe there is and I just don’t know it) that tells them to Read This First before Investing!!!

My husband and I were very successful in the business. (We are retired now due to his cancer). But we owned a huge house.And every time someone would come over and do work on something on the house, they would ask, “Wow are you a doctor?” and I would say no.And they would ask, “A lawyer?” And I would laugh and say no.I’m just a Landlord.And they would say, “Wow and that’s all that you do?”And I’d laugh again and say, “Yep that’s all that I do”.And they would reply.“Wow, I think I’ll become a landlord too”.

And that is the mindset of a new investor. When I say that’s all that I do, let me tell you what to expect in the life of a landlord and all that they do.

  • 3 am Christmas Eve Tenants call-Furnace went out.I get up, phone calls made, emergency call, expensive triple overtime to the Heating Contractor, Tenant has heat. Tenant Happy.Landlord sleepy.
  • 2 am Fire Dept. calls.Fire at such and such a place.We get dress. Blizzard outside.Drive to the home.Access the damages.Look at the big hole in the roof from the fire dept.Plan our strategy.Talk to tenants. Get our guys out to put a tarp over the roof.Meet in the morning with everyone to solve the problem, what to do with tenants, whose fault, where to go from here.
  • You have tenants parking their cars on the lawn
  • oHaving unauthorized guests
  • oDoing Drugs
  • oHaving a dog they shouldn’t have
  • oHoarders
  • oComplainers
  • o(In my case…drive by shootings, bullet holes in rentals, thievery)
  • oWater abuse
  • oDish on roofs when forbidden to have one on the roof
  • oAnd so much more
  • On top of being ready to take care of emergencies any time night or day, and solving tenant issues. You need to also take care of the following.
  • 1.Fixing up a vacant rental so it can be rented out again.
  • a.We had handy men to do most of this, but with 40 rentals my husband and I had to pitch in a do the labor ourselves as well.
  • b.I would paint the house and garages.
  • c.Husband would fix the repairs inside
  • 2.I would take care of the tenants.This entailed
  • a.Taking care of advertising the homes (usually we had more than one vacancy at a time)
  • b.Taking phone calls and screening tenants
  • c.Scheduling open houses
  • d.Staging the house
  • e.Interviewing the applicants
  • f.Making sure I double checked their application forms
  • i.Criteria
  • ii.Employers
  • iii.Verifying funds and income
  • 3.Typing up the lease and making sure they understood the lease
  • 4.Then making sure the Tenants abided by the lease agreement
  • 5.Paid their rent on time
  • 6.And sent that Notice to Quit for Non Payment of Rent the very first day rent is late.

On top of that I did my own evictions and I never lost a case and I dealt with the 36th District Court in Detroit.I won because I covered my butt by having everything in writing.I documented everything.Every phone call I made to them and every phone call they made to me.

I never complained to a tenant because they called regarding a repair.I listened when they told me they couldn’t pay their rent, but even though I understood their problem, I made them pay their rent anyway.

Landlording is about making tough decision and doing things you don’t like to have to do.

Landlording is a Business.

You have to not LOVE YOUR HOUSE.I can’t stress this enough.If you don’t know or understand that this is a business of evictions, damages, and injustices, and fixing this house up over and over again, you aren’t going to be happy let alone successful.

How I wish I could be there for every new investor to help them understand what it’s like to be a landlord BEFORE YOU INVEST.But I can’t and that’s really a shame because it something every new investor should dig into before they invest.

One last thing. Yes you need to have an accountant to file your taxes for you at the end of the year. Our industry involves huge sums of money in our rentals and other people's money. An Accountant knows how to get you back more money at the end of the year because they know the tax laws, not you! So please don't be cheap and try doing it yourself.

Nancy Neville

THE TENANT PHASE by Nancy Neville

THE FIRST MONTH (THE HAPPY PHASE)

During the first month of a rental period, the tenant is happy. They wanted the home, they got the home and everything is fine. THEY ARE VERY HAPPY! You spent a lot of time at the signing of the lease telling them what you expect from them and what they can expect from you. They seemed to be happy and they nodded in understanding.

THE SECOND MONTH

Somehow during the second month, when the newness wears off and the happiness falls into a routine, the new tenants become confused. They seem to forget what the rules are and when rent is due (even though they have a written lease agreement to refer to). If they are one of the few tenants who do not get confused during this time, this means they have jumped from the Second Month phase into the TESTING PHASE which may cause a few problems, but I will talk about that in a few minutes.

To help the Tenants not be confused during the 2ND MONTH PHASE, I always bill my Tenants their rent 10 days before it is due. It's during the 2ND MONTH PHASE that I will answer any questions they have and not make them put it in writing.

TESTING PHASE (May begin as early as 2nd month)

The TESTING PHASE is a very crucial phase. Whether the tenants and you get along is determined during the TESTING PHASE. More Tenants than not like to Test the Landlord. If they had gotten away with it with their previous landlord, chances are, they feel they can get away with it with you.... so they will try. They will pay their rent when they want to, putting you last and live the way they want to regardless of your rules.

It is very important to nip this in the bud during the TESTING PHASE, because if you allow the tenant to get away with things such as paying their rent when they want to and doing what they want, then chances are you will never proceed past the TESTING PHASE.

THE THIRD MONTH:

If you make it to the third month, that is good. But it is also very crucial during this time as well to make sure the tenant stays on course. The Third Month strengthens your position as to who runs what. During this time you want to make sure that the tenant keeps paying their rent on time and keeps obeying the rules. One little falter on your part can throw the tenant back into the TESTING PHASE. It is very important that you guide them during this time as to what you expect and want. It is important that you gain their trust and respect during this time.

THE FOURTH MONTH - THE COMFORT PHASE:

The fourth month through the first year is THE COMFORT PHASE: the tenant becomes accustomed to your rules and is starting to feel comfortable. If you have handled everything correctly, being strong when needed to be, and doing evictions when needed, the Tenant will feel secure because the Tenant will know what is expected of them and will feel comfortable and will want to stay. (Tenants usually feel comfortable with stability and sameness).

AFTER THE FIRST YEAR:

After the first year, the COMFORT PHASE becomes more stable and each year thereafter. It's just a matter of keeping your Tenant happy, yet, making sure they don't slip into the Testing Phase from time to time. Even old time Tenants will want to go to the Testing Phase if they see their Landlord falter, get too over generous or too understanding.

When that happens the Tenant's stability changes because the rules are changing throwing the tenant into the Testing Phase again, so we don't ever want to falter but always stay strong and in control.

THE MOVING PHASE:

During the moving phase the Tenant, no matter how many years they have been with you, seems to forget everything again. They become babies and they revert back to the TESTING PHASE. Once again they never refer to the Lease and must depend on you for answers.

During the MOVING PHASE, the Tenant can change personalities quickly. It's like they drank a potion that changed them from Jekyll into Hyde. They become this fiend, this villain that could destroy you and is probably the hardest phase of all the phases.

It is during the MOVING PHASE, that you must be cool, have all your wits about you and be prepared, yet still be cordial so as not to enraged the monster that seems to be lurking in your Tenant during the MOVING PHASE (as there is NO ANTIDOTE to calm the savage beast once it takes form). If by chance this happens, it is best to not confront the beast but to keep your distance until the courts can set it free!

With time everything will fall into place as long as you treat Land lording as a business!

When we are little we say to others….”When I grow up I want to be a….”

  • Doctor
  • Lawyer
  • Banker
  • President
  • Etc.

Then when we grow up, we realize that in order to be all the above we need to have a plan. We just don’t happen to be a whatever- we- want to be just like that. It takes a plan.

  • Do we attend College?
  • How many years?
  • What college?
  • Do I need a college degree?
  • Where will I get the money to fund my dream?

Yet in the Landlord Business (our Industry) people don’t view it as a business. The media, courts, tenants, family and friends, feel we are just money hungry people who care nothing about our tenants but only the money. Do they say that about Bankers, Grocery Store Owners, Doctors (well maybe doctors..bad example) plumbers, etc? Not so much. They view these industries as companies, businesses, but….. not us. And even some of us WE DO NOT VIEW OURSELVES AS A BUSINESS!!!

I have people contacting me all the time wanting me to help them solve all their problems because they didn't have a plan. And, I try to help them as much as I can, but there is only so much I can do. Which lead me to writing this blog.

Many investors, see a sale, hear about the landlord business from others, and they get excited and so they buy a house. But they don’t know anything about being a landlord. And...most of us fit into this group, when we first began as well.

So here is my tip for those who need, want it, and glad they have it. ( I wish I could have this posted some place where I wouldn't have to hunt and find it every time someone asks this questions on here, but perhaps the owners of this site might tag it, we will see)

So...here it is.

THIS IS THE PLAN

1.Location, Location, Location .

2. Check out the neighborhood before you buy. Is it a money maker neighborhood, or a bad one?

3. Check the area to see how much rent you can charge for this home in this particular area.

4. As a Realtor, when I sold properties to investors, I would tell them, from my own experience, how much money they could get in rent for this home. In return they would ask me….”Well what if I did this to the house and that to the house (spending thousands of dollars in extra’s to the house), how much could I get in rent then”, and it never ceased to amaze me, how they looked at me when I told them that they would still get $750.00 a month. They wondered how they could still only get $750.00 a month when they spent so much money on extra’s to make the house super special! The answer is this. Location, location, location. What is the market value in that area and neighborhood! It is just like buying a house. What is the market value in that area? What are they selling for?

5. Check your Landlord/Tenant Laws before you even buy a home! Very Important

6. Sit in some Landlord/Tenant Court Sessions to see what goes on.

7. Study the City Ordinances of where your properties are located. If you don’t …..be prepared to receive several tickets for things you didn't know your tenants were supposed to (you really since you are the landlord) do.

8. Get your OFFICE ORGANIZED!! I can’t believe how many investors are so focused on buying and not how to KEEP THEIR PROPERTIES or KEEP TRACK OF THEIR PROFIT AND LOSS. You can't possibly do that if you are not Organized or have an Organized Office!

9. Therefore setup a good filing system

Get a good answering system…Vonage Phone is one good example

Stamps.com is great for keeping track of letters you send your tenants.

QuickBooks is a Landlords best friend. Buy it and learn how to use it.

10. Keep in mind that this is a business of people management. You must get a feel for people and their personalities.

11. Learn what words are Legal to use in advertisements. There are many no no words. (See my blog on What you can say and not say) to avoid discrimination lawsuits.

12. Learn how to setup your properties to have good curb appeal

13. Learn how to do open houses. Plan for them. Makes applicants excited. Competitive

14. Prepare a legal and good application form. Set a criteria for qualifying applicants.

15. Prepare a legal and good Lease Agreement. Take pictures of the home prior to renting it out and have that day's paper somewhere int he picture to depict that the photo's are current.

16. Setup a website Wordpress.com is free to advertise your rentals- generates interest.

17. Learn now to screen your applicants.

18. Learn how to do a credit report and read them

19. Learn how to choose a tenant. Beware of Testers How you speak, words you use, how you choose an applicant will make you or break you. There are testers. Do things right and you won't have to worry.

20. Don’t allow applicants to pay for their application fee by check or money order. They can cancel the checks or money order if they don’t get the place.

21. How much money do you charge for an application fee (Credit Check) $25 per person is what I charged. If they qualified I applied it to their move in fees. If they didn't qualify, it was non-refundable. Have that on your application form.

22. Only accept cash or a Cashier’s Check for credit checks and if you choose them as a tenant, make sure only cash or Cashiers Checks are acceptable, Otherwise they can stop payment on checks and money orders once they move in. PACIFIC HEIGHTS!!!!

23. Don’t allow tenants to move into the property unless they have rent and security deposits PAID IN FULL!! NEVER give anyone the keys until you have all move in fees, money due you in your hands and utilities (if they are to pay them) placed in their names.

24. How much Security Deposit can you charge. Believe it or not, your State has a law for that. Michigan is one month and half plus first month rent. What does your state say?

25. If tenants pay for utilities. make sure they have them placed in their names on the day or prior to the day you sign the lease. Call the day you sign the lease to verify that has been done. If not, DON'T RENT TO THEM, they do not follow instructions.

26. If you are a Property Manager, make sure you are a Broker, or work for a Broker who does Property Management. About 3 states say you can be a Property Manager and not work for a Broker if you a Licensed Property Manager, not a licensed Realtor or Salesperson.

27. If you are a Landlord and have a Property Manager, either let them be a Property Manager 100% or you handle everything yourself, but not do both

28. IMPORTANT: Learn the forms of your STATE !

  • How long do you keep your paperwork, your leases? Tenant files?
  • What is a Notice to Quit?
  • What is a Demand for Possession?
  • How many days does your state law require you to send that Notice to Quit?
  • What is a Termination of Tenancy?
  • How many days does your State law require you to dent that Termination of Tenancy?
  • What is the difference between a Notice to Quit and a Termination of Tenancy?
  • How do you fill them out?
  • How many copies do you need?
  • How much do they cost?
  • What is a Health Hazard Eviction?
  • When can one be sent?
  • What is a Writ of Restitution
  • How do you fill out all these forms
  • How many days are required for the process
  • How do you handle an eviction in general?
  • Do you change the locks on the tenants…ABSOLUTELY NO!
  • How do you handle a tenant who hasn't paid their rent?
  • How do you handle a tenant whose lease has expired?
  • How do you handle a tenant who won't move out
  • How do you handle tenants doing damages?
  • What type of Pets are legal rental pets?
  • How many people can live in a house
  • What to do with too many Guests in the rental home?
  • Unknown people on the lease?
  • How do you evict someone not on the lease?
  • How do you handle tenants doing drugs
  • How do you handle noise complaints
  • How do you handle vehicle violations
  • How do you keep a tenant long term? See my blog on The Tenant Phase

To be a successful landlord, and maintain that excitement that you had when you first began, before you knew the ropes, you have to have all this in place, and you MUST AT ALL TIMES STICK TO THE RULES OF YOUR CONTRACT, YOUR LEASE AGREEMENT. Stick to the rules, and you will keep that excitement. You will keep not only your tenants happy, but you will be happy, making your family happy, and that’s what makes landlords still be landlords after 30 years in the business.

Nancy Neville

From Michigan's Tenant Landlord Guide:

"The landlord must provide the tenant with certain notices. Within 14 days from the day the tenant moves in, the landlord must provide written notice of the following: a) The landlord’s name and address for receipt of communications regarding the tenancy; AND b) The name and address of the financial institution where the security deposit is held, OR the name and address of the surety company; and who filed the bond with the Secretary of State; AND c) The tenant’s obligation to provide a forwarding address—in writing—within 4 days after the tenant moves out."

A helpful resource: http://www.legislature.mi.gov/Publications/tenantl...

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