Security Deposit Dispersion: Should You Treat Long-Term and Short-Term Tenants Differently?

Scenario #1: Melissa has been in your rental home almost as long as you’ve owned it.  And it’s been a good ride!  It started out as a standard tenant-landlord relationship with formal calls for repairs and rent checks sent solitarily in the envelope.  But over the years, Melissa (now “Mel”) has really grown on you and vice-versa. 

It started when she had some tough financial times and asked for you to allow some late payments.  You assented and wound up having some deep conversations after the initial rental payment was discussed.  A few years later, the water pipe blew and ruined many of her things.  You promised to make it right; Mel paid her rent diligently and never complained about all the workmen coming in and out of the house for a few weeks.  She really could have!

Over the years, Mel started sending some pictures of her kids having major life events in with her rent check every few months.  Oh, how you looked forward to seeing what had become of her family.  You were so proud of them!  But now, with Michael, Jr. graduating at the end of the summer, Mel has told you that she needs to downsize.  And that means she’s moving out.

Mel has been a tenant for 12 years.  And you have to admit that your stomach has been in knots since that phone call.  On one level, you knew this day was inevitable.  On another, it’s almost like losing a family member. 

Scenario #2:  Wally moved into your Uptown Charlotte rental condo right after his internship at Goldman Sachs ended in Manhattan so he could take a job with Bank of America.  You knew Wally would never be Mel.  This condo was clearly a stepping stone for him to get used to the area and figure out where he wanted to live in Charlotte (or elsewhere in the world).   

Wally was very cordial and business-like when you met him to sign the 1-year lease.  “You’ll probably never hear from me!” he joked.  And he was right.  He set up his on-line bill pay and his rent checks showed up on time every month (sans any other correspondence).  And, expectedly, about 40 days prior to his lease expiration, you got an e-mail from him giving you his 30-day notice to let you know he was moving out. 

Two of your tenants are leaving and you’ll have to do two walk-throughs so you can disburse the security deposits.  Personal feelings aside, do you treat these 2 tenants differently from each other?

Absolutely.

Tenants should be charged for any damages beyond normal wear and tear.  The amount of normal wear and tear for someone who lived in a rental unit for 1-year versus 12 years is substantial. 

Fix-up expectations for a 12-year rental:

1.  Probable repainting of entire home

2.  Probable carpet replacement

3.  Professional cleaning

4.  Replacing miscellaneous worn out items throughout house

Likely charge to tenant: $0.00

If a tenant lives in your property for 12 years, that’s a lot of normal wear and tear.  It would be difficult to justify charging them anything (short of them detonating a bomb in your home prior to move-out).

Fix-up expectations for 1-year rental:

1.  Minor touch-up paint

2.  Carpet steam-cleaning (hopefully already performed by tenant prior to move-out)

3.  Professional cleaning

4.  Any damages beyond light wear and tear

Likely charge to tenant: That depends typically on how dinged up the walls and flooring are and if there are any major items of damage.  Tolerance for rental unit abuse is low.

Sorry, Wally, but you need to be really careful to keep things nice if you’re only sticking around a year.  But, Mel, you don’t need to worry so much and thanks for staying so long (I’ll miss you!); just because you moved away doesn’t mean you can’t keep in touch!

Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

The #1 Question Tenants Ask When Vacating: Give Them the #1 Answer

“When will I get my (full) security deposit back?”

This is the #1 Question property managers get asked when tenants vacate.  And this is the #1 opportunity to get the house back in the condition you want.  Make sure you take it!

Note: This is not a full-proof plan!  Some tenants have a completely different view of “clean” after they move out.  As in, “Though the carpets are stained now and the walls are marked up, it is in better condition then when we moved in.”  I get it: people can be temporarily delusional to further their own interests.  As in, “I didn’t know that the McDonald’s coffee would be hot because it didn’t have a warning on the cup, I swear.”

When I hear the #1 Question through property manager ears, it really sounds like they are asking, “What do I need to do to get my full security deposit back as quickly as possible?”  Fortunately, that is precisely the question we want them to be asking!

Getting a house back from the tenant in great condition is a win-win-win for all involved:

1.  Tenants: They get all of their security deposit back- yeah!  I root for all of our tenants to do this.

2.  Owners: They get a property that can immediately go back to market and requires minimal cleaning/fix-up costs.

3.  Property managers: They don’t have to take a lot of pictures, document repairs, compute repair costs, and then explain the damage costs to the tenants and owners.

So how is getting a house back in great condition facilitated?  The bottom line: You get what you ask for!  Ask the tenants (in specific terms) what you want them to do so you can give them their full security deposit back.  Examples include:

1.  Steam clean the carpets after vacating and leave the receipt as proof

2.  Put clean air filters in all the vents

3.  Clean out all the appliances, drawers, and cabinets

4.  Don’t leave any personal items in the house

5.  Put new batteries in the CO and smoke detectors

6.  Leave all copies of the keys, garage door openers, HOA passes, etc.

7.  Fill in wall holes and touch-up paint where appropriate

8.  Make sure the landscaping has been trimmed and the grass cut

If expectations are set, then (at least some of) the tenants will follow them.  And this will save some of the “I can’t believe how the tenant left the house!” laments.  And also cushion the tenant protests if some of their security deposit is held back.

We can’t expect the tenants to leave a home in “good condition”, when we don’t define what “good condition” means to us.  It’s a subjective term.

When tenants ask the #1 Question, they are listening very hard to your response.  Give them the #1 Answer.  Take this opportunity to detail how you want the property left (and providing a check-off sheet in writing is even better!) while they are focused.  Then add, “… so depending on how the property is left and how many repair quotes we need, it could take up to 30 days.  If it is left in great shape, you could get it in a few days!”

The #1 Question is good; it shows the tenants care.  Make sure you volley back the #1 Answer while you have their full attention!

Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Charlotte Property Management Monthly: Don’t Return Your Tenant’s Security Deposit Just Yet

As a Charlotte property manager, I am a big proponent of returning as much of the tenant’s security deposit to them as possible.  If the tenant took time to care for the property, did what they were supposed to do during their lease period, and paid all of their rent, they certainly deserve it back!  There is a reason property managers are required to put the security deposit into an escrow account; it is a reminder that the security deposit is not the landlord’s money, it belongs to the tenants.

However, that being said, I’m also a proponent of the “slow return.”  By NC law, the security deposit does not need to be returned to the tenant for 30 days.  And also according to the law, if the landlord is still figuring out repair costs and won’t make the 30-day deadline, they just need to notify the tenant that the payment will be delayed in writing and let them know the approximate cost of the repairs at that point in time.

Why would landlords delay the tenant’s security deposit return?  The most popular question asked (by far) when a tenant moves out is, “when can I expect the security deposit back?”  If you want to be a “cool” landlord, shouldn’t you just give it back after the walk-through?  You already know how much the repairs are going to cost (if there are any) and the tenant could use the money back.  You certainly want to be good to the tenants who were good to you, right?

Well, yes, but not exactly.  I recommend keeping the security deposit as long as possible.  Once it is given back, you really need to consider the tenant gone and their account closed.  You need to assume that you will never get any money from them again.

So?  They moved out already, right?

Yes, but…  Walk-throughs are an inexact science and sometimes things are missed.  Think about home inspectors; they are professionals that take hours doing a walk-through to write a comprehensive damage report and they still miss issues with the home.  I guarantee that landlords are not close to conducting several hour walk-throughs at the level of detail that they are (nor should they be).  Things get missed and that’s life.

However, you can provide yourself some extra time so missed things can get caught before it’s too late and you have to pay for it!  It may be one of the handymen working on your home that alerts you to new repair issues.  It may be a Realtor or marketing person who wonders why something looks off.  Or (usually) it’s the next tenant who moves in afterwards that lets you know what’s not up to par (and by the way, they want the issues fixed on your dime!).

Let tenants pay for damages they are responsible for.  And, unfortunately, the delay in returning the security deposit to them is a good way to ensure this happens.

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which  specialize in rent-to-own (lease options) and rent-to-sell homes.  His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Weekly: Tenant Stories Often Raise Red Flags

“If you have to ask how much it costs, you can’t afford it.” Maxim of the Wealthy




“If you have to ask for a payment plan for the home’s security deposit, you can’t afford it.” Maxim of the Intelligent



We are approached by potential renters a few times a month with something like the following:



“We love this house! We want to take it! We would call our lives “complete” if we could inhabit this home with our children! We get goose bumps just imagining the daily ingestion of pure beauty that permeates from each nook of this stunning domicile. We have the first month’s rent ready to put down now! Where do we bring it? We will treat this house like our very own with weekly carpet baths and loving dustings!






But… The only problem is that we are a little short on the security deposit. Will the owner accept breaking this payment into 3 months? Let the owners know we are good for it and I will be praying that they be blessed this Sunday at each of the church services we regularly attend.”



Thinking like a property manager, how many red flags come up in this beautiful soliloquy? A few come to my mind:



1. Lack of funds: I dare to call this the number one tenant screening technique; this is the collection of the application fee, pet fee, security deposit, and the first full month’s rent upfront and in full. This really is the number one way to find out if they have cash on hand. If they can pay it, they probably have money. If they can’t, they probably don’t and won’t apply.



2. Offer of the security deposit in a payment plan: This ties into red flag #1, but there is another issue. If they don’t pay it upfront, you are left with absolutely no leverage to get it after they move in. You can’t evict them because they are paying rent. Please don’t take payment plans! I’ve done it a few times (because it seems so easy and the tenants seem so sincere…), but they rarely keep up with them. Moving is always more expensive than they realize and cash was already short. They won’t give you the money simply because they don’t have to. They duped you on the front end and will now avoid your calls and hollow threats.



3. Effusive praise over a rental home: I like it that you like it, but let’s not go overboard. When you tell me that you’re going to take meticulous care of it, that’s great; but I’ve never had a tenant tell me that they were planning to systematically destroy their rental before moving in.



4. I like it that you’re into church: But I wonder why you’re telling me this when you’re applying for a rental home?



Red flags don’t mean you need to wave a white one. Be diligent in your screening process and the right tenant will come along!



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Weekly: Delayed Rental Walk-Throughs Cost Everyone Money

Unfortunately, I’m yawning as I’m writing the title of this article. I’m not sure how to jazz it up a little (maybe “Lindsey Lohan falls for property manager during rental walk-through! Then she heads back to rehab.” I’m intrigued at least.




That would be a nice segment into this! Instead, coming in a close second in terms of excitement, I’ll give the definition of the walk-through so we’re all on the same page: A walk-through is simply visiting a rental property after a tenant moves out and assessing the damages. Then, one would deduct the damages from the tenant security deposit and mail the tenants the check.



I figured I’d write on this topic after a friend told me he’s still waiting for his rental security deposit back 7 weeks after move-out. Yes, a property manager holding it this long (without a written explanation) is illegal in North Carolina, but that’s not the point. It just doesn’t make any sense financially.



Let’s look at the stakeholders when a walk-through is not done in a timely manner:



1. Tenant: He wants his money back! He now thinks unfavorably of your property management company and is actively plotting his revenge against you (sad, but true).



2. Rental home owner: He is footing the bill everyday the property remains vacant; vacant properties are generally tough to fill if they are not cleaned up and put on the market (requires a walk-through…). If owners are withheld cash for long periods of times, they tend to find property managers who disburse it to them on more regular intervals.



3. Property manager- this is the primary loser in this game for many reasons.



First of all, there is the oft-cited statistic that the #1 reason why 90% of businesses fail is due to lack of cash flow. And vacant houses don’t typically bring in any cash flow; however, they certainly have the potential to! Let’s look at the revenue that a vacant house can bring in. The fee list includes (but is not limited to):



1. Fixing the home up fees

2. Application fees from tenants

3. Tenant procurement fee

4. Monthly management fee

5. Potential brokerage fee if the house is also on the market for sale



None of the above money-making happens until a walk-through occurs.



Also, there is a lot of talk about the vital importance of working capital; this is the money that is in your bank account that funds day-to-day business operations. Experts say to collect money faster from clients and pay vendors slower in order to keep this account flush (because without money in it, you’re essentially out of business).



If this is the case, it behooves property managers to conduct walk-throughs as soon as the tenant moves out! It pushes up the earning of cash flows from vacant homes and makes customers happier.



I mean, why wait seven weeks to start getting paid when you can get the cash now?



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)