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10 IPS Tips Re: Security Deposits

10 IPS Tips Re: Security Deposits

1. Avoid Whiners

If your applicant can't come up with the entire security deposit in one lump sum or utters various murmurings regarding the amount of the required deposit, move on. That is a red flag as you really don't know the true state of their finances. Experienced, quality renters will be prepared and expectant of a security deposit and well-prepared to pay in full.

2. Build Up Your Defenses

Work to make your property as indestructible as possible. For example, consider bamboo or artificial wood flooring in lieu of carpet. Did you know that high gloss paint is much easier to clean? This ensures that your walls will become wipeable, easy-to-clean surfaces. Door stoppers are also a great investment as they serve as protection against banged up walls and holes.

3. Know Your Applicant's Current Living Conditions

Five minutes browsing through an applicant's current home can save you five hundred bucks and more down the road! Not the cleanliness of their current living arrangements and whether the property seems in good upkeep. This will provide ample indication of how you can expect your own property to be treated.

4. Revisit the Norms

Most landlords have clauses in their lease contracts regarding normal wear and tear. Perhaps it might be time to reassess what should be deemed as normal versus that for which a tenant must be held liable. Details such as the size of drywall holes, nail and screw hole patching in walls and the size nail allowed for picture hanging should be clearly outlined in the contract. In the event that a tenant gouges your walls with industrial strength builder's screws, you might want to deduct the cost of repairs from the security deposit. Furthermore, you want to be as clear and precise as possible in the event of a lawsuit. The judge needs to know exactly what the tenant agreed to in signing the lease contract.

5. Don’t Be Specific

Contrary to point number four, do not specifically designate portions of security deposits as "pet deposit", "cleaning deposit" or otherwise. All refundable deposits are umbrella deposits. This only empowers a tenant to challenge you on the amount of a deposit which may be deducted for a specific repair. Charge one security deposit and state very clearly in the lease how the deposit may be applied.

6. Inspect & Document

Upon move in, do a full inspection with the renter present and document every aspect of your property's condition. Note whether issues are pre-existing and have the tenant initial each notation. Sign, date and maintain the original for your records while providing your tenant with a copy. Once again, you must always think "lawsuit" in the back of your head. Ideally, you will not face one, however almost every landlord is sued at one point or another. Do not give the tenant an opportunity to state "that damage was pre-existing to my arrival."

7. Security Deposit

Be sure to open a separate, interest-bearing account in which to park your security deposit. Do not make the mistake of commingling funds as this is illegal in some states. In addition, you will have the funds readily available when the time comes to return them.

8. Check-Ups

Be sure to perform regular property inspections in order to address potential issues at the forefront rather than later. Quarterly or semi-annual inspections are a good idea. This will send the right message to your tenant!

9. Address Repairs Quickly

Upon noticing a repair issue, GET ON IT! Don't delay as your tenant would only be entitled to a full refund of a security deposit due to your lack of expedience! Get repair quotes, fix items right the first time and avoid high tenant turnover and reduced rental income!

10. Calculate Your Costs

If you are able to perform your own repairs and maintenance, kudos! You are saving yourself a ton of cash. Be sure that you seek the advice of an accountant as to how to properly deduct your expenses from the tenant's deposit. Maintain detailed, dated records and seek ways in which to make those documents as official as possible. Seek a consultation with your accountant right away!