Rental Property Investor · Phila, PA · Member since 2018 · 554 posts · 118 votes
- 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?
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.
@Cameron Riley - I just had my first ever tenants move out of my property and ran into this just last week. One thing i will point out, that I am currently fighting, is make sure you call all the utilities and make sure they do not have a remaining balance before refunding them. This was a big lesson lesson learned for me this go-around. I did the move out inspection, and minus a little dirty, the place was in fantastic shape. So when she bugged me multiple times for her security deposit back (as she was going to be out of town for two weeks and didn't want it sitting in her mailbox), I gave her a check in person. A few days later when my new tenant was trying to set up her utilities, I found out that she had over $200 in over due utility bills. I have text her multiple times this week and no response back, and she used to be a quick responder. And it was only the utilities that if she doesn't pay, i'm ultimately responsible for. I'm still crossing my fingers that she pays. Good luck!
@James Wise Pretty sure he meant interest bearing account. In Pa it is required that landlords keep security deposits in an interest bearing account. They are required to pay this interest back to the tenants but are allowed to use the interest to pay any bank related fees.
Wild, makes sense though. Here we have to keep the deposits in non interest bearing accounts & pay the tenants interest on anything held for over a year that is more than 1 months rent. If your state has the requirement that you pay interest to the tenant I suppose it only makes sense that you are allowed to put it in an interest bearing account. Not here in Ohio though.
Do you guys have to pay interest on all deposits or just deposits higher than 1 months rent & held for over a year?
@James Wise All security deposits. It is very seldom that it is paid though. The interest amount that is earned is usually next to nothing and the bank will usually have some sort of fee that is larger than whatever the earned amount is.
@BOB CRANEY I would just add to be careful if billing your labor. Keep start and stop times for each task. Also the billable rate should be no more than the fair market rate for the task. Let’s say you can hire a cleaning person for $20 per hour in your market, then cleaning should be billed at $20. Some landlords bill what they think their time is worth, but that is not how it works. If you choose to be a “cleaning person” for the day, then you get paid a cleaning persons wage. It is really just better to hire any work done if you plan to deduct.
Also keep in mind if you are charging your labor, then you need to claim it as income on your taxes. If you pay someone, the expense and income are a wash.
@BOB CRANEY I would just add to be careful if billing your labor. Keep start and stop times for each task. Also the billable rate should be no more than the fair market rate for the task. Let’s say you can hire a cleaning person for $20 per hour in your market, then cleaning should be billed at $20. Some landlords bill what they think their time is worth, but that is not how it works. If you choose to be a “cleaning person” for the day, then you get paid a cleaning persons wage. It is really just better to hire any work done if you plan to deduct.
Also keep in mind if you are charging your labor, then you need to claim it as income on your taxes. If you pay someone, the expense and income are a wash.
We are on the same page Joe. Any task I could hire out like cleaning I take overall cost I would normally pay and divided by my hourly rate. The only legit, licensed and insured contractors I could hire to do the work would cost way more than $20 hr for anyone decent and dependable. Documenting move out conditions with good quality pictures has also been very helpful. I once charged a tenant back for over 24 light bulbs she was responsible for and when she balked at it and took me to court I had pictures of all 24 burned out bulbs and a HD receipt showing exactly what they cost. My time charged out at 10 min per bulb. judge told tenant if she wanted the t cheaper, she should have done it herself.....BAAMM. Case dismissed
I am in PA also (Harrisburg area). There are several PA laws I see violated all the time... Google PA tenant landlord laws and fully educate yourself. You will not have a leg to stand on if you dont follow the law as ignorance of the law is not a defense.
1) Security deposits can only be used for repairs, not last months rent. I see quite a few landlords around here, and I have had tenants ask, to use the security deposit as last months rent... This is not allowed under PA law.
2) Security deposit cannot exceed two months rent initially. furthermore, they cannot exceed one months rents from the 13th month of the lease and beyond. I ask for two months up-front, then refund one of those after the first year. This is on top of the first months rent.
As for repairs, I handle things this way.
1) Damage that occurs during the lease is billed to the tenant with 30 day terms. I also have a clause in the lease that states monies received will be applied to other bills (damages, utilities, etc.) prior to being applied to the rent.
2) I inspect property about 10 to 14 days prior to the tenant moving out to inspect. It is good for planning and at this time I will point out to the tenant any obvious items that I am going to bill them for. This is also a good time for me to remind them that they must thoroughly clean the place to include shampooing the carpets.
3) IMMEDIATELY after they move out we inspect the property with the tenant so we can point out all damaged items. (You should be using the same inspection sheet that you used at move-in for comparison). Be sure to note if the tenant refuses to take part in the inspection. Photograph all damages for the record. (You should have photos of the property prior to move-in also).
4) Start repairs ASAP. You dont want to discover damages on day 29 that you did not account for. There is nothing in the law about "holding" a security deposit. That 30 day clock is ticking and you are not achieving anything by holding on to their deposit for the full 30 days. Get in there, get the damages fixed, and get the remainder back to them ASAP. A check though certified mail is best. The tenant cannot "demand" their security deposit any sooner. PA law gives us 30 days to asses the damages use it for those damages... That is all you need to tell the tenant.
5) You need to itemize the bill in order to justify your charges. I do a lot of my own work too and my time is money. I start at $30 an hour for basic tasks like cleaning or pulling out carpet. It goes up from there for any specialty work such as carpentry, plumbing, drywall repair, etc... Research what contractors in your area charge so you have a better idea. If a tenant takes you to court for charges, you better be able to fully justify the amount. If its itemized that will be easier to do.
Don't half-*** it. Know the law, take your time, and document, document, document. If you half-*** these things you will get half assed results.
@Cameron Riley to expand on your first question, I believe in PA the fund goes into a landlord escrow and is technically still the property of the tenant. You, the landlord, have rights to use part or all of the deposit fund after move-out if repairs are qualified. But it is not your money during tenancy. You are temporarily holding their money as a security.
As others have stated, tenant-caused repairs during the lease term are billed to the tenant independent of the deposit.
@Cameron Riley - I just had my first ever tenants move out of my property and ran into this just last week. One thing i will point out, that I am currently fighting, is make sure you call all the utilities and make sure they do not have a remaining balance before refunding them. This was a big lesson lesson learned for me this go-around. I did the move out inspection, and minus a little dirty, the place was in fantastic shape. So when she bugged me multiple times for her security deposit back (as she was going to be out of town for two weeks and didn't want it sitting in her mailbox), I gave her a check in person. A few days later when my new tenant was trying to set up her utilities, I found out that she had over $200 in over due utility bills. I have text her multiple times this week and no response back, and she used to be a quick responder. And it was only the utilities that if she doesn't pay, i'm ultimately responsible for. I'm still crossing my fingers that she pays. Good luck!
Could you elaborate on utilities, please?
In Ohio, water&sewer is staying in the name of the property owner and Tenants just get billed for usage.
All other utilities (electric&gas, cable, internet, phone etc) are between Tenant and the provider of the services. If Tenants didn't pay any utilities, the company file collection on them but don't affect next tenant. How come you're responsible for the Tenants utilities?
I agree with Joe Splitrock except in Illinois and California, at least. carpets are assumed to have a five year life. I have never bothered to chase a tenant for a carpet issue, not worth the effort IMO. But then I put in the cheap carpet on the back wall of HD. And we only carpet bedrooms upstairs halls, and stairs.
Utilities, it depends on your area. My properties are in Naperville, IL which runs its own electric billing and landlords are responsible for debts left by tenants. They are very slow to bill me though, it took over a year with one tenant. (Which is how I found out about the law.) I now call three days before they move out to make sure that they have given the city a forwarding address, and five days after to find out if there is an outstanding bill. Tried to do the same with the gas company, but for them, the bill follows the tenant and they won't tell me anything. I once had a tenant with over $2000 in gas bills after 18 months (new tenant opened the mail accidentally) and the gas company told me that was for three addresses...yet they continued to serve her at new address, it's crazy.
@Ben Smalley Perfectly said and a great way to handle security deposits. With that check list, make sure they sign it on move in and pull that same list out for moving out and they sign it again.
@Cameron Riley simple, when you do the walk through ,you point out all the damage they did, and deduct the amount . I think in the last 10 years we had one or two tenants that actually got back all their deposit. Its only 1kish, so it does not take much damage to reach that,
Had a former roommate take a home owner to court over carpets. The owner claimed replacement carpets as a deposit deduction. The roommate won the case on the premise of a manufacturer's posted 7 year lifespan against a rental lease that spanned across 10 years. The court ruled that the owner should have replaced the carpet at its end-of-life. This case occurred in California; results may vary state to state.
...and I did not see any of the deposit returned to me. After he went through the process of going to court, I felt the roommate earned it.
I think each state may be different. That would be a good reason to check with where the property is located. I have had the experience where a deposit had to be kept in an account that earned interest.
Back right after college, took a landlord to court in CA when he tried to charge me for carpet that was 15+ years old, cleaning the outside gutters, sweeping the chimney, removing a tree that died when everything else in the yard was perfect, and $15/bulb for EVERY bulb in the house. ...... and this was after we did the walkthrough with him and came back to clean a few things that he felt wasn't clean enough..... the judge laughed at him and we got all our $$ back.
I always remember how pissed I was that he tried to screw me and think of that when I deal with my tenants.