Landlords: How do you prevent Security Deposit disputes?

General Landlording & Rental Properties
6yFollow

Landlords: How do you prevent Security Deposit disputes?

Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Fighting over the Security Deposit is one of the main issues between Landlords and Tenants. 

What steps do you take as a Landlord or Property Manager to ensure the deductions from a Security Deposit are not disputed? If the charges are disputed, how do you ensure you win your case in court?

The DIY Landlord Book4.7248 Reviews
WebsiteView Page
2Reply
110 views

Most Popular Reply

Frank Procopio
Real Estate Agent · Naples, FL · Member since 2016 · 298 posts · 268 votes
6y

I got so tired of this that I only charge a $99 security deposit now. I build the cost of the rest of the deposit into the monthly rent spread out across the year 

5Reply
See this reply in the discussion

26 Replies

Jump to latestLatest
  • Frank Procopio
    Real Estate Agent · Naples, FL · Member since 2016 · 298 posts · 268 votes
    6y

    I got so tired of this that I only charge a $99 security deposit now. I build the cost of the rest of the deposit into the monthly rent spread out across the year 

    5Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    @Nathan Gesner Estoppel certificates are the time honored way to do this. Make sure you get all the money due to you at closing.

    1Reply
  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    Detailed move-in inspection form signed and dated by tenant and manager along with photos, then a   move-out inspection report with photos.  Put those two together and it carries real weight and helps avoid court.  If you do end up in court, the judges LOVE that type of documentation.

    Also, make sure the deductions for repairs are 'industry standard', ie, no $500 bill for replacing a broken toilet handle.  

    Lastly, make sure you get out the security deposit refund letter and appropriate check (or a bill) WITHIN THE ALLOTTED TIME as per your state L/T laws.

    2Reply
  • Nathan GesnerBusiness Member
    Moderator
    OP
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y
    Originally posted by @Frank Procopio:

    I got so tired of this that I only charge a $99 security deposit now. I build the cost of the rest of the deposit into the monthly rent spread out across the year 

    Frank, that sounds like a good alternative but let me play Devil's advocate. Let's say the place rents for $1,000 a month so you charge $99 for the first month and $82 per month for month 2 - 12. On month four, you've collected a total of $345 towards the deposit. Tenant fails to pay rent so you start the eviction process and - one way or another - are able to get him out before the end of the month. Best case scenario: you turn the place around in a few days and find a new renter to move in on the first day of the month. You're out a minimum of $665 plus minor cleaning costs. Worst case scenario: Tenant didn't pay his utility bill and there are frozen pipes or a fridge full of spoiled food, some carpet is trashed, there are holes in walls and doors, and the place is full of pet hair, odor, and stains. You lose $676 in rent plus another $2,000 in repairs and cleaning. My point is, your plan benefits the Tenant by making it easier to move in but it puts you at a higher risk of losing money when something goes wrong.

    I'm preparing to switch to a "no deposit" option with Obligo (there are other companies providing the same service and I fully expect it to become more common). I essentially offer tenants a choice: pay the standard deposit or use Obligo. If they choose Obligo, they have to register a credit card and bank account and then Obligo charges them a monthly fee based on the value of an ordinary deposit. For example, instead of a tenant paying a $1,500 deposit prior to occupancy, the tenant would register their credit card and checking account and then pay Obligo a $10 monthly fee. If the tenant leaves owing anything, I submit a claim with Obligo and they pay me up to $1,500 with no questions asked. They then pull that amount from the tenant's account or credit card. If the tenant manages to close their accounts without Obligo finding out, Obligo will still pay me and then go after the Tenant to get reimbursed.

    It's sSimilar to what you are trying to do but the risk is with Obligo, not me.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    7Reply
  • Frank Procopio
    Real Estate Agent · Naples, FL · Member since 2016 · 298 posts · 268 votes
    6y

    @Nathan G. You are totally correct but the majority of my tenant base, over 90 percent, is section 8. So I know that his is cutting me my check. My units also fill faster because they don't have to come up with a large down payment. I see the arguement on both sides but this has worked well for me. No more fighting in court over a deposit. It would cost $500 just for the attorney is find myself just giving it back because I didn't want to waste time and money

    2Reply
  • Erin Crotty
    Realtor · Wichita, KS · Member since 2019 · 8 posts · 7 votes
    6y

    Document everything! Pictures speak a thousand words when it comes down to going to court. Take pictures before, write detailed notes on what updates you did and what cosmetic flaws you've found. I send my version to the tenant when they move in and I provide them with their own copy to submit to me within three days of moving in. That way if they find something I didn't, it's documented and they end up feeling more valued.

    When it comes to them moving out, again, document! Take a thousand pictures if you have to. Have them conduct their over move-out and then go in after and do your own move-out. Save every receipt- make a note beside it with what it went to and whether or not it was a landlord expense or tenant expense, and compare the move-in with the move-out. After you've processed it, send them everything you have and what they owe or don't owe. It's a longer process but it's worth it if you don't have to go to court. Hope this helps!

    4Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    I just keep it and that’s the end of that . There’s nothing to dispute . If they wanted their money back they should cleaned the place up and not left ! 

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @Nathan Gesner I never heard of Obligo. Thanks for the tip. 

    2Reply
  • Zack Leverette
    Rental Property Investor · Macon, GA · Member since 2018 · 15 posts · 8 votes
    6y

    @Nathan G.

    Before we hand keys over I walk the property with the new tenant and go over a check list that we both sign and date. We also take a picture of each room for documentation as well. I think it is a win-win for both tenant and landlord.

    1Reply
  • Joe Kelly
    Rental Property Investor · West Chester, PA · Member since 2018 · 9 posts · 5 votes
    6y

    @Marc Winter would you happen to have a sample copy of a deposit refund letter that you use? I'm in the process of returning a portion of a security deposit for the first time.

    1Reply
  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    6y

    This isn't tough...take photos - I mean close up photos of the stove top, oven, refrigerator, walls - everything before they move in.  Have them initial each photo and sign at the bottom with an acknowledgement that they are accepting the property in this condition and the return of their security deposit will be based on their return of it in the same condition.  

    Do quarterly inspections. If you wait until they move out to address issues, that's on you.  Do regular inspections and address any issues that need their correction/replacement at that time.

    When the tenant moves, walk the house with the tenant and compare condition to the move-in photos.  Take photos of damaged or anything that is more than "ordinary wear and tear."  Those are the items that are offset by the security deposit. The tenant needs to return the property to you in "broom swept" condition (that's the standard) so have that in your lease as well.  

    Do the work upfront, set the expectation, manage what you expect, prove damages, assess damages.  It's a business.  

    1Reply
  • Hunter Lisk
    Realtor · Dubuque, IA · Member since 2019 · 15 posts · 2 votes
    6y

    @Nathan G. Don’t be a ****** landloard and overcharge for everything. Every place I’ve rented I think the landloard made more money off of stealing my deposit than my rent

    1Reply
  • Sarah Brown
    Real Estate Agent · Nampa, ID · Member since 2017 · 439 posts · 361 votes
    6y

    I do my own detailed move in report, and the have the tenant do their own as well.  I then do a detailed move out report.   I also have a price schedule for the cost of repairs that is accessible to them so they shouldn't be surprised when charges crop up.  I have been fortunate enough to stay out of court so far.

    1Reply
  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    6y

    We have the tenant fill out a move in inspection sheet themselves, that they sign. We use that to compare the condition of the unit upon vacating it. We give them a list of move out instructions to follow that includes cleaning and removing all trash (as well as emptying the trash cans). We email it and tape it to their doors as well so they can't claim they didn't get it.

    We send them an itemized list of any deductions plus interest accrued after move out (and within the 30 days). It's coming but I haven't had to go to court in the 5 years I have been doing this and I have taken 90% of security deposits in some cases where the house was absolutely trashed. 

    As I have gained experience I am less and less afraid of going to court. The way some people leave the apartment is unconscionable. 

    [email protected]732-289-3823
    2Reply
  • Eddie T.
    Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    6y

    @Frank Procopio I have thought of this but let's say market rent is $1000. So you advertise instead at $1100 a month. Don't you lose applicants because now you are advertising a higher rent then market.

    My other question is what if person section 8 budget only reaches $1000 which would cover market rent but not the additional $100

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    We video and take tons of pictures prior to a tenant moving in. If there are imperfections, such as prior water damage under the kitchen sink, we document that as well. We do not want to charge a tenant for any damage they have not caused. We used to do a walk through with said tenants for a move-in inspection, but we stopped that. Now, I email the Move-In inspection sheet to the tenant after they move in and tell them to email me pictures of any problems or damage they notice within the first 14 days. If they do not state there is any damage, then they are acknowledging it's all good. 

    At move-out, if we are going to charge anything from the deposit, we document with pictures and receipts of actual money spent to fix the damage. We then notify tenant in writing, with copies of receipts, within 30 days, according to state law. Even if we do not charge them anything, I wait about 2-3 weeks to return their damage deposit, just in case the new tenant notices some damage that I did not. 

    2Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    I should also point out that it is not my goal to keep damage deposits. If we do a couple hours of general cleaning after a move out, I just consider that cost of doing business. If I spend actual dollars and cents, I then charge the tenant. 

    3Reply
  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    6y

    @Nathan Gesner To each his own but I err on the side of returning than keeping. Security deposits are very emotional issue with my tenant base of college students. Parents, lawyers, etc get involved and it turns into WW3. It take a toll on me and it's just not worth the headache. 

    I'd rather spend ALL of my energy on the highest and best use of my time. Buying more deals substantially increases my net worth. Arguing over a $125 cleaning fee does not.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    OP
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y
    Originally posted by @Will Gaston:

    @Nathan Gesner To each his own but I err on the side of returning than keeping. Security deposits are very emotional issue with my tenant base of college students. Parents, lawyers, etc get involved and it turns into WW3. It take a toll on me and it's just not worth the headache. 

    I'd rather spend ALL of my energy on the highest and best use of my time. Buying more deals substantially increases my net worth. Arguing over a $125 cleaning fee does not.

    First, I never have to "argue" about a deposit because everything is so heavily documented before/after. If a tenant contests a charge, I respond with pictures of the before/after and a form with instructions for contesting the charges. I haven't had a tenant request an appeal in over five years.

    Second, if there's just an hour or two of cleaning, I'll usually eat the cost. Anything more than that and I'm charging them for it. The only exception is if I'm not certain the tenant is responsible and I have no documentation to back up the charge. That rarely happens.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    2Reply
  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    6y

    LOVE this idea @Nathan Gesner

    "If a tenant contests a charge, I respond with pictures of the before/after and a form with instructions for contesting the charges. I haven't had a tenant request an appeal in over five years."


    New landlords, please take note.

    2Reply
  • Jennifer T.Pro Member
    Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
    6y
    Originally posted by @Anthony Wick:

    I should also point out that it is not my goal to keep damage deposits. If we do a couple hours of general cleaning after a move out, I just consider that cost of doing business. If I spend actual dollars and cents, I then charge the tenant. 

    I was just signing a lease with a tenant today.  When I get to the part about the security deposit, I always tell tenants that nothing makes me happier than to give someone back their full security deposit back at the end of a tenancy!  Because that means they left the place damage-free (except for wear and tear), broom swept, and had any rent due paid in full. 

    1Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    6y
    Documentation...... that's the key to proof of the "before vs after" I do a bunch of pictures before.... have the tenant fill out a form with any issue they find and submit their owner pictures of the issues.... we both sign off and then repeat when they move out. On a side note...... on move out, do you guys have the tenant do touch up paint for nail holes from pictures etc, or do you just do it yourself? I consider that normal wear and tear and feel more comfortable with handling paint myself..... just curious if other let the tenant do it
    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    OP
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y
    Originally posted by @Ned J.:

    Documentation...... that's the key to proof of the "before vs after"

    I do a bunch of pictures before.... have the tenant fill out a form with any issue they find and submit their owner pictures of the issues.... we both sign off and then repeat when they move out.

    On a side note...... on move out, do you guys have the tenant do touch up paint for nail holes from pictures etc, or do you just do it yourself? I consider that normal wear and tear and feel more comfortable with handling paint myself..... just curious if other let the tenant do it

    I tell tenants to NOT fill the holes or do touch-up paint. So many of them don't know how to apply spackle and make it look worse than it was as a hole. As long as they are small holes and a reasonable number, we consider it part of "ordinary wear-and-tear" and the cost of doing business.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    0Reply
  • Blake Schneider
    Rental Property Investor · Cleveland, OH · Member since 2019 · 3 posts · 0 votes
    6y

    @Nathan G.

    I am very interested in finding more information concerning the service that Oblige provides and the names of the other Companies that can provide the same service that you mentioned.

    Thanks

    Blake

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    OP
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y
    Originally posted by @Blake Schneider:

    @Nathan G.

    I am very interested in finding more information concerning the service that Oblige provides and the names of the other Companies that can provide the same service that you mentioned.

    Blake, you can read this article about deposit alternatives. There aren't many companies doing it yet but it's growing as rent rates continue to increase and make it more difficult for tenants to afford move-in. Some states require Landlords to pay interest on security deposits, which can be a pain to deal with, so this is another way of avoiding that requirement.

    Go to www.obligo.com to learn more about the service.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free