LANDLORDS!!! - How to Handle The security deposit?

67 Replies

- How do you handle your security deposit? Do you use it for fixing the damages during the tenants stay?

- When the tenant leaves and demands security deposit back, how do you handle this?

- In PA, I can hold for up to 30 days, should I use the security deposit to assess damages and wear&tear, then give them the remaining?

Example: Woman with 5 kids just moved out after 2 years, carpets are destroyed, it’s not normal wear and tear, I got a 1.2k security deposit. My damages to cover with the new carpet with be 800.00

should I give her partial deposit back? Should I hold it up to my 30 days before I even think of giving anything back?

Itemized list of the damages.  You do this when she moves out and give it to her before the 30 day period (or whatever is required by your local laws).  

If the damages are in excess of the deposit, you can give her a bill which she may or may not pay.  If the damages exceed the deposit, do NOT return the deposit.  If it is costing you $800 to replace the carpet and there are no other damages, then return the remaining $400 to her.  Check your local laws as you may have to give her interest on the deposit.

With a new tenant, you can do inspections to check on the status of the property (e.g. 6 month walk through).  

- How do you handle your security deposit? Do you use it for fixing the damages during the tenants stay?

You should have a move-in and move-out checklist so that you can compare the move-in condition to how it is on move out and there is a record of it. Do not use it to fix damages during their stay. If you have to fix something that was their fault, fix it and bill them. If it is routine maintenance then it would fall to you but depends on the lease

- When the tenant leaves and demands security deposit back, how do you handle this?

Inform them (nicely) that you have 30 days to return the deposit. As part of the move-out form you should collect their forwarding address so you know where to send the check.

- In PA, I can hold for up to 30 days, should I use the security deposit to assess damages and wear&tear, then give them the remaining?

Yes. Take the whole time but ensure the mail (I send certified) is stamped before the 30 days is up. After you do your move out walkthrough there could be something else you didn't catch that will cost money so make sure you use the time allotted to you. 

Example: Woman with 5 kids just moved out after 2 years, carpets are destroyed, it’s not normal wear and tear, I got a 1.2k security deposit. My damages to cover with the new carpet with be 800.00

should I give her partial deposit back? Should I hold it up to my 30 days before I even think of giving anything back?

Partial. Carpets are not very tenant friendly. Are there hardwoods underneath? If so leave the hardwoods so you don't always have to replace carpets. 

During your normal inspections  all tenant caused damage is repaired immediately and billed back to the tenant. Never use the deposit for repairs during the tenancy, Deposit is only to be applied to damage discovered after move out.

I inspect my properties quarterly. Change filters, check smoke/fire aarms, check for mold and over all upkeep of property, check all plumbing for leaks. Complete exterior inspection of structure and landscaping.

@Alex S.

Are you a private landlord or do you work for a company?

But thanks for the response, most likely wouldn’t provide an expense sheet ever, as I will be spending Hours and Hours of my time to fix the place up. She basically is stealing my time from me. Lol

@Theresa Harris

Decent response.

What areas do you own in? Class A,B or C?

Also, most likely wouldn’t provide the itemized list as I will be doing a lot of sweat equity and showing the house to get it rented again

@Ben Smalley

Beyond happy you broke your response down like

This

Very easy to learn and understand

- I am against the itemized damages as many of my expenses are my TIME... yes it’s the 800.00 I’m spending but now I will be missing out on getting a tenant in next month, as I have to clean things up.

Do you own properties in urban areas?!!?

Originally posted by @Cameron Riley :

@Theresa Harris

Decent response.

What areas do you own in? Class A,B or C?

Also, most likely wouldn’t provide the itemized list as I will be doing a lot of sweat equity and showing the house to get it rented again

 I don't know what class they are.  They are in nice family neighbourhoods in medium sized towns in Canada (30,000-90,000 popn size) and rent for $1050-1350 depending on the home.

You can always make a list of all the items, but only put a total on the list.

@Cameron Riley What I have learned over the years is do not let the tenant rush you into giving their deposit back because you will miss things you should deduct for and almost always it leads to an arguement with tenant if you do it in person and they have justifiable non-wear and type of deductions. Plus it is easier to size things up when everything is out of the apartment. 

What we do is inform the tenant to provide us a forwarding address and that per CT law (sounds the same as PA) we have 30 days to give them their deposit back minus any deductions. What is important on your part is:

1. Make sure you get it back to them within 30 days.

2. Be sure to itemize any deduction you take from their deposit and include that list in the envelope when you send them the remainder of their deposit.

@Cameron Riley Pretty sure you can't deduct from their deposit for your time. You can only deduct for stuff you actually paid out. Check with your attorney or your local regs though because it could be different where you are.

@Cameron Riley yes, all my properties are in the Cleveland area. Some states require that you itemize what you withheld from the deposit so check PA. I like it because it makes it very clear for the tenant e.g. blinds in new condition on move in, blinds broken on move out. I deduct price of new blinds (materials and labor) from deposit. Makes it tough to argue and saves you from liability! 

As far as lost rental income, I do not believe you can deduct for that as @Matt P. stated.

Originally posted by @Cameron Riley :

- How do you handle your security deposit? Do you use it for fixing the damages during the tenants stay?

- When the tenant leaves and demands security deposit back, how do you handle this?

- In PA, I can hold for up to 30 days, should I use the security deposit to assess damages and wear&tear, then give them the remaining?

Example: Woman with 5 kids just moved out after 2 years, carpets are destroyed, it’s not normal wear and tear, I got a 1.2k security deposit. My damages to cover with the new carpet with be 800.00

should I give her partial deposit back? Should I hold it up to my 30 days before I even think of giving anything back?

 You don't use any of it for anything during their stay. It's solely used to cover your damages when they have left the property. Once they leave you need to give them back what they are due within a certain amount of time based on your local municipality's laws. From your post it appears that you've got 30 days to do this. So what you need to do is provide them an accounting & payment for what they are owed. From what you've posted it looks like they are owed $400 bucks on or before 30 days from their move out date. When you want to give them all of that during that 30 day period is up to you.

@Cameron Riley keep in mind with damage charges that it is also based on the age and condition before they moved in. Carpet in a rental property generally has an expected life of 10 years. If the carpet was new when they moved in, then no problem charging them the full replacement cost. However if the carpet was 10 years old, even if in good condition, you cannot justify the full cost. You need to prorate the charge based on remaining life of the carpet. 

For example let's say the carpet is 2 years old and it has a life of 10 years. That means the carpet should have 8/10 of it's life left when it was destroyed. You would be entitled to charge 80% of the replacement value. Even if you believe carpet should last 20 years, then 18/20 would be 90% of the replacement value. Trying to tell a judge that carpet should last forever would be unreasonable.

One other thing to consider is that carpet can wear very quickly, especially some of the newer low cost fiber types. If five kids are running around in shoes, you could easily see wear patterns after two years. That would be considered normal. Stains that cannot be cleaned out or ripped carpet would not be normal. 

@Joe Splitrock   I'd disagree.  Any item should be based on replacement cost and condition.  Taking an arbitrary number for the "life expectancy" then assuming the value of an item is 0 because it is beyond that is really meaningless.  The average life of a car is 11 years.  Does that mean someone with a 12 year old car should get $0 if they get into an accident?  Of course not.  You take a look at the car itself, judge it based on it's condition, and payout as needed.  Something isn't worth nothing because it is old.  Heck, if we looked only at useful life a tenant could burn down my one rental home that is 75 years old.  It's long beyond its "useful life".  If the house had a 15 year old stove, 8 year old microwave, 8 year old refrigerator, and 12 year old washing machine I wouldn't get anything for those either no matter their condition.  Those are all average useful life of the items.  Too many people take the stand of looking at depreciation schedules and think "eh it was time for a replacement" without bothering to look at the actual item to say "well that still had a lot of useful life left in it".

Originally posted by @PJ M. :

@Joe Splitrock  I'd disagree.  Any item should be based on replacement cost and condition.  Taking an arbitrary number for the "life expectancy" then assuming the value of an item is 0 because it is beyond that is really meaningless.  The average life of a car is 11 years.  Does that mean someone with a 12 year old car should get $0 if they get into an accident?  Of course not.  You take a look at the car itself, judge it based on it's condition, and payout as needed.  Something isn't worth nothing because it is old.  Heck, if we looked only at useful life a tenant could burn down my one rental home that is 75 years old.  It's long beyond its "useful life".  If the house had a 15 year old stove, 8 year old microwave, 8 year old refrigerator, and 12 year old washing machine I wouldn't get anything for those either no matter their condition.  Those are all average useful life of the items.  Too many people take the stand of looking at depreciation schedules and think "eh it was time for a replacement" without bothering to look at the actual item to say "well that still had a lot of useful life left in it".

 I am just telling you how the courts see it and you proved the point with your car example. If a 12 year old car gets in an accident, you don't get a new car. They look at age, mileage and options. You might have paid $30K for a car 12 years ago and today it is worth $3000. A new one would cost $35-40K. Insurance will give you $3000 if they total it out. They won't give you a new car, no matter how well you cared for it.

I am not talking about depreciation schedules. Carpet is a 5 year schedule. Deprecation schedules are way shorter than the actual life of most items. 

Courts have largely left it up to owners to prove remaining value. You will be asked how you arrived at the value. Saying ten year old carpet is worth 100% of new value would be unreasonable and impossible to defend. You could argue 10 year old carpet has some life left (photos prior to move in would help). You could state that in your experience this type of carpet lasts 20 years and therefore assign 50% value. The point is that it needs to be logical and reasonable. There is no universal time frame, partly because not all carpet is equal. When you are buying carpet, polyester is cheaper, but also shows foot wear much faster than nylon. Polyester is often used in rentals to reduce cost. It is really a 10 year at best carpet. I have seen wear patterns in as little as two years. The pile just doesn't hold up - you get what you pay for. 

Here is one example of an attorney commentary on the subject. There are tons of cases out there:

https://www.avvo.com/legal-answers/how-is-carpet-life-expectancy-determined-in-califo-1442966.html

@Theresa Harris

Fair enough!

Yes,

CLASS A

These properties represent the highest quality buildings in their market and area. They are generally newer properties built within the last 15 years with top amenities, high-income earning tenants and low vacancy rates. Class A buildings are well-located in the market and are typically professionally managed. Additionally, they typically demand the highest rent with little or no deferred maintenance issues.

CLASS B

These properties are one step down from Class A and are generally older, tend to have lower income tenants, and may or may not be professionally managed. Rental income is typically lower than Class A, and there may be some deferred maintenance issues. Mostly, these buildings are well-maintained and many investors..

Class C properties are typically more than 20 years old and located in less than desirable locations. These properties are generally in need of renovation, such as updating the building infrastructure to bring it up-to-date. As a result, Class C buildings tend to have the lowest rental rates in a market

@Michael Noto

Michael what if they fail to provide an address, can you

Then keep the security deposit once it has exceeded 30 days?

- Being a landlord is so tough, especially at a young age! They like to challenge me on things constantly

@Joe Splitrock

Yes I totally understand this part

My average tenant stay is anywhere from 1-6 years. Carpets are always cleaned and have full life expectancy before they move in. When they move out, I need to always clean or replace

Longest ever is currently going on 6th year

I've never used it for fixing damages during the tenants stay.

Of course, you need to follow the law and your lease.

I'm forgiving when it comes to returning deposits.  However, let's say part of the carpet was destroyed by damage and that you could depreciate some of the valve and fairly hold $800.  If so, I'd refund the balance along with an itemization of what I charged the $800 for.

Originally posted by @Ben Smalley :

- How do you handle your security deposit? Do you use it for fixing the damages during the tenants stay?

You should have a move-in and move-out checklist so that you can compare the move-in condition to how it is on move out and there is a record of it. Do not use it to fix damages during their stay. If you have to fix something that was their fault, fix it and bill them. If it is routine maintenance then it would fall to you but depends on the lease

- When the tenant leaves and demands security deposit back, how do you handle this?

Inform them (nicely) that you have 30 days to return the deposit. As part of the move-out form you should collect their forwarding address so you know where to send the check.

- In PA, I can hold for up to 30 days, should I use the security deposit to assess damages and wear&tear, then give them the remaining?

Yes. Take the whole time but ensure the mail (I send certified) is stamped before the 30 days is up. After you do your move out walkthrough there could be something else you didn't catch that will cost money so make sure you use the time allotted to you. 

Example: Woman with 5 kids just moved out after 2 years, carpets are destroyed, it’s not normal wear and tear, I got a 1.2k security deposit. My damages to cover with the new carpet with be 800.00

should I give her partial deposit back? Should I hold it up to my 30 days before I even think of giving anything back?

Partial. Carpets are not very tenant friendly. Are there hardwoods underneath? If so leave the hardwoods so you don't always have to replace carpets. 

I love you said about the hardwood floors..

I see landlords and pm all the time trying to get away with carpets, and you are 100% right it's a total waste especially if you have hardwood underneath, the maintenance is crazy on carpet, by turnover you  need to either clean and most of the times replace, besides that it ebsorbes smells etc.