Moving Your Tenants Out: A Security Deposit Mistake to Avoid

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I just got a 30-day move out notice from some of my tenants in Baltimore, MD. They’ve been with me for over five years and I hate to see them go, but unfortunately I couldn’t get them to stay. So when I received their 30-day notice in the mail (as per requirements of my lease) I immediately emailed them to set up a date for the move-out inspection.

Now, this inspection is a few weeks away, however, I’m already getting prepared for their move out and for the moving in of new tenants. First off, in addition to having the tenant’s mail you a copy of their intent to move out, your lease should also contain a clause that says you’re allowed to start advertising the property as soon as the tenants let you know they’re moving.

This includes putting a sign in the front yard, and of course, the other methods I love to use such as running ads in the newspaper and placing ads on Craigslist. You should tell your tenants that you plan to show the property on Saturday’s from 2-4 (or whatever time you choose) and give them plenty of notice ahead of time. I’ve never had tenants have a problem with this, but if they did, I would again point to my lease and say that it says I get access to show the property.

As for the actual move out of the tenants, you should have a checklist for this.

I have checklists for everything in my real estate business. For moving in, for moving out, for doing a lease option deal, a wholesale, a sub-2, etc. The checklist covers items such as “remember to let the tenants know they must leave the house in broom-clean condition when they move out” to remembering to get all of the keys back, the garage door opener and any other items they may have.

On the inspection day, make sure the tenants are present. I’ve heard of landlords telling a tenant to go ahead and leave and they’ll get to the inspection another time and mail them a copy. This is obviously a terrible idea. You need to have the tenant there so that the two of you can walk through the house and fill out the inspection checklist. Also, it’s important to have the initial move-in inspection form with you.

That way, if you find a hole in the wall and the tenant says the hole was there when they moved in, you can show them the move in checklist from years ago that shows there was no hole. On the other hand, this works to protect them too, in case you try and blame something on them. You can look at the original checklist and say “you’re right, there was a stain on the carpet in the kids bedroom, I almost forgot about that.”

Here’s the one crucial mistake that I don’t want you to make…

Let’s say the inspection went fine and there were no problems with the house. Let’s say you got back the house keys, the garage door opener and everything looks in order. Whatever you do, do not give them back the security deposit at this time. Don’t even bring it with you so you aren’t tempted.

In almost every state you have 30-45 days to return a tenants security deposit. Use that time. You’d be very surprised at how often during that time frame you’ll discover problems with the house, or items that have been broken, that you didn’t realize on the initial move out.

If you foolishly give the tenants back their money on move-out day, only to discover that three days later they trashed your washer and dryer, well, good luck getting any money out of them. Also, even if the tenants beg you for their money immediately, simply tell them its company policy that you’re not allowed to issue funds on that day, but they will get their money within 45 days as state law requires.

Note: Here’s a sample move in/move out checklist.

Photo: Matt McNier

About Author

Jason R. Hanson is the founder of National Real Estate Investor Month and the author of “How to Build a Real Estate Empire”. Jason specializes in purchasing properties “subject-to” and has purchased millions of dollars worth of property using none of his own cash or credit.

15 Comments

  1. I made a mistake early on when inspecting a unit right after it had been cleaned. The carpet was just steam cleaned and looked/smelled really good. I cut act check later that day. Two days later I showed the unit to a prospective tenant and it reeked of cigarette smoke! Now I do my initial inspection and then a second one a few days later to ensure nothing was missed. Like you, I love checklists! Thanks for the article.

  2. Excellent advice Jason. the wisdom in this post sounds like it comes from several years of experience. I would never have thought to include the marketing piece in the agreement. Thanks for the sound advice, and the practical reasoning on the security deposit.

  3. Good article . . . in California, the deposit must be refunded or accounted for in writing within 21 days. Fyi, recently a CA landlord friend of mine sent me an email about the new trend (instead of taking a deposit) to require tenants to buy a surety bond that names the landlord as the beneficiary in the event of damage or unpaid rent. This eliminates the arguments, the growing piles of paperwork, and (in some areas like Berkeley, CA, where I used to be a University housing counselor) the requirement to pay tenants annual interest on their deposits. The biggest difference is there is no refund to the tenant for the cost of the surety bond, whereas a deposit is refundable less any legitimate deductions. He’s seeing a growing number of rental advertisements that state ‘no deposit required’, which seems like a good deal for the tenants . . . until they find out they need to buy a surety bond instead!

  4. Great article! thank you so much for the information.
    However, I would like to know, what is a landlord to do when a tenant asks for a bank statement of where their deposit is being kept? that’s a question I have not found any answer yet. Does anyone know what the law says regarding that?

    • Amy – It likely depends on the state you’re in. Some states require the landlord to tell the tenant in writing the name and address of the bank where the deposit is kept, the total amount of the deposit, the kind of bank account, and the current interest rate for that account. You need to provide a receipt, of course, but as far as the local state requirements for deposits, you’ll want to check those local laws.

    • I’ve not heard of a tenant asking this. The only reason to ask is if they distrust you. That said, they don’t have a legal right to a bank statement that includes the funds of others, your bank account number and other private information. If state requirements exist, find out what they are and adhere to them. Otherwise, tell them the bank & branch, the interest rate, and stop at that.

      I tell my tenants in the contract that the deposit is held in a non-interest beating account, what bank I use, and that I adhere to state requirements. If that’s not enough they can rent from someone else.

  5. Hi,

    I rented a room in my house. There was no walk through in the beginning although my contract stated renter will get a checklist and renter must notify me of any defects of the room otherwise assume in good condition. I did not provide a checklist. Renter did not make any complaint about problems with the room. Renter lived there for 5 months.

    No problem until the move out. The room was not clean, there was hair and dust (not horrible but definately requires cleaning), several small nail holes, and a stain the size of a hand probably from leaning some color furniture on the wall. The doorknob plate on the wall fallen off leaving a small indentation by the door knob on the wall. There two long scratches on the travertine tiles about 1 foot long.

    Tenant denied all this stating she returned the room as clean as she found it and she did not make the damages and want full deposit back. The cost of fixing the tile alone is more than her deposit of $200. Please advise me what to do. Thank you.

  6. Jason,

    Every article I’ve seen of yours has good information in a usable format with supporting reasons why you want to do things this way. I love it! You definitely have a gift for being clear and concise.

    Roy

  7. This is a great advice for all landlords out there so that they won’t suffer from any damages such as ruined carpets, uncleaned CR, etc. You are right that the landlord and tenant should be present during inspection day. I also suggest that during their move out day, the landlord should also be present.

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