Return Security Deposit - Two Options

9 Replies

Hey guys, I'm fairly new to landlording and have had 1 real tenant move out. I usually provide 2 options to my tenant(s) on the day of final walk-thru to return their security deposit. 

1- Tenant(s) and I walk the apartment and agree on a deduction amount. I return the remaining balance to the tenant(s) on the spot. I request a text from the tenant(s) to the agreement of security deposit return amount before writing the check. This option saves me the paperwork, keeping receipts, etc. 

2- Do final walk thru with tenant(s) and record all damages via notes, photos, etc. I tell tenant(s) you will receive the remaining balance on deposit within 45 days with itemized deductions, leave your forwarding address. Tenant(s) typically don't like this option due to the delay in payment. 

What are your thoughts on my options I provide to tenant(s)? Any concerns you see with this?

P.S. - I understand you are not a lawyer. 

Vishal,

It all really comes down to what your states landlord tenant laws say on how and when the deposit needs to be returned. read it over carefully to avoid any problems down the road. Each state is different.

Originally posted by @Kim Meredith Hampton :

Vishal,

It all really comes down to what your states landlord tenant laws say on how and when the deposit needs to be returned. read it over carefully to avoid any problems down the road. Each state is different.

 State says to return security deposit within 45 days with itemized deductions. My thought process is, if the tenant(s) are okay with option 1 and agree to provide text or sign a statement that says they are in agreement with deposit returned, I personally don't see any issues with option 1. Option 2 means write a letter, itemize, mail, etc. 

Thanks for your input!

My opinion is that you not return any deposit right there on the spot the day of the final walk-through unless you are confident that you have an eye for detail to notice ALL possible damage on a single walk-through. What if after that, you or your contractor finds damage that you didn't notice at first? 

I also would not use text as a form of official communication regarding this. At a minimum, use email. Text is too easy to get lost or mix-up intended timestamps.

Originally posted by @Nicole W.:

My opinion is that you not return any deposit right there on the spot the day of the final walk-through unless you are confident that you have an eye for detail to notice ALL possible damage on a single walk-through. What if after that, you or your contractor finds damage that you didn't notice at first? 

I also would not use text as a form of official communication regarding this. At a minimum, use email. Text is too easy to get lost or mix-up intended timestamps.

 Good point regarding text messages. I started thinking about that recently and thought, it might be better if I wrote up some kind of template that I can use at every final walk-thru to fill in the blanks and have tenant(s) sign. This way I give them a copy and I keep one. Regarding finding damage(s) not found on final walk-thru, I only provide option to write a check on the spot only based on my [good] experience with tenant(s). 

@Vishal P. I manage over 300 rentals and my policy is to never, ever conduct the final inspection with the tenant present. If you allow them to attend the walk-through, they will attempt to distract you from things they don't want you to see and they will try to argue about things you find. Not every tenant will do this but certainly the majority. You will do a better job if you are alone and follow a checklist to ensure nothing is missed.

You'll also find that a lot of odors can be masked right when they move out. If they just had the carpets cleaned, you may smell the cleaning chemicals or deodorizer. Go back two days later and you'll smell wet dog or cat urine.

I offer tenants a "pre-inspection" where I walk through and give them cleaning tips, point out things that may cause a deduction, and answer any questions. I make it clear that I can't see everything until they are completely out and that the final walk-through may uncover problems not identified in the pre-inspection. I also email every tenant my move-out instructions and cleaning tips, as well as an explanation of what is / is not "ordinary wear-and-tear". Very few tenants actually take advantage of a pre-inspection, probably less than 5%.

After the tenant is out, I try to inspect about 24 - 48 hours later. If it's really dirty or damaged, I take photos of just the areas I intend to charge the tenant for and then create my work order for my vendors. After it's fully cleaned and repaired, I go back and take pictures of everything again. 

If you’re going to go a different route than what the law states, it’s always best to keep good records of the transaction. You should have an official document you use every time you pay them right away. Remember, if for any reason  you have to defend yourself in court, you have to have consistency or you could be guilty of fair housing violation for giving "priorities" to certain people.

Thanks for your feedback! 

Cannot agree with @Nathan G. more.  Never conduct a walk-thru with your tenants present for all of the reasons he mentioned.  If you're new to the real estate game and/or you have manipulative tenants, it's putting yourself in a situation that makes you vulnerable.  This is also the case if you do not have a very commanding, take-charge personality, like myself.  Go through the property alone, take your time, do not rush, and document everything just as he said.

Also, @Nicole A. said it loud and clear - do not return security deposits the same day.  You'd be gambling that you found every billable issue because you know that you'll never see that money again once it walks out of the door.  She also mentioned not using texts as a form of proper communication and she's absolutely right.  What happens if you forget to save the text or it gets deleted somehow?  What if you change cell carriers tomorrow?  You're out of luck.  There are too many pitfalls.  Get an email at the very least so that you have a document you can save and return to later.

It's easy to be a trusting person, but you have to remember that there are still those people out there that will try to take advantage of you.  Protect yourself and your assets first - worry about the details of returning deposit funds later.

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