Posted by & filed under Property Management.

Owning a rental property can be an exciting business opportunity, especially if you have responsible tenants who take good care of the home and pay their rent on time each month—but sometimes things don’t go as planned. You might find an amazing tenant, or you might end up with someone less than ideal. They may stop paying rent, refuse to communicate with you, or worse, cause significant damage to your rental.

To help you navigate the frustrating experience of property damage, we’ve compiled a few steps you can take. Please note that this is for informational purposes only and is not intended as legal or financial advice.

Tenant Damage vs. Normal Wear and Tear

Tenant damage goes beyond holes in the walls from hung pictures or worn carpets; these things are considered normal wear and tear that’s to be expected with any tenancy. In some cases, though, an angry or careless tenant might cause serious damage, like broken windows, large holes in the wall, or leaving large piles of trash around that cause staining, bad odors, mildew, or other unpleasant issues.

Assess the Damage

If the tenant has clearly caused property damage that goes beyond normal wear and tear, the first thing to do is to assess the damage and document it accurately. Take photos that are time-stamped; you might even want to consider taking video, as well. If, for example, there’s a large hole in the wall but the size of it isn’t clear in the photo, use a common object, like a quarter (or even a ruler) for reference.

Thorough documentation will provide valuable evidence if you need to take the issue to court. Hopefully, you took photos of the condition of the property before the tenant moved in—these can be used to prove the original condition of the rental. Next, you’ll need to get quotes from contractors for the repairs, which will help justify the costs you deduct from the tenant’s security deposit when the lease ends.

Know the Law

Although tenants are generally responsible for damages that go beyond normal wear and tear (regardless of whether it was intentional or caused by a guest), it’s important to know that state and local governments have different laws regarding rental damage. These may include specifics on who’s responsible for what and the steps landlords must take to collect money for damages that fall under the tenant’s responsibility. Before taking any action, make sure you’re clear on the laws that apply to your property.

Also, keep in mind that anything that falls under normal wear and tear isn’t the tenant’s responsibility. This includes things like worn carpet in high traffic areas, faded or peeling paint, loose grout, and worn enamel on bathtubs and sinks. On the other hand, chipped or burnt flooring, broken windows or locks, and pet stains or damage go beyond standard wear and tear and will usually be the tenant’s responsibility.

Handling Tenant Damage

How you should handle the next step can vary based on your state and local laws—as well as whether the tenant is still living at the property. Here’s a general overview of how to approach your tenant about the damage. Keep in mind that along with the damage, you should also document any attempts you make to discuss the damage with the tenant.

  • Talk to the tenant
    If the tenant has been a good tenant up until this point or the damage seems accidental, it’s worth talking with them to see if you can work something out. Bring along a copy of the signed lease or rental agreement as a reminder of what they agreed to when they moved in. Ideally, the tenant will accept responsibility and everything will go smoothly. Make sure to document whatever is agreed upon. If the tenant doesn’t accept responsibility or becomes uncooperative in any way, you’ll need to take more drastic measures.
  • File for eviction
    Breaking the lease or posing a significant threat to the property are both valid reasons to consider evicting the tenant. Although eviction is a time-consuming process, it may be the best option for uncooperative tenants. However, be aware that eviction could make the tenant vindictive—which could result in more property damage. If you choose to evict them, handle it calmly and professionally, and document every step you take.
  • Cash for keys
    If you’d prefer to avoid eviction, you also have the option of offering “cash for keys”. With cash for keys, you would offer the tenant a lump sum of money to leave the property. If you choose this scenario, you can also add on conditions—for example, the rental must be clean with no further damages. Cash for keys isn’t necessarily ideal, but it can be a quicker (and potentially less expensive) alternative to eviction.

What to Do if the Tenant Has Already Left or You Can’t Get Ahold of Them

If the tenant has already left your property, or they aren’t responding to your attempts to discuss the damage, consider taking the following steps:

  • Deduct the cost of repairs from the security deposit
    Once the tenant has left the property, get a quote for the cost of repairs and deduct them from the security deposit. Make sure to send the tenant an itemized list of what needs to be repaired.
  • Consider legal action
    If the cost of the damages exceeds the total amount of the security deposit, you’ll likely have to pay for the remaining costs yourself—or take the tenant to court. Before making a decision, you may want to discuss the best course of action with an attorney.
  • Consider filing an insurance claim
    Another option is to file an insurance claim. Depending on the circumstances, this may be the best option. Many insurance policies include tenant damage. Check with your insurance company if you’re not sure you have coverage.

What if the Financial Responsibility for Damage Isn’t Clear-Cut?

In most cases, it will be obvious who is responsible for the damages. However, some situations can confuse the matter. Take this story from the landlord’s sub-Reddit, for example. The landlord rented their former residence to a tenant; in the lease, it stated that the tenant was responsible for any damages they caused. The tenant later claimed that the outlets in the kitchen weren’t working, so they wanted the landlord to pay for the repair. The landlord, however, was pretty sure the outlets had been working when they handed the keys to the rental over to the tenant.

Although there’s not enough information to truly determine who’s responsible, this story highlights an interesting dilemma; unlike other types of damage that can be easily photographed and compared to earlier documentation, such as a burn on the carpet, there’s no easy way to prove who was at fault. The outlets may not have been working when the tenant moved in, or it’s possible the tenant overloaded them—or, it could be that a breaker needed to be reset. In this circumstance, some research would be needed to determine what caused the problem in the first place.

The best course of action would be to hire an electrician to look at the issue and go from there. Once it’s clear what caused the issue, you could determine whether it was due to something the tenant did and whether they should be billed for it. If the issue was due to old, faulty wiring, that’s not the tenant’s fault; it would be the landlord’s responsibility to fix.

Preventing Tenant Damage

There’s no way to completely eliminate tenant damage (or other issues that could arise), but there are three important steps you can take to significantly reduce the chances of it happening.

First, make sure you have a thorough tenant screening process in place that you use each time you consider an applicant. Next, you’ll want to create an iron-clad lease agreement that clearly outlines all the terms of the tenancy and your expectations of how the tenant should treat the property. Be sure to include details on what the tenant can expect if they violate the terms of the agreement. Finally, you should have a system for performing regular inspections at the rental. Whether you conduct the inspections yourself or hire someone to do it, regular inspections can help you spot minor issues before they have a chance to get worse. By taking these three steps, you can rest easier knowing your property has protection against bad tenants or large-scale damage.

Posted by & filed under Uncategorized.

Landlord tenant law book on the lawyer table.

Each year, approximately 10 million people in the U.S. suffer from domestic violence. According to statistics from the Center for Disease Control, this amounts to nearly 20 people per minute being physically abused by an intimate partner. When you consider that around 37% of households are renters, domestic abuse at one of your properties could be a possibility at some point. For this reason, it’s essential to familiarize yourself with your responsibilities as a landlord in domestic violence situations. Please note that this is for informational purposes only and is not intended as legal advice.

What is Domestic Violence?

Before taking any action with your tenants, it’s important to have a clear understanding of what domestic violence is. The National Domestic Violence Hotline defines domestic violence (also called domestic abuse, relationship abuse, or intimate partner violence) as a pattern of behaviors used by one partner to maintain power or control over another partner in an intimate relationship.

These behaviors include physical harm, scare tactics, coercion, or threatening the other partner. It also includes stopping the partner from doing what they’d like or forcing them to behave in ways they don’t want to behave. Domestic violence often includes physical and/or sexual violence but emotional abuse, threats, intimidation, and economic deprivation are also very common. Many types of domestic abuse can be occurring at the same time or at different points in the relationship. Keep in mind, also, that both men and women can be abusers or victims—be careful not to dismiss someone because they don’t fit an expected role.

The Role of Landlords in the Violence Against Women Act

The Violence Against Women Act (VAWA) enacted in 2006, is a federal law that protects individuals who are victims of domestic violence, sexual assault, dating violence, and stalking. As part of the act, victims are also protected from discrimination in accessing and maintaining federally assisted housing due to violence committed against them. Federally assisted housing includes public housing projects, those who have a Section 8 voucher, or rental units that receive federal housing assistance. VAWA doesn’t include private, market-rate housing unless the landlord accepts Section 8 vouchers.

If your rental property qualifies as federally assisted housing, here’s what you should know:

  • Protection against discrimination. Landlords cannot refuse to rent to applicants or evict tenants solely based on them being a victim of domestic violence, sexual assault, dating violence, or stalking. Criminal acts that are directly related to violence from household members or guests cannot be used as a reason to evict the victim.
  • Permissible evictions for victims. Victims of domestic violence can be evicted if you can prove there is an actual and immediate threat to your other tenants at the property or employees if the victim continues to live there; victims can also be evicted for serious and repeated lease violations that aren’t related to the abuse. In either case, victims can’t be held to a higher standard than other tenants.
  • Evicting the abuser. The lease may be split by evicting the abuser and allowing other members of the household to continue to live at the rental property; all applicable eviction laws must be followed. In addition, the family members who remain must retain their rights as tenants.
  • Certifying the victim’s claims. If a tenant requests VAWA protections, you have the right to request that they certify they’re a victim. Official documentation isn’t required; you may use the victim’s statement alone. If you choose to request documentation, you must submit the request to the tenant in writing and give them at least 14 business days to provide it.
  • Acceptable documentation. Some acceptable forms of documentation to request include:
    • HUD-50066, available at www.hud.gov or from the Section 8 office,
    • A police or court report, such as a current order of protection, or
    • A signed statement from a medical professional, attorney, or victim service provider who states under penalty of perjury that the claims of abuse are valid
  • Confidentiality. All information disclosed by the tenant must be kept confidential, unless
    • the release of the information is required by law
    • The tenant gives you written permission to disclose the information
    • The information is needed for eviction. In this case, you must inform the victim before the eviction proceedings so that safety risks can be assessed.

VAWA protections don’t limit your obligation to honor court orders for access to or control of the property, such as orders to protect the victim or divide property among household members—nor do they replace any local, state, or federal laws that provide greater protections for victims.

Domestic Violence Laws Vary Across the Country

Regardless of the housing sector your property falls under, it’s important to review local and state laws to determine your responsibilities in the matter, as both can vary widely based on location.

For example, California law requires landlords to change the locks within 24 hours for tenants who have a restraining order or a police report related to domestic violence, violent threats, sexual assault, or stalking. In Illinois, victims of domestic abuse may be able to have the locks changed at their expense provided they:

  • Provide written notice from all tenants requesting that the locks be changed because one of the tenants or a member of the tenant’s household is at imminent risk of domestic violence, violent threats, sexual assault, or stalking; and
  • The notice must be accompanied by proof that supports these claims, such as medical, court, or police evidence, or a statement from a domestic violence or rape crisis organization that provided services to the tenant

If the threat of domestic or sexual violence comes from someone who is a tenant in the same unit or the landlord doesn’t have a written lease, the proof provided with the written notice must be a copy of a plenary order of protection or a plenary civil no-contact order that specifically grants the tenant exclusive rights to the premises.

Advice for Landlords in All Sectors

Domestic abuse is just as common in the private sector as it is in federal housing, so it’s important to be aware of the signs it may be happening. These include:

  • Personal disclosures of domestic abuse, such as a tenant telling you they don’t feel safe at home
  • Misidentified anti-social behavior, such as repeated noise or nuisance complaints from neighbors due to physical altercations, verbal abuse, slamming doors, throwing objects, or punching walls
  • Late rent payments due to economic abuse from a partner
  • Property damage, such as broken windows, holes in the wall, or damage to appliances
  • Requests for added security measures or lock changes, especially if the perpetrator has left the property

If you believe your tenant is experiencing domestic abuse, you should ask them about their situation when they’re safe and alone. They may not want to discuss it, however, you can begin by asking closed questions that allow them to give yes or no answers, such as “is it a safe time to talk to you?” Some tenants may be reluctant to talk about the situation, as they may fear they won’t be believed or that they risk eviction. One example of how the subject could be approached is by saying, “I’ve received some noise complaints lately, so I wanted to check on you and see if there’s anything I can do to help.”

If the tenant wants to talk, here are some dos and don’ts to follow:

  • Do listen without judgment
  • Do believe them
  • Do validate what you’re telling them, such as “I’m glad you told me.”
  • Don’t confront the abuser, as this could put the household at risk
  • Don’t contact the police or other special services unless:
    • Someone is being actively violent on the property, or
    • There’s an immediate risk of the victim being harmed, or
    • When you need to report safeguarding concerns about an adult or child in the household, or
    • You suspect abuse toward a vulnerable adult

If there is no immediate crisis but you suspect there may be ongoing abuse, you can also provide the tenant with the number for The National Domestic Violence Hotline (1-800-799-7233).

Additional Resources

Domestic violence is a complicated situation—for victims, as well as landlords. For that reason, your best bet may be to consult with legal counsel on how best to proceed if you discover domestic abuse at one of your properties. Normally, tenants who are victims of domestic violence are still required to pay rent in full and on time; they can be evicted for non-payment issues, but you may want to consider other avenues first. There are many alternatives to help tenants through difficult situations, including referring them to an organization that provides emergency assistance to abuse victims or those facing eviction.

Some additional resources include:

Posted by & filed under Property Management.

Landlords put a lot of time and energy into their rentals, from finding tenants to keeping the property maintained. As the core of your business, it’s important to make sure your rental stays safe. One of the easiest ways to see what’s going on at your property at all times is to use surveillance cameras—but is that legal? The simple answer is yes, property owners do have the right to install cameras at their rental properties, but as you’ll see, the legalities can be a bit complex. Please note that the following is for informational purposes only and is not intended as legal advice.

Where Can Surveillance Cameras Be Installed?

Although landlords can install surveillance cameras, their tenants’ right to privacy must still be respected. Cameras can only be set up in common areas where there’s no expectation of privacy, such as:

  • Carports or parking lots
  • Stairwells or shared hallways
  • Garage doors
  • Shared patios
  • Recreational areas, like pools or picnic areas

Security cameras that are installed anywhere outside the property are generally allowed, as long as they’re not pointing at any windows. Cameras can also be installed outside of a front or back door, but if the camera angle allows a full view of the inside of the residence when the door opens, it violates the tenant’s right to privacy.

Surveillance cameras cannot be installed anywhere inside a tenant’s residence or any shared areas where a certain amount of privacy might be expected, like outdoor community bathrooms, changing rooms near the pool, or laundry rooms. In addition, all cameras must be visible and out in the open—not hidden. Legally, you can’t record tenants without their knowledge, so all tenants must be informed that there are cameras onsite and consent to being recorded.

Legal Considerations

Keep in mind these are just general ground rules. Many state and local governments have additional laws regarding the use of security cameras, so make sure you have a good understanding of what’s permitted on your property before you have cameras installed. If you fail to follow the laws surrounding camera usage, you could face legal trouble, serious fines, or even jail time. Some state and local governments will have specific forms that will need to be filled out to show tenants have been properly informed and have provided consent to be recorded.

Cameras with audio are a bit more complicated than cameras that only record video because they must comply with state audio recording laws and federal wiretapping laws. These laws are stricter than video recording laws, so if you’re considering cameras with audio, it’s best to consult with a lawyer and to work with a local installation company that knows the laws. Audio-capable cameras that can pick up sounds from tenants while they’re inside their unit are also illegal.

Massachusetts, for example, has a “two-party consent” law that requires the consent of both parties to record a conversation legally—otherwise, you could be convicted of wiretapping. If you have cameras that record audio and video, it’s crucial to let the people being recorded know that they’re being recorded, or the audio should be turned off.

How Can the Surveillance Footage Be Used?

All images, video, and audio that’s captured on a surveillance camera can only be used for safety monitoring—not for spying on tenants. Footage cannot be used to monitor what tenants are doing, whether they’re breaking the lease, or any other personal details. Using security footage to collect information about tenants and their personal lives is illegal and considered harassment. As long as you focus on using the cameras to ensure your tenants’ safety, you shouldn’t have any issues.

The Bottom Line

Can you put up surveillance cameras? Yes, but you need to pay close attention to your state and local laws and make sure that the positioning of the cameras doesn’t violate your tenants’ right to privacy. In addition, you’ll need to make sure all tenants are aware of the cameras and consent to being recorded. Cameras are legal for the purposes of keeping the property safe, not for spying on tenants. If you’re concerned about how tenants might treat your property, make sure you’re using tenant screening and verification to help you avoid tenants whose rental history includes lease violations, disruptive behaviors, or property damage.

If you’d like to learn more about the types of reports we offer, click the buttons below or give us a call at 800-523-2381.

Posted by & filed under Rent.

According to numerous surveys, most landlords rank payment problems as one of their top concerns. Chasing down rent payments is a nuisance that wastes valuable time—it can also undermine the landlord-tenant relationship. Even worse, payment issues can put your rental income at risk and lead to tenant turnover and costly evictions.

Rent due reminder on calendar

According to a survey conducted by CitiGroup, more than half of Americans have paid at least one bill late. The most common reason for late payments is that they simply forgot. Even if your tenants are reliable, there’s still a chance rent can slip their minds. Consequently, more landlords are turning to online payments for rent collection. If you’re still collecting rent checks through the mail, here are some reasons to consider switching to an online rent payment system, as well as a breakdown of what to expect from some of the most common platforms.

4 Benefits of Online Rent Payments

Generally speaking, collecting rent online is easier for landlords and more convenient for tenants. Here are five benefits to accepting online rent payments:

  1. Tenants can set up recurring payments

Dealing with rent checks is extra work—for you as well as tenants. Filling out the check takes time and there’s always the potential for it to get lost in the mail or for the written amount to be incorrect. The beauty of online payment platforms is that tenants can often set up recurring payments.

Recurring payments ensure you receive the rent on time while eliminating problems like the tenant forgetting to pay, mistakes on the check (which can further delay payment), or the rent check getting lost in the mail. If tenants don’t want to set up recurring payments, they generally have the option of receiving notifications about upcoming due dates instead.

  1. Fewer accounting errors

Mistakes on a check can delay how quickly you get paid, but that’s not the only type of error that can be costly. Mistakes in bookkeeping can also happen when you have to enter everything manually, especially if you manage multiple properties. If you don’t have a good tracking and accounting system set up, you may not even realize you didn’t get paid. There are many ways to make simple errors that affect your business.

Many online rent payment services include basic accounting tools to help prevent common errors, like transposed numbers, double posting, balancing mistakes, or forgetting to track a payment. Although these errors can be avoided by using other programs or systems, online payment platforms often have everything conveniently integrated.

  1. Saves everyone time

Beyond being convenient, online rent payments save both the tenant and the landlord time. Even if tenants don’t set up recurring payments, it just takes a couple of clicks to send the payment. Collecting rent by check can be a time-consuming process for busy landlords, as it typically involves:

  • Collecting the rent payments
  • Preparing deposit slips
  • Going to the bank to deposit the checks
  • Posting receipts
  • Waiting for the checks to clear
  • Updating your bookkeeping

Essentially, every minute spent on rent collection takes time away from the ability to grow your business. If you’ve often felt like there just aren’t enough hours in the day to cross off everything on your task list, switching to online rent payments could be very beneficial—your tenants and the platform will do a lot of the work for you.

  1. Improves Transparency and payment tracking

Transparency and communication are very important in the landlord-tenant relationship. Tenants feel more comfortable when they feel their landlord is being open and honest with them, especially when it comes to things like rent payments or late fees.

Online payment platforms allow tenants to see their payment history and review any fees they might incur. They also have the ability to make their payments 24/7. Landlords can also clearly see when payments were submitted and which tenants haven’t paid yet, which makes tracking payments easy.

Landlords who have multiple properties have also found online property management portals are a great way improve communication. With these types of portals, rent payments, maintenance requests, and general tenant communication are often all available on a single site. This may not be useful for everyone, but online property management portals can make managing multiple properties more streamlined.

Common Rent Collection Platforms

There are many different ways to collect rent online, but it’s best to do some research before selecting one. Here are a few of the most common platforms landlords use:

Zelle

Zelle doesn’t charge a fee to transfer money between bank accounts, so it can be a quick, easy way to receive rent each month. However, Zelle doesn’t partner with every bank. If your tenant’s bank or credit union doesn’t offer Zelle, there will be a weekly send limit of just $500. The tenant also won’t be able to set up recurring payments. For supported banks, transfer limits are around $1,000 a day and up to $5,000 a month.

Zelle’s processing times are fairly quick; the funds will show up in your account instantly, but it may take up to one to two business days for the payment to clear. With Zelle, there are no options to set up late fees or to turn off or stop payments. Tenants can make full or partial payments at any time, which could be problematic, especially during an eviction.

Venmo

Venmo has become very popular for peer-to-peer payments, but it can also be used for rent collection. However, there is a fee for business transactions, as well as “goods and services”. Like Zelle, transactions will show up in your account instantly, but they generally take 1-3 days to process. The initial limit for transfers is $299.99, but that limit is raised to $2,999.99 per week after the user’s identity is confirmed.

To send and receive money, both parties need the Venmo app. Landlords do have the ability to request rent payments from the tenant, but if they’re labeled as a business transaction, you’d be charged a 3% fee. If they’re labeled as goods and services, the transaction fee is 2%. Additionally, there are no options to set up recurring automatic payments or late fees, and payments cannot be stopped or declined. Also, if the tenant accidentally sends their rent to the wrong person, Venmo won’t refund or redirect the payment.

PayPal

Rent can be paid and collected through PayPal, but there is a 3% fee for each business transaction; business owners are required to accept all money for goods and services through a business account. Once a user verifies their account, the transaction limit is capped at $60,000 for a single transaction. When a tenant sends money, it will go in your PayPal account, rather than directly into your bank account.

To use PayPal, both parties will need to set up a PayPal account to be able to send and receive money. Transactions typically take anywhere from 30 minutes to up to one business day to process. Although you’re able to send and receive large amounts of money, PayPal will sometimes freeze accounts that have irregular activity.

This is something to keep in mind if you receive multiple rent payments in a single transaction, such as a tenant paying their rent in advance. PayPal offers more protections than Venmo, and they’ll usually refund money when there’s a valid dispute—although it can sometimes take weeks for the refund to clear. This also means a tenant could potentially dispute rent transactions—and PayPal typically sides with the payer.

Keep Rent Collection Easy for Regular On-Time Payments

Whether you decide to use one of these platforms or choose one of the many others available, using an online payment system can be an ideal way to prevent nonpayment issues and streamline your rent collection process. According to the National Multifamily Housing Council, 85% of people who pay their rent online will continue to do it on a monthly basis. If you’re an independent landlord who relies on rental income, timely rent payments are crucial. The easier you make it for tenants to pay their rent, the more likely it is that they’ll continue to make their payments regularly.

Posted by & filed under Rent.

On occasions, you may have a tenant who wants to pay their rent in advance. They might want to pay for a month or two, or even as much as the entire term of their lease. It may be tempting to say yes because of the guaranteed cash flow—but is it always a good idea? Here are some things to consider before you agree. Please note that this is for informational purposes only and is not intended as legal or financial advice.

Common Reasons to Collect Rent in Advance

Landlords typically collect rent in advance for the following reasons:

  • To safeguard rent payments if the tenant is unemployed or unable to provide proof of income.
  • To avoid the hassle of rent collection while guaranteeing rental income.
  • To secure rentals that are new to the market or in high demand by identifying tenants who are serious about living at the property.
  • To ensure rent is covered when renting to individuals with no rental history (like college students).

The Risks of Accepting Rent in Advance

Clearly, there are some valid reasons to have a tenant pay rent in advance, but there are also a number of risks you should be aware of:

It could be a red flag regarding their income

If a new tenant that you’ve never leased to before requests to pay their rent in advance, it could be because they recently came into a windfall and don’t have a consistent monthly income. If you find yourself in this situation, be extra diligent when evaluating their credit report. You should also conduct a tenant verification to follow up with employers and previous landlords.

Breaking the lease or lease violations

If the tenant violates or breaks the lease and they’ve already paid their rent in advance, you’ll be required to return what remains of the prepaid rent. This means you really shouldn’t spend the rent you’ve received until after the prepaid term. Not only is this inconvenient, but it could also have a financial impact on your business.

No rent increases

If you’ve been considering a rent increase, it will have to wait until after the pre-paid term is over.

It may not be legal

Depending on where your property is located, collecting rent in advance may not be legal. Each state has different laws on rent collection. In some states, landlords can only collect the first months’ rent and a security deposit; others treat upfront rent the same as a security deposit. Some states only allow pre-paid rent if the rent payments are deposited in a trust or escrow account, which can only be transferred to the landlord’s account when the monthly rent is due. Since the laws can vary widely from state to state, it’s essential to check your local laws or consult with a real estate attorney before accepting advance payments.

Advance rent can be harder to keep track of

If you decide to accept rent in advance, it will require more accounting work—especially if you manage multiple properties. If you don’t have a good system in place, it can be difficult to track when the advance rent payments run out.

It could affect your taxes

Advance rent payments are taxable income. If you accept 12 months of rent in November, you’ll have to pay taxes on those payments in April the following year. Unless you have money set aside to cover the additional income, you might take a financial hit when tax season rolls around.

Less interaction with your tenants

Staying in touch with your tenants is important, and rent payments are a good way to do that. Even if you rarely speak to them and only receive rent checks through the mail, monthly checks let you know that your tenant is living at the property and meeting their obligations. There’s also a psychological component: writing monthly rent checks is a good reminder that the home your tenant is living in isn’t theirs, which may encourage them to take better care of the property.

Alternatives to Accepting Advance Rent Payments

If you’ve considered the risks and decided you’re not going to accept advance rent payments, there are other steps you can take to ensure you receive the monthly payments on time.

  • Require a cosigner. This is a common practice for young tenants who are renting their first apartment or living with roommates. Co-signers (who are typically parents or relatives) assume financial responsibility for the rent if the tenant defaults.
  • Use a rent guarantor service. A rent guarantor service works similarly to a co-signer. If the tenant doesn’t have someone to co-sign their lease, a rent guarantor service agrees to be responsible for the rent if the tenant cannot pay it.
  • Get rent guarantee insurance. Rent guarantee insurance protects the landlord if the tenant stops paying by covering up to six months of lost rent per year. This allows landlords to start the eviction process without losing out on months of rental income.

Most landlords and tenants prefer month-to-month payments, so it’s unlikely you’ll have many tenants requesting to pay their rent in advance. Regardless, making it easy to pay rent is one of the best ways to ensure rent collection goes smoothly. Offering several methods for paying rent allows tenants to choose a method that works best for them. Online payments, in particular, can be very convenient for both parties.

If You Accept Advance Payments, Screening is Key

Since there are many risks and disadvantages to collecting rent in advance, many landlords choose not to do it. If you decide to accept advance rent payments, be sure to follow your local laws and document the upfront payment details in your lease. You should also take extra care while screening tenants who make such requests to ensure they have a good rental history and the income to support consistent on-time payments or any other costs associated with keeping the property maintained. Learn how to spot red flags on a tenant screening report here.

Tenant Screening Services offers a variety of screening packages that include credit, eviction, and criminal reports, as well as tenant verifications. Available online 24/7, our services are convenient and easy to use. Order your reports today, or feel free to contact us with any questions you have.

Posted by & filed under Credit Score.

VantageScore 4.0, the fourth generation tri-bureau credit scoring model is now available to lenders. This latest version of VantageScore will set the new standard for credit scores, so it’s important to be aware of what’s changing and how it could impact your score—as well as the scores of prospective tenants.

Changes to the New VantageScore Model

As you likely know, credit scores are used to determine the likelihood of an individual paying back the money they owe. A higher score means someone is more creditworthy, while a lower score means they’re more likely to make late payments or default on their loan. Credit scores models are excellent predictive tools, but updating the models helps to improve their accuracy.

Although VantageScore 4.0 keeps the 300- to 850-point range, there are several major changes to be aware of. Here’s a breakdown of how the new model compares to other credit scoring models:

The most significant changes to VantageScore 4.0 are the use of trended data and the potentially lower impact of tax liens and judgments on credit scores.

Trended Data

What is trended data? According to VantageScore, it’s credit data that reflects patterns in a borrower’s behavior—essentially, how an individual borrows and repays credit over time. This can also include utilization rate (the amount of revolving credit a borrower is currently using, divided by the total amount of available revolving credit) trends. In contrast, other credit scoring models don’t have a “memory” when it comes to utilization rate; they look at your most recently reported utilization rate to calculate the credit score.

VantageScore 4.0 will be the first tri-bureau credit score model to include up to two years’ worth of trended data when determining credit scores. Since significantly more data is taken into account, this could affect your credit—positively or negatively—based on your past habits. The good news is that practicing good credit habits, such as making on-time payments, remains a strong component of the overall credit score, regardless of the credit model used. According to Jeff Richardson, Vice President of Marketing and Communications for VantageScore, those who make more than the minimum payments may have an extra advantage with the new model.

Tax Liens, Judgements, and Medical Collection Accounts

With the new model, tax liens, judgements, and medical collection accounts won’t damage credit scores as much. This is due to the stricter requirements for collecting tax lien and judgement data that TransUnion, Experian, and Equifax implemented in 2017. Since medical insurance can take some time to pay bills for consumers, medical collection accounts that are less than six months old won’t be taken into account. In addition, unpaid medical collection accounts won’t have as much weight in credit scores as unpaid non-medical collection accounts.

Greater Accuracy for Scoring “Un-scoreable” Consumers

Credit score meter. Gauge, business report concept. Excellent, good, bad, poor level scale. Credit rating performance design. Vector illustration.

Another change with the new model is that it will be able to score “un-scoreable” consumers more accurately. With other credit models, like FICO 8 and FICO 9, a lack of recent credit information can result in no score at all. For example, FICO-based scores can only score individuals who have had at least one account open for a minimum of six months, as well as at least one account that’s been reported to the credit bureau within the previous six months.

In contrast to previous models, VantageScore 4.0 will be able to score approximately 30-35 million consumers who were previously deemed “un-scoreable” using machine learning to find past credit data patterns. This will result in more accurate scoring for those who may not utilize their credit accounts often. This doesn’t necessarily translate to a higher score, however; credit scores will still be dependent on the available information.

These changes may affect your VantageScore credit score, but keep in mind that scores can still come from other models, such as FICO or proprietary models from banks or credit card issuers.

The Bottom Line

Although VantageScore 4.0 is now available, it may take some lenders time to switch over the model. In addition, some lending companies don’t use VantageScore to determine creditworthiness. Tenant Screening Center will be upgrading to the new model starting April 1, so you may notice some changes to your tenant screening reports in the near future. For more information, feel free to contact us at (800) 523-2381 or send us a message online.

Posted by & filed under Property Management.

Real estate investment, Real estate value

Tax season is on the way! If you’re a newer landlord who rents a single-family home, apartment building, or vacation property, you may be wondering how to handle your taxes this year. To ensure you’re receiving the proper deductions, you’ll need to determine whether your rental property is considered an investment or a business. Here are some tips to help you decide, as well as some other helpful information about property depreciation, vacation homes, and different business structures. Please note that this is for informational purposes only and is not intended as financial or legal advice.

Investment Properties vs. Businesses

Generally speaking, any property you own and rent out is considered an investment by the IRS. Many landlords rent out properties and make a profit, but they may not be spending a lot of time working on the property. Instead, they may hire a property manager or maintenance crew to handle the everyday matters or upkeep.

This is an important distinction that sets an investment property apart from being a business—the level of time and energy you personally invest working on tasks related to the management of the property. If the rental is vacant for a good portion of the year (and you don’t spend a lot of time working on it) or you invested in it for tax purposes, it would also be considered an investment by the IRS.

However, if a landlord handles the majority of the property management themselves and is regularly spending time working on tasks for the property, it would be considered a business. This doesn’t mean that you couldn’t hire people or services to help with the property, but you would need to be able to prove to the IRS that you spent enough time working continuously at the property throughout the year to receive business-related tax deductions.

There are no requirements on the number of properties you need to own; your rental efforts can still be considered a business by the IRS, whether you have one single-family home or a 100-unit apartment complex.

What’s Considered a Residential Rental Property?

Another distinction you’ll have to make is whether your property is considered a residential rental property. Here are a couple of rules that set these types of properties apart:

  • The property must be a residential dwelling unit. This means the tenant considers it home, and the property has living conditions that include a bathroom, kitchen, and bedroom. The type of property isn’t important; it could be a single-family home, a duplex, a mobile home, or a townhouse.
  • The tenant living at the property must be under a lease or rental agreement.

It’s also important to note that if you have friends or family as tenants, you likely won’t get a tax deduction; for business purposes, tenants should be third-party people you’re not associated with.

What is the 80% Rule?

When determining whether your property is considered a residential rental property, you’ll also need to consider the 80% rule. The IRS classifies a property as residential if it receives more than 80% of its revenue from dwelling units.

This might seem unnecessary; chances are you’re getting 100% of the revenue from the dwelling. However, this rule is in place because some landlords may have mixed-use buildings. For example, some landlords have commercial space on the lower level and apartment space on the second level. This is most commonly found in large cities. If this applies to your property, you’ll need to make sure that 80% of your revenue from the property comes from the residence, not the commercial space. Otherwise, your property will be considered a commercial property.

There are unique circumstances to this rule as well. For example, if you own an apartment or duplex that you live at, as well as other tenants, you’ll need to make sure 80% of the rent is coming from other tenants (excluding yourself) for the property to be considered residential for tax purposes.

How to Determine Depreciation

One of the biggest tax advantages of a residential rental property is the ability to recover costs as the property depreciates. To do this, you’ll need to deduct a percentage of the cost of the property on your taxes each year. This is especially common with apartment buildings or mobile homes.

Keep in mind that you can’t factor in depreciation of a primary home—but you can depreciate items found in the home that have been in place for at least one year. This includes things like large and small appliances or furnishings (like couches or entertainment centers) if you provide them.

To determine the annual depreciation allowance of the property, you’ll need to know:

  • The property’s cost basis. This can be found by adding up the total amount you paid for the property, including all fees, like closing costs and taxes. If you’ve improved the property in any way during the time you’ve owned it, this can also be added to the cost basis.
  • The property’s recovery period. The recovery period is the length of time the IRS requires you to depreciate an asset. For residential properties, the recovery period is 27.5 years; for commercial properties, the recovery period is 39 years. Items within a residential unit (like furniture and appliances) have a recovery period of fewer than 10 years.

This means that if you have a residential property, you’ll be able to write it off more quickly than you would a commercial property.

How Are Vacation Homes Classified for Tax Purposes?

Whether your vacation home is considered a business depends on how many days you’ve rented it out compared to how many days your family spent there. If you’re renting out the home, you’ll want to make sure it can be considered a residential property to receive more tax benefits. Here are several situations that can apply to vacation homes:

  • You never rent out your vacation home: You’re able to deduct real estate taxes and mortgage interest like you would your primary residence—but you won’t be able to deduct other things, like utilities or repair bills.
  • You rent out your vacation home for less than 14 days a year: The rental income will be tax-free—and you’ll be able to deduct property taxes and mortgage interest. You won’t be able to deduct expenses related to the rental side of things, though, like repairs or trying to find renters.
  • You rent out your vacation home for more than 15 days a year: The IRS would consider your rental to be a residential rental property. You’ll be required to report the rental income you received, but you’ll also be able to deduct all the rental expenses associated with the property, just as you would with a full-time rental.

5 Types of Rental Business Structures

If you intend to treat your rental property as a business, you should consider implementing a business structure. Here’s an overview of the 5 different types of business structures you might have as a landlord:

  1. Sole Proprietorship

Sole proprietorships are one of the most common types of business structures. In a sole proprietorship, the business is owned by a single individual or married couple. It’s the easiest type of business to operate, and many people find it less confusing than other business structures. There are fewer legal controls and taxes involved, but on the flipside, sole proprietors are personally liable for debt incurred by tenants or the business itself.

  1. General Partnership

A general partnership is usually owned by at least two people (who aren’t married) who agree to have equal responsibility with the business. This means they share financial responsibility, like expenses, as well as management responsibility and labor. If any debts are incurred, each person is individually liable—so make sure that if you have all the details clearly laid out in writing if you choose this type of business structure.

  1. Estate

An estate is similar to a sole proprietorship, but a business can only be considered an estate when the property’s owner passes away. The property may be granted estate status to allow the business to continue running under the new owners until all the legal issues are addressed. Depending on how long this takes, a property may be considered an estate for an extended period of time.

  1. Limited Liability Company (LLC)

An LLC is created by one or more individuals through a written agreement, which details everything regarding the operation of the company, such as management, tasks, and the distribution of income or losses. It’s considered a type of “pass-through” entity, meaning that it’s not a corporation and all earnings are passed through to each of the members, who are responsible for their own self-employment taxes. A benefit of LLCs is that they can help protect an individual’s personal assets if the property runs into legal or financial trouble. For example, if a tenant was injured on your property and decided to sue, they would be suing the LLC, and your personal assets would be protected from the associated risk. To become an LLC, you need to file with the Secretary of State in the state where the property is located.

  1. Tenants in Common

Tenants in common is a lesser-known type of business structure that allows two or more people to occupy the same property while keeping the property’s assets and liabilities completely separate. Tenants in common can have varying shares in the property, but all co-owners have the same right to enjoy the entire property.

Owning a rental property can be a lot of work—it can also have important financial implications come tax season. Hopefully, this guide has helped you understand how to classify your property so you can receive the appropriate benefits and some of your different options should you decide to turn your investment into a business. To ensure nothing gets overlooked, it’s always a good idea to consult with a professional tax preparer or CPA who specializes in real estate.

Posted by & filed under Property Management.

If you want a better return on your rental investments, it’s important to understand how to tactfully and effectively raise the rent—without rocking the boat with loyal tenants. Rising property costs, as well as turnovers, can eat away at your profits over time. Before raising the rent, you’ll need to consider several factors, including market values in the area, vacancy rates, and whether the tenant will be able to afford the increase. With that in mind, here are five simple steps you can take to successfully raise the rent without losing good tenants.

Five Steps to Take Before Raising the Rent

1. Review Your Local Laws

The first step you should take when considering a rent increase is to review the local rental laws for the area your property is located in. State and local laws can vary quite a bit when it comes to raising the rent. In some areas, rent increases are prohibited, while other areas have rental caps that prevent the rent from being increased beyond a specific dollar amount or percentage.

2. Add Rent Increases to Your Lease

If your property is located in an area that allows you to raise the rent, your tenants may be expecting an annual rent increase. However, it’s important to make your policies clear in your lease agreement to ensure your tenants aren’t blindsided. Your original lease should include a section detailing rent increases, including:

  • The percentage or dollar amount of the increase
  • How often the rent will be increased
  • When the tenant can expect to receive a notice about the rent increase (typically 30-60 days before the rent increase goes into effect, but this can vary based on state and local laws)

3. Determine How Much You Can Increase the Rent

Next, you’ll need to decide how much to increase the rent. For this step, do some research to determine the market value of similar properties in the area. Make sure you’re not just looking at features like the number of rooms and square footage—you should also be taking the amenities into account. Once you have a good idea of how much similar properties in the area are going for, use those prices to figure out your new monthly cost. Keep in mind that if you raise the price too much, you could risk losing tenants.

When determining rent prices, you should also consider vacancy rates. Ask yourself the following questions:

  • Do similar properties in the area seem to stay vacant for long periods?
  • Have you had issues with finding new tenants for your units?
  • Is your rental located in an area that’s in high demand?

These can help you understand how easy it may be to find another tenant if they balk at the rent increase—as well as the overall demand for similar rentals in your area.

Another thing to keep in mind is that even if similar properties are charging more rent than you are, you don’t want to dramatically raise the price of rent to meet them. Substantial rent increases in between tenants are acceptable, but your current tenants won’t appreciate a dramatic increase. It’s common for rent increases to be between 3-5%, but this can depend on where your property is located, state and/or local laws, and the cost of your current rent.

4. Keep the Property Well-Maintained and Upgraded

Have you made some significant upgrades to your rental while your current tenants were living there? If so, this is an excellent reason to justify increasing the rent. However, if you’ve been neglecting the property and putting off maintenance and repair requests, a rent increase may give your tenants an incentive to move. If you’ve decided to increase the rent, upgrading old appliances or making requested updates may help them get on board.

5. Notify Your Tenants of the Rent Increase

Once you’ve determined how much you want to raise the rent, you’ll need to notify your tenants 45-60 days before the lease termination date.

Ideally, you want to be able to raise the rent while maintaining a good relationship with your tenants. For this reason, you should also consider what you’re willing to compromise to keep your tenant happy and continuing to rent from you. This could include repainting the apartment, complimentary parking, or other low-cost incentives. Once you and your tenant have agreed on the terms of the rent increase, you should both sign and date the rent increase notice. Keep this for your records so you have documentation for what was agreed upon.

Give Your Tenants a Reason to Renew the Lease

As long as a tenant enjoys living on your property and feels the rent increase is reasonable, they’ll likely continue to renew their lease for many years. Staying responsive, cultivating a good relationship, and making the rental process hassle-free are the best ways to keep responsible tenants and avoid vacancies.

Another way to avoid vacancies and keep your rental income flowing is to find the right tenants for your property. Whether you’re renting out one single-family home or a large multi-unit apartment complex, tenant screening is the best way to find reliable tenants and protect your investment. Tenant Screening Services offers a variety of screening packages that include credit, eviction, and criminal reports, as well as residential/employment verifications. Available online 24/7, our services are convenient and easy to use. Order your reports today, or feel free to contact us with any questions you have.

Posted by & filed under Property Management.

When a tenant moves out of your property, there’s a good chance that they won’t leave it the way they found it. If there’s obvious damage, like holes in the walls, you’ll be able to deduct the cost of the repairs from their security deposit. However, landlords cannot retain any portion of the security deposit to cover repairs or maintenance for normal wear and tear or depreciation of the property.

The law is pretty straightforward regarding security deposits but the problem is that it can be difficult to tell the difference between tenant damage and normal wear and tear. Here are some tips to help you recognize the difference between these two types of damage and why the distinction matters.

What’s Considered Normal Wear and Tear?

Normal wear and tear can be difficult to define; in general, it refers to the inevitable decline of a property’s overall condition due to time and usage.

All rental properties will experience some deterioration over time, even with the most diligent tenants. It’s normal and to be expected. From flooring to appliances, everything eventually breaks down simply by being used. The longer a tenant lives at a property, the greater the wear and tear will be when they move out. Since normal wear and tear is caused by the regular use of the property and is essentially unavoidable, tenants are not legally responsible for covering the cost of these types of repairs.

Some common types of wear and tear you might see at your rental properties include:

  • Scuff marks or worn areas on linoleum
  • Broken pull strings on blinds or curtains
  • Dents or scuffs from door handles
  • Areas of sun fading on curtains, walls, or countertops
  • Cracks in the walls or ceiling

Normal wear and tear should never be deducted from the security deposit, but the property should be refurbished before the next tenant moves in. To cover these costs, make sure you’re planning ahead by budgeting for any minor repairs, maintenance, or cleaning that might be needed for each of your properties.

What’s Considered Tenant Damage?

Unlike normal wear and tear, tenant damage is caused by neglect, abuse, misuse, or accidents. Intentional alterations made without your approval would also fall under tenant damage, as would any damage caused by a tenant’s guests. Some examples include:

  • Large chunks of plaster ripped out of the wall
  • Burns on carpets
  • Pet stains
  • Ripped or missing curtains or blinds
  • Broken windows or missing screens
  • Painting over tile
  • Unauthorized wallpaper
  • Missing fixtures

To help you further distinguish between normal wear and tear and tenant damage, it can be helpful to break things down into smaller categories—especially since the two most common areas of dispute between landlords and tenants regarding normal wear and tear vs. damage are carpet and paint. Here’s a closer look at each of the main areas you should be assessing.

Normal Wear and Tear: Flooring

When trying to decide if damage to your flooring falls under normal wear and tear, consider the material’s durability and longevity.

For example, hardwood floors have an average lifespan of about 25 years. If your flooring is older, you can expect to see some light wear, fading, and light surface scratches. Large holes, gouges, deep scratches, or staining would be considered damage beyond normal wear and tear. Tile also lasts around 25 years on average. Dirty grout surrounding the tiles would be considered normal wear and tear; broken, chipped, or missing tiles is tenant damage.

Carpet generally lasts for about five years; after this time, it should be replaced by the landlord. Normal wear and tear would include worn areas or carpet seams that are starting to come unglued. Holes, stains, cigarette burns, or areas of ripped carpet would be considered tenant damage. It’s worth noting that it’s the landlord’s responsibility to keep the property free of hazards. So, if the carpet has become worn to the point of becoming a tripping hazard, it should be replaced immediately.

Other types of normal wear and tear to flooring include:

  • Scuffs or signs of wear in high-traffic areas
  • Worn areas around furniture
  • Peeling on less durable types of flooring, like linoleum
  • Fading, especially in areas that receive a lot of sunlight

Issues caused by excessive force or neglect, like cracked tiles or broken floorboards, would be considered tenant damage.

Normal Wear and Tear: Paint & Walls

Paint naturally degrades over time; a reasonable lifespan for the average paint job is around three years. Normal wear and tear would include:

  • Peeling paint
  • Areas of scuffed paint
  • Fading from sun damage
  • Ceiling paint issues caused by leaks that have previously been reported (and were not caused) by the tenant

Damage that goes beyond normal wear and tear would include things like unpatched holes, excessive marks or scribbled-on walls, or unauthorized paint or wallpaper.

The walls themselves should last for the lifetime of the home. Normal wear and tear to walls would be things like cracks caused by the building settling. Nail holes are a bit of a gray area. Three or four small nail holes from hanging pictures can generally be seen as normal wear and tear; however, if there are 30 or 40 nail holes in a single wall, this would be considered tenant damage because professional repairs would likely be required to make the wall look presentable for the next tenant. Likewise, large holes, gouges, or other types of wall damage would be the tenant’s responsibility.

Normal Wear and Tear: Appliances

Just like the other items covered, you’ll want to consider the typical lifespan of your appliances when assessing them for damage vs. wear and tear. Most large appliances, like refrigerators, dishwashers, or stoves, last an average of 10-15 years if they’re kept up properly; some may last even longer. If you find yourself replacing an appliance that was purchased a year ago, it could be due to tenant misuse or neglect.

However, appliances can sometimes fail without any apparent cause. This can be difficult to distinguish at times, but tenants shouldn’t be blamed for durability issues. To help your appliances last longer and rule out the potential for disputes, make sure to keep your appliances properly maintained.

Normal Wear and Tear: Plumbing & Fixtures

Plumbing components will naturally wear out over time due to regular use; this includes fittings and washers, which can also cause small leaks when they start to degrade. These components will need to be replaced from time to time as part of normal maintenance. Faucets and showerheads can also become clogged from mineral buildup; this is also considered normal wear and tear.

If there are large stains on the floor or ceiling from unreported leaks or an overflowed tub, this would be considered tenant damage. Other types of damage that the tenant would be responsible for include broken toilet bowls, seats, or lids.

Additional Items and Considerations

  • Windows: Windows last an average of 20 years. Some types of normal wear and tear you can expect to see are light scratches on the glass and worn or loose hardware. Broken glass, ripped screens, or broken hardware should be considered tenant damage.
  • Countertops: Depending on the material, countertops can last 20 years or more. Some common types of wear and tear are scratches and watermarks; chips, stains, or burnt areas would be tenant damage.

As you can see, the distinction between normal wear and tear and tenant damage is similar for each of the categories. If you’re having trouble deciding how to classify something that’s worn or damaged in some way, ask yourself the following questions:

  • How long is this item expected to last?
  • Could this damage have occurred naturally from continuous use? Or was the damage caused by excessive force or neglect?
  • Was the item already old or starting to wear out before the tenant moved in?
  • What type of maintenance does this item need for upkeep?
  • Is the tenant responsible for the upkeep of the item or is it my responsibility?

All of these answers should be fairly clear to you. Your lease should also include a breakdown of what types of maintenance are considered the tenant’s responsibility, vs. the landlord’s, to prevent miscommunication or confusion.

Handling the Security Deposit

So, let’s say you’ve inspected the property and found damage that was clearly caused by neglect or misuse. How should you handle the security deposit? Follow these steps:

  1. Document the damage

First, make sure to thoroughly document all the damage with notes and photos. If you perform move-out inspections, this can be used as proof of the damages. It’s also important to have documentation on file in case a tenant challenges your claims.

  1. Estimate the repair costs

Next, you’ll need to determine how much it would cost to repair or replace the damaged items. Depending on where your property is located, you may need to receive a quote from a third-party repair service; if this isn’t required, you can estimate the average repairs costs. However, be sure that you’re only charging the tenant for the amount of damage they caused, rather than the full cost of the item.

For example, if your tenant damaged a 5-year-old refrigerator that was due to be replaced in five years, you should only charge the tenant for 50% of the appliance’s value. Since half of the refrigerator’s usable life has already passed, the tenant would only be responsible for the remaining expected lifespan.

  1. Return the deposit

Once you’ve determined the estimated costs and deducted them from the security deposit, the remaining balance should be returned to the tenant within the specified amount of time. Depending on your property’s location, this could be anywhere from two weeks to one month.

Discussing Property Damage with Your Tenant

Depending on your relationship with your tenants, discussing property damage can be difficult. You might feel nervous, especially if your tenant tends to be the excitable type; if you have a friendly relationship, you may even feel guilty for bringing up the issue. Many times the damage is caused by accident, so this is something to keep in mind, especially if the tenant has had a clean rental record up until this point.

If your tenant is the agreeable type and the damage was accidental, you may be able to negotiate an amenable plan for the repairs. If they can’t pay for the repairs or their security deposit won’t cover the full amount, a payment plan may be a good solution. Regardless of what you decide, be sure to document everything you discuss and make a contract on how the repairs will be handled or how the payment plan will work.

What if you’re dealing with an aggressive tenant? If the tenant poses a serious threat to you or the property, you may want to consider getting law enforcement involved. Either way, document all interactions with the tenant. If property damage is an ongoing issue, you have the option of making a police report or filing for eviction. Eviction can be a long, arduous process; in some cases, it could even exacerbate issues with an aggressive tenant, so you may want to leave this option as a last resort. If the cost of the damages exceeds the amount of the security deposit, and the tenant remains non-compliant, you may need to take them to small claims court to get what you’re owed.

Steps to Take Before, During, and After Tenancy

The key is having a productive discussion about property damage is to make sure you’ve set up a precedent for this type of conversation from the start of the tenant/landlord relationship. This will make it easy for each party to understand their responsibilities going forward. Here are some steps you can take:

Before tenancy:

Check that your lease agreement includes clear and detailed information about the following:

  • Move-in inspections (including a checklist of every item that will be inspected)
  • Security deposits
  • Move-out inspections (including a checklist of every item that will be inspected)
  • What’s considered normal wear and tear
  • What’s considered property or tenant damage
  • The type of maintenance or repairs the tenant will be responsible for
  • The type of maintenance or repairs the landlord will be responsible for

Including this information in the initial lease agreement will allow you and the tenant to be on the same page on the expectations of the tenancy. Ensuring there are no surprises will make it less likely that you’ll face disputes over the security deposit in the future.

Before the tenant moves in, you should conduct the move-in inspection together. This will allow both parties to take note of any damage that’s already present and include it in the documentation; take photos in addition to written notes, so you have a visual record. When the tenant moves out, you can compare the two sets of photos if needed.

During tenancy

During the tenancy, make sure you’re responding to all maintenance or repair requests from the tenant. Anything that falls under your responsibility should be handled as soon as possible to prevent further damage or more expensive repair costs.

Routine maintenance is also important for the overall upkeep of your property, so you may want to create a schedule to keep things on track. For example, you could ask your tenant if you can stop by every 5-6 months to do a quick inspection of things like plumbing, appliances, central heating, and air conditioning. This will allow you to stay on top of maintenance, monitor the state of the items, and make sure that everything is being used properly.

During the move-out process

When the tenant moves out, you should also complete a move-out inspection with them. Essentially, this is the same process as a move-in inspection, only you’re looking for new damage that wasn’t present before. If you discover damage that you believe was caused by the tenant, make sure to ask them about it; this is an ideal time to remind them that you’ll need to withhold part of their security deposit to cover the repairs.

If you conduct thorough move-in and move-out inspections, there should be few surprises—for you, as well as the tenant—when it comes to the security deposit.

What Happens if There’s a Security Deposit Dispute?

One of the most common reasons for landlord/tenant disputes is a disagreement over what’s defined as wear and tear vs. what’s considered damage. If you end up withholding part of their security deposit for what’s actually normal wear and tear, the tenant may have a strong case against you. The good news is, as long as you can provide a reasonable interpretation of why something is considered tenant damage, rather than normal wear and tear, disputes can often be mitigated.

However, you should be prepared to go to court if the tenant denies responsibility for the damage. If the case goes to court, the judge may ask to see proof of correspondence, including how the tenant was notified about the security deposit deductions. For this reason, it’s important to use certified mail to keep a record of any contractor bids or itemized deductions that were sent to the tenant.

In addition, the judge may want to see proof that the security deposit was held, as well as a copy of the lease. To make it easier to keep track, you may want to consider using a separate bank account to store security deposits separately from other property-related expenses.

Taking Steps to Protect Your Property

It can be stressful to enter your property and see new damage that wasn’t there when your tenant moved in. Hopefully, you now have a better idea of how to distinguish between normal wear and tear and tenant damage. If you’re still having difficulty deciding how to classify a broken or worn item on your property, remember to ask yourself whether it was something that could have happened due to continuous use over time, or whether it was caused by neglect, abuse, or misuse. Remember that accidents happen, too—tenant damage often isn’t intentional.

Before selecting a tenant for your property, make sure all your lease terms are clearly outlined, including how the security deposit will be handled and distinctions between wear and tear and tenant damage. As part of your selection process, you should also be running screenings on applicants to ensure you’re choosing the right tenants. Understanding an individual’s financial responsibilities and rental history can help indicate what you can expect if they become your tenant. Beyond having an iron-clad lease, tenant screenings are one of the best things you can do to protect yourself and your property.

Posted by & filed under Rental Housing.

Concept of business in real estate, mortgage, rent.  Blue house in flat style.

In an ideal world, every tenant would be an amazing long-term resident, and you’d rarely have to worry about turnover. In reality, tenant turnover happens far too often.

There are many details to worry about when transitioning a rental unit from one tenant to another, like reviewing your lease, providing proper notice for inspections, handling security deposits, interviewing applicants, and working with outside vendors. Needless to say, the process can become overwhelming, especially if you’re doing it all on a regular basis. And of course, every day your rental stays empty means you’re losing money.

The good news is that the better prepared you are to handle turnover, the easier—and less stressful—the process is. Read on for some easy steps you can take to develop an efficient turnover plan.

What Is Turnover?

Although turnover may not have been your first thought when you decided to become a landlord, it’s a vital aspect of your business.

Whether you call it tenant turnover, rental turnover, or apartment turnover, it all means the same thing: the process that occurs from the time one tenant decides to move out of your property to the time the next tenant moves in. We’ll go over each of these in more detail, but the turnover process typically includes:

  • Ensuring the tenant moves out by the agreed-upon move-out date
  • Collecting the final rent payment and/or fees from the tenant
  • Conducting a move-out inspection
  • Refurbishing the property for the next tenant, which could include cleaning, maintenance, and/or repairs
  • Advertising your property
  • Showing the property to prospective tenants
  • Screening applicants
  • Selecting tenants
  • Getting the new tenants moved into the property

Since there are so many moving parts—and every day your property stays vacant can cost you money—it’s important to develop a process that allows you to perform all these duties as efficiently and effectively as possible. Ultimately, your goal with turnover is to quickly tie up any loose ends with your former tenant while ensuring the property is in optimal condition before the next tenant moves in.

Long turnover times can sometimes be unavoidable in the case of market downturns or the need for large-scale renovations. In most cases, however, it’s in your best interest to try to keep your vacancy periods as short as possible so you can maximize your property’s profitability.

The Turnover Process

The turnover process can generally be broken down into nine steps. However, keep in mind that every rental situation is unique, so it’s essential to have some flexibility. No matter how well you plan, it’s always a good idea to be prepared for the unexpected. For example, you may have a tenant who would like to pay to have the carpet steam cleaned so they receive the full security deposit back. If they provide proof the carpets were cleaned, you can cross that task off your list. Use the following steps as a guide only and make changes as needed.

  1. Receiving the Notice to Vacate

If your tenants have decided not to renew their lease, they should provide you with a written notice to vacate. A notice to vacate should be sent in advance of the lease end date, typically 30, 60, or 90 days ahead of time (depending on your policy). If you or the tenant decides to break the lease agreement before the agreed upon lease termination date, a notice to vacate is still required. The tenant should also include the best address to send the security deposit to.

Once you receive notice, you should confirm the time and date the tenant is expected to have all their belongings moved and return the keys. Keep the notice for your records and send them a written reply acknowledging that you’ve received it. Let them know that you’ll also be in touch to discuss the move-out process.

  1. Delivering the Move-Out Instructions

After receiving notice, your next step will be to deliver the move-out instructions. Although you may be used to handling move-outs, tenants often aren’t sure of how the process will go. The two most important things they should be aware of are the move-out inspection and the possibility that you’ll need to show the rental before they’ve finished moving. The move-out instructions should include information about both of these.

You may have already discussed the move-out inspection with them during the lease signing, but remind them that they’ll need to coordinate with you to determine a date and time for the inspection. Many landlords like to schedule move-out inspections approximately two weeks before the move-out date; this gives the tenant time to remove most of their belongings, which will give you a clearer view of any potential damage that could have occurred during the tenancy. You should also let them know that they’ll need to be prepared for you to show the property within 24 hours of receiving written notice.

  1. Scheduling Vendors

If you’ll need to work with vendors for repairs, maintenance, or cleaning, it’s best to schedule these as soon as you know the date and time the tenant plans to vacate the property. Service vendors are often booked out a few weeks in advance, so being proactive will help you stick to an efficient timeline. To shorten your turnover time, it’s generally best to have them come out a day or two after the move-out date.

  1. Advertising Your Property

Next, you’ll need to start generating interest in your rental. Keep in mind that Fair Housing laws apply to advertising, whether it’s done through traditional means or digital. This means you have to be very careful when wording your ads to ensure you’re not saying anything that could be considered discriminatory. Avoid suggesting your property is a good fit for a particular demographic (ex: “perfect for families” or “ideal for a college student”). Instead, focus on the features of the property, like stone countertops, all-new appliances, or a private backyard. Before you begin, it’s always a good idea to review the Fair Housing Act.

To cast the widest net, use several methods and platforms to advertise your property. Beyond traditional advertising, social media, and sites like Zillow or Craigslist, you can also use your network to find prospective tenants. Let the appropriate friends, family, and coworkers know you have an upcoming vacancy available.

  1. Conduct the Move-Out Inspection

The move-out inspection should be conducted with the tenant present. When you meet them at the property, bring a copy of your move-in inspection notes and photos so you’re able to compare the current state of the property with how it looked before the tenant moved in. Go through each room and evaluate each subcategory, such as paint, walls, windows, blinds, etc. Remember: you’re only looking for damage that goes beyond normal wear and tear. Things like faded paint or scuffed floors are a result of the property being used continuously over time and are not the tenant’s responsibility.

If the tenant still has furniture or other belongings at the property, it may make it difficult to see certain types of damage. Let the tenant know that if you discover anything new after these items are gone, you’ll add it to the inspection document as an addendum. Once the inspection is finished, both you and the tenant should date and sign the move-out inspection papers.

  1. Finding New Tenants

While your current tenant is in the process of moving, you should be working on finding a new tenant. Make sure to stay responsive to calls, emails, or any other inquiries you receive. Once you’ve narrowed down your pool of applicants, you’ll need to conduct interviews and tenant screening. After a few weeks, you should hopefully have found a suitable tenant who will be ready to move in once the property is ready to be rented out again.

  1. Collecting the Keys and the Final Inspection

On the day your current tenants move out, meet them at the property so you can collect the keys and perform a final inspection. This is essentially just a quick check to make sure there’s no new (or overlooked) damage that wasn’t recorded during the move-out inspection. Keep an eye out for things the tenant may be leaving behind, as well.

This is also an excellent time to confirm the tenant’s forwarding address. Make a list detailing the cost of any damages (if there are any) and subtract them from the security deposit. Then prepare the remainder of the security deposit to be returned to the tenant within the specified timeframe. This timeframe can vary depending on your state. For example, in California, landlords are required to return the full remainder of the security deposit within 21 days; in Texas, landlords have 30 days. Some states may also require you to pay interest on the security deposit if it isn’t returned on time, so be sure to read up on the specific laws for the state that your property is located in.

  1. Getting the Property Ready for the Next Tenant

Depending on whether you already have a new tenant lined up, you may have a very short window to get your property ready in time for them to move in—so check with your vendors to make sure that they’re still able to perform the work on the dates you have them scheduled to arrive. Now that the unit is empty, it should be easy for plumbers, electricians, and other contractors to get the place in excellent shape. This is also a good opportunity to make some additions, replacements, or upgrades to appliances, fixtures, or other features.

Before the next tenant moves in, you’ll want to make sure the property is ready. Here are some questions you should ask yourself:

  • Is the property clean? This includes appliances, windows, windowsills, and blinds.
  • Are the walls patched and re-painted?
  • Does everything work properly—appliances, plumbing, HVAC, carbon monoxide alarms?
  1. The Move-In Inspection and Signing the Lease

Your property has come full circle, and it’s now time for the new tenants to move in. Before you hand over the keys, meet with them in person to conduct a move-in inspection, collect the security deposit, and go over the lease agreement. The move-in inspection allows you and the tenant to review the state of the property before the tenant moves in; it also sets the expectations of the condition the property should be in when the tenant eventually moves out. In addition, it allows you to fix any repairs that may have gone unnoticed or overlooked before the tenant moves in.

During the lease signing, take time to carefully go over each item and answer any questions the tenant might have. If anything is unclear in the lease, this is the time to get everyone on the same page. You want to make sure the tenant fully understands your expectations, policies, and procedures before they’re living at the property; this will help to prevent confusion or miscommunication in the future. Before turning the property over to them, make sure to have the tenants date and sign the lease and give them a copy so they can refer to it later if needed.

Handling Turnover with a Property Management Company

If you use a property management company, you’ll have less participation in the turnover process, but you should still make sure you’re familiar with how they handle turnover—and that they keep a tight timeline so you can maximize your profits. In addition, you’ll also want to know what their costs are for situations like vacancies and turnover periods.

If you have concerns that the property manager isn’t keeping a tight timeline, consider scheduling a time to sit down with them and review the steps they take to fill vacancies. They may not be scheduling services in advance or they may not be as invested in finding a new tenant as you would like. By addressing these issues and coming up with effective solutions, you can improve your turnover rate and create a better working relationship with your property management company.

Some other things you might consider reviewing with them are the costs and fees for vacancies and turnover. If you feel the company isn’t providing the level of service you’d expect for the fees, this is a good opportunity to renegotiate your terms.

The Costs of Turnover

As you know, turnover can be costly, so it’s essential to try to minimize these costs as much as possible. Here are a few factors that affect the costs of turnover:

  • How long the property stays vacant
  • How much money you’re losing in rent each month
  • How much you’ve spent out-of-pocket on repairs
  • How many of the repairs can be covered by the security deposit
  • How much it costs to clean and repaint the property

Most landlords find their turnover cost is at least $1,000, but this can vary based on the location, how long it takes to rent the unit, and how much rent is lost while the property is vacant. If the property was kept in good condition throughout the tenancy, it won’t need much to get it ready for the next tenant—probably just some cleaning and a new coat of paint. If it needs renovations or upgrades, your turnover time could be a few weeks. On average, most properties take at least one or two weeks to turnover.

To keep everything on track, it can be helpful to make a list of everything that needs to be done at the property and how long it will take. Here are some considerations that can help you estimate your turnover time:

  • Generally, the longer a tenant has lived at the property, the longer it will take to completely turn over the property.
  • It will take up to one full day for your professionally steam-cleaned carpets to dry.
  • Painting a single room can take between four to six hours; drying time can vary depending on the type of paint used.
  • Having the whole property cleaned by a professional cleaning crew can take as little as two hours, but this is dependent on the size of the crew, the size of the property, and how much cleaning is needed.
  • Changing locks should take less than an hour, especially if you’ve done it before.
  • Changing air filters and testing alarms should take a few minutes each.
  • If you’re having outside vendors perform repairs, ask for an estimate of how long it will take and factor this into your turnover time.

Reducing Tenant Turnover

With some planning and experience, you can handle turnovers quickly and efficiently, without affecting your bottom line.

An important factor in reducing tenant turnover is ensuring you’re getting the right tenants in your properties. While tenant screening and verifications can’t tell you how long a prospective tenant intends to stay, it can help you get a better idea of how long they’ve stayed at previous properties, whether they have a history of being a good tenant, if they have steady employment, and whether they’ll be able to pay their rent long-term.

TSCI offers comprehensive screening services to help you make the most informed decision for your properties. Our services are available online 24/7 and the cost of the screening is paid for by your applicants. Order your screenings today or feel free to contact us at (800) 523-2381.