What Can I Deduct or Withhold From a Security Deposit?

Written by Jane Meggitt on February 24, 2016

The rules for handling and deducting from a security deposit are commonly misunderstood. This article will clarify the legitimate reasons for withholding all or part of a security deposit from a tenant.

Best Practices for Withholding a Security Deposit

It’s a common scenario: your tenant pays you a security deposit before moving in, which gives you some peace of mind that the money will pay for certain items or damages when the tenant moves out.

When move-out day arrives, the tenant says they left the unit spotless, but the floor wasn’t even swept. Or worse, there are broken windows, an unidentifiable sticky liquid all over the fridge, and a clogged shower.

…only withhold deposit monies for actual damages, material or financial.

The general rule is that a landlord or manager can only withhold deposit monies for actual damages, material or financial. Meaning, you can deduct money if they owe you past due rent and fees, or caused damages beyond normal wear-and-tear.

State laws vary greatly, but there are generally some statues that regulate the basics such as:

• whether or not you must put the money into an interest-bearing account,
• if you can or cannot commingle such deposits with your personal or business accounts
• what you can or can’t deduct from a tenant’s security deposit
• the timeframe in which you must return the deposit or supply written notice of why you aren’t returning all or part of it.

Things to Remember:

1. Always fill out an “Inventory/Condition Checklist” before the tenant moves-in so that there is a baseline for comparison. (Download a Move-in/Move-out Checklist)
2. Provide the tenant with an itemized receipt of any deductions before returning any money. (Download a Free Deposit Receipt Template)
3. Take plenty of pictures of the damages and overall condition after each move-out.
4. Follow your state’s rules and timelines for returning the deposit.

Let’s talk about some basic general rules for deducting and withholding deposits.

Related: How to Handle Security Deposits Properly

Breaking the Lease

You can’t automatically keep a deposit just because your tenant abandons the lease or breaks a rule in it. Again, you must have actual damages to offset your claims against the deposit.

If the tenant leaves you high and dry with unpaid rent, utility bills, late fees, and parking fees, then you could withhold some or all of the deposit to cover the debt. A lease is a contract, and if the tenant breaches it, you can take them to court if they don’t pay.

Practically speaking, unless the debt is multiple thousands of dollars, going to court is often more trouble than it’s worth. Even if you receive a judgment, you still have to collect it from the former tenant. Most landlords opt to keep the security deposit and look for a suitable new tenant.

Abandonment and Unpaid Rent

If the tenant abandons the lease and stops paying rent, you almost certainly will have a claim because it takes a few weeks, if not months, to find a replacement tenant. Your previous tenant would still be responsible for rent during that time, and if he/she didn’t pay, then you could withhold the deposit to offset the unpaid rent, and sue them for any remaining balance.

Note: if you keep a month’s worth of rent from the deposit, but don’t actually have a vacancy that is a month-long, then you would need to give back any overlapping funds.

You can’t “double dip” on the rent! Do the right thing!

Since most security deposits cover only one or two month’s rent, it’s important to start eviction proceedings as soon as possible if the tenant makes no attempt to pay.

If you’re not familiar with the eviction process in your area, hiring an attorney is wise. It’s not okay for the tenant to forego paying the final month’s rent under the assumption you’ll apply the security deposit to it – so don’t use the deposit for last month’s rent.

Related: How to Evict a Tenant – The Eviction Process in 8 Easy Steps

Normal Wear and Tear

Every property suffers some normal wear and tear, and you can’t deduct that basic upkeep from the security deposit. If the tenant cleans regularly, then the landlord is always responsible for normal wear and tear.

The general rule of thumb is that a landlord is not allowed to deduct from the tenant’s security deposit for “normal wear and tear”.

Normal wear and tear typically includes the following:

• General rug wear
• Sun-faded wallpaper or paint
• Nail holes in walls from picture hangings
• Bathroom mirror desilvering
• Appliances no longer working, but not due to misuse
• Warped windows or doors, due to temperature or age
• Dirty draperies or blinds

Texas, as well as other states, define “normal wear and tear” as:

“…deterioration that results from the intended use of a dwelling…but term does not include deterioration that results from negligence, carelessness, accident or abuse of the premises, equipment or personal property by the tenant, by a member of the tenant’s household or by a guest of the tenant.”

Meaning, if a tenant was simply living in the property the way it was intended, and did not damage anything by means of abuse, negligence, accident, guests, animals, or lack of normal cleaning, then a landlord has no right to any deposit deductions. Since HUD doesn’t have an official list of acceptable deductions, landlords have to go by their state rules (if any exist), personal experience, and their gut feeling.

Property Damage

If your tenant or their guests cause excessive damage to the property, you can use the security deposit toward repair or replacement. Some damage is fairly obvious, such as big holes in the wall or floor, or broken fixtures. Other conditions, not so immediately apparent, are also deductible from the security deposit.

These could include but not limited to:

• Missing smoke or carbon monoxide detectors
• Flea extermination, if a pet lived on the premises
• Broken or missing window blinds
• Appliances broken due to negligence.
• Dirt and filth as a result of in adequate clean
• Any damages caused by lack of common sense or improper use (like sliding down a stair handrail)

Even if you find some excessive damage after the deposit was returned, you can still send an invoice to the tenant. However, the chances of receiving that money is slim to none.

Cleaning

If you have to pick up and dispose of a few minor items after the tenant is gone, that’s not grounds to withhold part of the security deposit. And quite honestly, it’s just not worth the effort to deduct money for a few items. However, if the tenant left junk and trash all over the place, or food rotting in the fridge, that’s a different story.

Many leases specify that a tenant should leave the property in “broom clean condition,” or terms to that effect.

I’ve never really liked this term because a tenant could potentially sweep the apartment, but leave the stove, fridge, and closets a complete mess. Without more specific language in the lease, you’ll eventually regret using the term “broom clean”.

Related: How to Get Your Tenants to Clean Regularly in 5 Easy Steps

Painting

Many landlords repaint the interior of the rental property to attract a new tenant. It’s routine and usually performed every few years, so you can’t deduct the costs of hiring a painter or purchasing paint from the security deposit.

However, if the tenant painted the walls some hideous shade or drew “art” on them, the cost of repainting is deductible – but only for the affected rooms. The same holds true if the repainting is necessary because the tenant or guests smoked in the dwelling, causing staining on the walls.

Likewise, if the tenant painted without your permission (lease clause required), you would be able to deduct the cost of a painter and supplies to return the wall to its original color compared to when they moved in. Although, if the paint color is neutral and nicely executed, then you might want to consider thanking your tenant for painting!

Related: Tip #4: Paint Walls a Neutral Color

Provide Receipts

Make sure to document all the necessary repair work to prove your expenses. In most states, such documentation is required above a fairly nominal monetary amount ($126 in California).

If you deducted money and the funds are unsubstantiated, the tenant may take you to small claims court. Many times, the tenant can be awarded 2-3 times the deposit amount if you wrongfully withheld anything.

Source: Landlordology

A Renter’s Guide to a Flawless Move-in Inspection

Written by Guest Author on February 26, 2016

You’re a renter, you move every few years. Every time, you have to document the condition of the property so that you don’t get blamed for pre-existing damages.

As such, you’ll want to perform a move-in inspection of a property. But how do you accomplish this without insulting your landlord, while still protecting your security deposit? It can be tricky to pull off, but this article will teach you to do just that. Plus, we’ll give a template to help make sure you cover everything:

Download a Free Inspection Form Template

When performing the move-in inspection, here’s what you should do, and look for:

1. Be Involved in the Move-in Inspection

The sad truth is that some landlords may use tenants and their deposits as a way to refurbish certain parts of their properties or to pay for normal wear and tear.

To set the record straight, tenants should always document and notify their landlords if any pre-existing damages when they first move-in – preferably within 3 days of taking possession. It’s also critical that tenants are involved with the move-in inspection, or conduct it themselves.

If a landlord tries to perform a move-in inspection without you, stick up for yourself – you need a say in the matter – especially if he asks you to sign it!

2. Previous Damages

Previous damages are a tricky way to get absorbed into paying damages that aren’t caused by you. Some tenants will find a way a cover, or hide it to avoid charges. These can include damages to the wall including scrapes, dents, nail holes and even paint issues.

Paint jobs can cause a huge financial loss as in some instances you can find yourself paying for the whole room being repainting rather than just the walls.

Dirt and debris being found at the bottom of walls, behind sofas and next to showers is extremely important. This shows that the properties were not properly cleaned and you could be liable come the end of your tenancy.

3. Material Defects

As a new tenant coming into a property you are never responsible to fixing broken electrical items or appliances unless you were using them negligently. This includes things such as ceiling lights, switches and plug sockets. You should check to make sure appliances work without problems and plug sockets are safe and functioning normally.

Not only will doing so help you get a better nights sleep, but it will help you avoid any future charges.

4. Health & Safety

In terms of health and safety, these items are the most important to remember during the move-in inspection.

Doors that do not shut properly, locks that aren’t working and smoke detectors should all be tested thoroughly. Should these not be tested properly and come unnoticed will not only offer a financial loss, makes the property unsafe. Properly functioning locks and doors are there to simply to offer a safety protection and stop others from simply walking in and burglarizing your home – or worse!

Smoke detectors can help you when you may have forgotten that food is in the oven, so these are of extreme importance. Appliances are also included into the health and safety checks as any faulty appliances could cause fires, make your property trip and could a dangerous to you, as a tenant.

5. Maintenance Issues

When you are renting a property there will always be some maintenance issues that need to be resolved. Maintenance can range from a squeaky door to toilets that are not flushing properly. Hot water is a priority, so having water that climbs to the correct temperature is a must. It is always important to see that everything is working prior to moving in. Lights, and switches can be easily missed and should be fixed before the issue get worse.

If you find anything that seems broken, or falls into the lack of maintenance category, it’s best to report it in the move-in inspection sheet so that you can legitimately claim “that was broken when I moved in!”

6. Document Everything

Use the camera on your phone to take quick pictures or videos of the condition. Then, use a move-in inspection form to document it in writing. The more you write, the better off you’ll be.

Source:  Landlordology

10 Ways to Find Out About a Neighborhood Without Being There

“So what’s the neighborhood really like?” is the ubiquitous refrain among home buyers shopping in areas they’re unfamiliar with. And though your real estate agent can fill lots of the big-picture details, it pays to do your research before committing to a residential purchase.

Short of stopping people on the street for intel—and being greeted by strange, skittish looks, or way worse—there are some far easier ways to get a feel for what living in a neighborhood is really like.

Best of all, you can even do them from afar (you’re welcome, relocators)! For starters, you can get local information on various neighborhoods on our site. Then for more deets, get digging in the resources below.

For general demographics…

The first census required by the U.S. Constitution was completed in 1790, and U.S. Census Bureau workers have been counting the population—now more than 322 million people—every 10 years ever since. It’s all easily accessible, and you’d be amazed at the depth of detail. Their latest count, the 2010 Census, breaks down the nitty-gritty of age, race, population density, and even average commute times to work by neighborhood. The bureau’s mapsalso offer a graphic overview of select demographics.

For what’s notable and unique…

Type any address into NeighborhoodScout and its proprietary search algorithm provides a ton of data—median home price, crime rates, ease of commute—in one easy-to-digest snapshot. And beyond that, the site can tell you what makes a neighborhood unique. For instance, you may learn that a certain area has a high percentage of brownstones, or gay/lesbian families, or homeowners who don’t own cars.

For walkability …

Since “walkability” is such a buzzword, especially among millennials, it makes sense that there’s a site devoted to telling you how easy it is to get around by foot. That’s where Walk Score comes in. How easily you can you hoof it to a coffee shop, grocery shopping, and parks gets crunched into one overall rating showing how conducive an area is to walking. You say you’d rather spend your time getting around on two wheels instead of two feet? Bike Score gives you a sense of a neighborhood’s bike-friendliness from the extent of its bike lanes and trails.

For an idea of what a neighborhood stroll is like …

The free walking app Walc shows you what you’ll actually see on a jaunt, rather than the nondescript compass directions used for every other directional app. Simply enter a potential address into Walc, add a destination, and take a leisurely stroll in a neighborhood, without ever stepping foot on a street. You’ll get a sense of place from the landmarks that pop up: Do you turn right at an alehouse or a Pilates studio?

For public transportation access …

Each day, 35 million Americans use public transportation, making access to it a must for, well, at least 35 million people. To check out an area’s accessibility to trains, buses, and light rail, David Reiss, a professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School, recommends researching the Transit Score. “These scores are great, really giving you a sense of how important it is to have a car in a particular community,” he says.

For school quality …

Sure, a seller may tell you a local school is great. But don’t rely on bias when it comes to your child’s education. Instead, go to the nonprofit Greatschools.org and type in a potential ZIP code. You’ll have a chance to read school report cards crafted by reviews from teachers, parents, and even the students themselves. Or, if you already know which school district you want your child to attend, download realtor.com’s mobile app—you can search for homes by school district. 

For crime rates…

To see how safe it would be to set foot outside your home, enter your address into My Local Crime to pull up any recent local crimes from vandalism to shootings. Click on the map function to see where exactly those crimes were committed (in other words, maybe certain blocks to avoid after dark?).

For the lay of the land, literally…

When Professor Reiss asked students to find interesting web resources to learn about neighborhoods, they discovered that topological maps are a cool tool. Most maps show only a two-dimensional rendering. Topographical maps, which add the third dimension of elevation, show the surface and physical features of a given neighborhood. Besides highlighting hills and valleys, topography is important when it comes to weather events (just ask anyone in a flood plain).

To find out what people do there for fun…

You know Yelp can help you discover local restaurants, and that Moviefone can let you know what theaters might be near you. But what about entertainment, culture and nightlife? Enter Gravy, a website and app that gives you the rundown on an area’s events, from rock concerts to church suppers.

To find a neighborhood just like the one you’re already in …

Love your neighborhood, but feel it’s time to move? Head back to NeighborhoodScout once more. Users can find their ideal neighborhood by selecting filters that take into account their lifestyle preferences—whether family-friendly or suitable for first-time home buyers. Alternatively, if you love your current neighborhood, enter your address to find comparable towns throughout the country.

Source: realtor.com

WHY RENTING IS BEATING OWNING

After the financial crisis of 2008, CityLab co-founder Richard Florida predicted that the economy would see what he called a “Great Reset” where homeowners would migrate toward urban areas and decide to rent. Now, the stats are finally backing him up. A recent report from Trulia supports the trend for renting.

The share of U.S. households that rent grew from 36.1% in 2006 to 41.1% in 2014 and increased in every state in the nation, while the share of households that own their home declined over that same span. Not surprisingly, the increase in renting was strongest among millennials (a difference of 62.5% in 2006 compared to 71.6% in 2014), but the share of renters increased for other groups as well, with 35-54-year-olds seeing a jump from 33% to 40.7% during those years and households 55 and older increasing from 24.4% to 27%.

The largest shares of renters are all in knowledge and tech hubs such as San Diego, San Jose, Calif., Oakland, Calif., Austin, Texas, Boston, and Seattle. Rents grew the most between 2006 and 2014 in Washington, D.C., Seattle, San Francisco, Denver, Austin, Texas, and Portland, Oregon.

Homeownership is no longer the key driver of America’s industrial economy. Across the U.S., cities and metros with higher rates of homeownership have had more trouble adjusting to the demands of the knowledge economy, trapping their residents in housing they cannot sell and limiting their ability to adjust to economic downturns. Meanwhile, cities and metros with more renters have proven better able to cope with the transformation from an industrial to a knowledge economy.

In other words, Great Resets do not occur all at once, but gradually over many decades. The current Great Reset from owning to renting is occurring not only because many people prefer urban-style living, but because more flexible rental housing in denser areas is more in sync with the knowledge economy. All of this begs for a change in America’s housing policies. Currently, many policies incentivize homeownership and the construction of wasteful, energy inefficient, sprawling suburbs in addition to conferring large subsidies on relatively wealthier homeowners. In the future, they should become more neutral with regard to multifamily rentals versus single-family homeownership, while conferring subsidies on low-income renters who bear the largest housing cost burdens.

Source: citylab.com

Rent, Maintenance And Paperwork Among Top Causes Of Stress For Landlords

By Phil McCarroll of Your Investment Property Magazine | 23 Feb 2016 11:30 PM

While investing in a rental property may be a sound way for people to secure their financial futures, one insurance company has warned that landlords won’t always get a great night’s sleep.

According to landlord insurance provider Terri Scheer Insurance, there are five common issues that often cause landlords to lay awake at night.

“With preparation and dedication, property investment can be an attractive wealth creation strategy for Australians,” Terri Scheer Insurance executive manager Carolyn Parrella said.

“[But] like any investment, it’s not without its risks,” Parrella said.

According to Parrella, the main reason that rental properties cause their owners to stress is a relatively obvious one.

“Concerns over rent being paid on time can become a major stress point for property owners relying on the income. It’s an issue that needs to be addressed as soon as possible,” Parrella said.

“Landlords should refer to their local laws, and their lease agreement, as these requirements may differ in each state/territory. Landlords should complete thorough checks of potential tenants’ references during the screening process, specifically looking for issues with missed or late payments,” she said.

Cash flow issues are common concerns for landlords, with Parrella saying landlords may now have to ensure their properties are tenanted and avoid the stress that comes with a vacant property.

“Presenting a well-managed property may help to broaden your pool of prospective tenants, reduce time and money spent on advertising and decrease the number of days your property remains unoccupied between tenancies.

“Items once considered luxuries are now standard requirements. Not offering these comforts can make a real difference to the property’s appeal and may impact the amount of rental income the landlord earns.”

But just finding a tenant can sometimes lead to even more reasons to worry.

“While most tenants do the right thing, there is a minority that violate their lease agreement by behaving poorly or undertaking illegal activity at the property,” Parrella said.

“Some tenants may breach their pet policy, fail to adhere to noise requirements or smoke at the property. Although it’s a rare issue, other tenants may use the property to distribute or manufacture illegal drugs,” she said.

While ensuring the rental money is coming in may go a long way to alleviating the stress landlords are under, Parrella said more mundane concerns can also place a heavy strain on landlords.

“There is a sizeable amount of paperwork that goes with being a landlord and left unchecked it can build up and become a burden.

“A good property manager can save landlords from potential paperwork headaches by managing the administrative side of the investment property for them.”

Similarly, Parrella recommends landlords deal with maintenance issues in a timely and adequate manner to avoid further headaches down the road.

“Landlords who skimp on maintenance with quick fix solutions often find that it actually costs them more in the long run. With the popularity of home renovation shows like The Block, landlords are given the false impression that improvements to their properties are achievable within tight time frames and with limited practical experience or knowledge.

“Do-it-yourself fixes can result in substandard workmanship and legal liability claims if there is an injury or loss resulting from a safety hazard that has not been addressed. Unqualified handymen should leave maintenance to the professionals as the expense is also tax deductible.”

Source: yourinvestmentpropertymag.com/au

2016: Promising Year for Rental Property Investments

Savvy real estate investors have always found rental properties to be extremely profitable. However, this has become even truer in recent years as more and more millennials choose renting over buying. As an amateur or experienced real estate investor, 2016 is a great year to keep an eye out for rental investment opportunities.

The Rise of the Rental Nation

In 2015, the United States was given the unofficial nickname of “Rental Nation.” Several factors influenced this title, but it’s largely a result of how eligible homebuyers view renting. They no longer see it as a sign of weakness or financial struggle. It’s actually viewed a prestigious form of ownership. In fact, between now and 2030, there’s expected to be a 59 percent growth in the number of households who choose to rent rather than buy.

Reasons to Invest in Rental Properties

Naturally, this means investors are starting to flock towards rental property investing. In other words, if more people are renting, you should be buying. Here are a few of the specific reasons why these make good investments:

• Cash flow. The upfront benefit of investing in rental properties is the regular monthly cash flow. It’s not unusual for a single-family rental property to return 15 percent or more of your initial 25 percent down payment. This is a higher rate of return than most stock portfolios.
• Appreciation. The biggest advantage is the appreciation of the property value. Historically speaking, housing prices tend to increase somewhere between three and five percent per year. In other words, when you decide to sell, you’ll be able to generate a hefty return.
•  Leverage. The third reason rental properties make good investments is that they provide you, the investor, with leverage that can be used as collateral for other investments down the road. This includes a personal home loan, business loans, and more.

These are the three biggest advantages of owning real estate properties as investments. Keep them in mind as you explore this opportunity.

Markets to Watch in 2016

While all cities have a handful of good rental investment opportunities, certain cities are poised for more growth than others. Specifically, experts believe the following cities will offer prime rental investment opportunities in 2016 and beyond:

• Detroit. Believe it or not, Detroit is actually one of the top investment markets this year. The median asking price for a three-bedroom house is $44,900, while the median rent is $850. This gives investors a gross yield of 22.7 percent.
• Texas.  Okay, Texas isn’t a city – but there are too many cities in the Lone Star State to simply mention one. Three-year home price growth projections for San Antonio, Dallas, and Austin are 26 percent, 33 percent, and 27 percent, respectively. Houston isn’t too far off, either, meaning there’s ample opportunity for investments across the state of Texas.
• Boston. If you have the ability to purchase pricey homes in Boston, you can enjoy a pretty healthy yield. Depending on who you ask, the gross yield should be somewhere around 10 percent in 2016. This is definitely a market to watch.

There are plenty of other rental investment opportunities spread across the country, but these represent some of the top ones.

Consider Rental Property Investing

While rental property investing isn’t for everyone, it’s a great way to produce regular cash flow while enjoying gradual appreciation. And if you’re going to try this investment strategy moving forward, it would be wise to consider the cities listed in this article. Moving forward, you don’t want to miss out on an opportunity to be a part of the “Rental Nation.”

Source: nuwireinvestor.com

So You Think You Can Be A Landlord?

Here’s how to avoid common mistakes of first-time landlords.

First-time homebuyers are a declining group. Historically, 40% of homebuyers have been first-time buyers, but that percentage continues to shrink, even as millennials continue to show more interest in becoming buyers (eventually). If you’re already a homeowner, your wheels might be spinning right about now — if people aren’t buying starter homes, then the rental market has to be booming, right? It is in many areas, particularly where unemployment is low, the population is high, and homes are not overpriced. But before you start searching for a home for sale in Austin, TX to rent, you should think about the responsibility that comes with being a landlord — and learning by trial and error is not the best way to go about gathering intel (or a steady income). Before you take the plunge, study up on how to become a landlord with these seven tips.

1. Ideally, you want to live near your rental property

Living close to your property allows you to check on it periodically (after giving your tenants proper notice), take care of repairs yourself, and show the property when it’s time to list it for rent again. Research the best investment areas — but even if you don’t live in a prime rental region, you can still invest in one by hiring a property manager to take care of day-to-day details.

2. Know landlord-tenant law

Most states have specific landlord-tenant provisions that cover issues such as security deposits, level of access to the property, and how much notice you need to give your tenants when you want them to leave. There also are federal laws you need to know, such as habitability and anti-discrimination laws. “Many landlords gloss over housing discrimination laws because they assume that as long as they’re not racist or sexist, they needn’t worry about fair-housing violations,” says Ron Leshnower, real estate attorney and author of Fair Housing Helper for Apartment Professionals. But fair-housing liability traps can arise in many ways, so it’s important that you fully understand the law and ensure that you aren’t breaking it.

3. Make sure you can enforce that the rent is paid on time

This seems like a no-brainer, but believe me, if you get too friendly with your tenants, you might just let them slide a couple of weeks beyond the first of the month, or allow a partial payment when they’re between jobs. Before you know it, your tenants are six months behind and you’re struggling to make the mortgage payments. But being firm doesn’t mean you shouldn’t treat tenants with respect. Cultivating a good relationship with your tenants often goes a long way to ensure rent will be paid on time and that repair requests will be easier to deal with.

4. Screen potential tenants

It’s worth the time to do a background and credit check on all potential tenants: online tenant-screening services are convenient, and you shoule be sure to check potential tenants’ credit scores. A credit score alone shouldn’t be the sole reason to accept or deny an applicant, but it is a useful screening tool: For instance, if your renter is fresh out of college with a solid job offer, they may not have enough credit history to warrant a good score—but could be a great rental candidate.

You should also conduct an interview to make sure you’re comfortable interacting with them, and check references, especially from employers or past landlords. But be advised, it’s hard to find the perfect tenant. According to Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage, it’s important to have a thick skin, and advises people not to buy rental property if tenant shenanigans will “drive you crazy.” Case in point: Fleming once had an evicted tenant break into the house, change the locks, and move back in!

5. Customize the lease

If you don’t hire an attorney or a property manager, you can use a standard lease form from Nolo, for example, but you should tweak it to fit your situation. For example, if you allow pets, specify how many, what kind, and any rules that apply. Your lease could state that tenants should leash their dogs when outside the fenced-in yard and stipulate that pets should not become a nuisance to neighbors.

6. Inspect the property regularly

“Have language regarding inspections clearly written in your lease documents,” says Timmi Ryerson, CEO of Smart Property Systems. She suggests taking pictures to establish a base line (and document the move-in condition) and conducting an inspection at three months. If you find problems, Ryerson recommends that landlords “issue a notice to comply and set another inspection in one week.”

7. Understand this is not a get-rich-quick scheme

Being a landlord is not just sitting around collecting a big wad of cash each month. You’ll need to spend some money to ready the property for tenants, buy landlord insurance, and pay property taxes. If you’re taking out a mortgage, be prepared to fork over at least a 20% down payment. Think of being a landlord as part of your overall investment strategy and be realistic about your goals — most landlords aim for about a 5% return on their investments.

Source: trulia.com

5 most common issues faced by landlords

Concerns over unpaid rent, unoccupied property and unruly tenants rank highly among the worries that can keep landlords up at night.

A specialized form of landlord insurance can provide landlords with peace of mind knowing they are covered for the risks associated with property investment, should the unforeseen occur.

With preparation and dedication, property investment can be an attractive wealth creation strategy for Australians. Like any investment, it’s not without its risks.

These are the top five pain points
of property investment:

1. Unpaid rent

Concerns over rent being paid on time can become a major stress point for property owners relying on the income. It’s an issue that needs to be addressed as soon as possible.

If the tenant falls into arrears, a breach notice should be sent for non-payment of rent. If the tenant still doesn’t pay rent after receiving the first notice, a second notice should be sent to terminate the lease and request vacation from the property. Landlords should refer to their local laws and their lease agreement as these requirements may differ in each state/territory.

Landlords should complete thorough checks of potential tenants’ references during the screening process, specifically looking for issues with missed or late payments.

2. Unoccupied property

Having a rental property unoccupied can place significant strain on an owner’s cash flow.

Presenting a well-managed property may help to broaden your pool of prospective tenants, reduce time and money spent on advertising and decrease the number of days your property remains unoccupied between tenancies.

Items once considered luxuries are now standard requirements. Not offering these comforts can make a real difference to the property’s appeal and may impact the amount of rental income the landlord earns.

3. Managing paperwork

There is a sizeable amount of paperwork that goes with being a landlord, and left unchecked it can build up and become a burden.

A good property manager can save landlords from potential paperwork headaches by managing the administrative side of the investment property for them.

4. Maintenance issues

Leaky taps, broken tiles and repairing faulty appliances can create headaches for tenants and landlords.

Landlords who skimp on maintenance with quick fix solutions often find that it actually costs them more in the long run. With the popularity of home renovation shows like The Block, landlords are given the false impression that improvements to their properties are achievable within tight time frames and with limited practical experience or knowledge.

Do-it-yourself fixes can result in substandard workmanship and legal liability claims if there is an injury or loss resulting from a safety hazard.

5. Unruly tenants

No landlord wants to wake up to news that their property has been trashed.

While most tenants do the right thing, there is a minority that violate their lease agreement by behaving poorly or undertaking illegal activity at the property.

Some tenants may breach their pet policy, fail to adhere to noise requirements or smoke at the property. Although it’s rare, other tenants may use the property to distribute or manufacture illegal drugs.

Tenants involved in illegal activity go to great lengths to hide their activities. Routine property inspections can help mitigate these risks by identifying problems before they escalate.

Source: smartpropertyinvestment.com

 

Landlord Planning To Not Renew Lease With Tenant

The Landlord Protection Agency® presents John Reno, Esq., a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q: Dear Mr. Reno:
My tenants lease will expired the end of May. I do not wish to renew the lease, planning on remodeling. What would you recommend. I anticipate that the tenant may be difficult.
Thank you,
Lee Fadavi

A: I would notify them as soon as possible that their lease will not be renewed. Also, review your lease carefully about what notice, if any, is required and how to give it. But even if no notice is required, I strongly recommend it.

Security Deposit Tips For Rental Properties

Requiring a security deposit is one of the standard components of renting out your investment property. Holding a deposit benefits the owner as it protects you from paying out of pocket for repairs that exceed the standards of normal wear and tear. But do you know what you should be doing as a property owner with that security deposit?

The security deposit is a predetermined amount that is provided by the tenants upon their approval to lease a property, and it is meant to cover any unusual or extreme damages that occur during their occupancy. When the lease expires and the tenants vacate, the security deposit is returned to them, minus any costs you may have to deduct to cover excessive damages.

It sounds simple, right?

Unfortunately there can be a lot of confusion regarding the collection of a security deposit, where it must be held, and disbursing it at lease end. This may not only cause friction between the tenants and owners, but in some cases can lead to legal action being taken by tenants.

If you own rental properties, there are a few tips you should keep in mind regarding managing security deposis:

1. Set clear expectations in writing. Be sure that your tenants understand before they even put the deposit down what they are responsible for and what costs you will be forced to deduct at the end of their lease if applicable. Put it in writing! Don’t allow for any negotiable items at the end of a lease term.
2. Know the law. As a property owner, the security deposit is meant to protect you, but there are certain items and repairs for which you cannot legally deduct money or charge a tenant.
3. Keep the security deposit in a trust account. According to North Carolina law, tenants’ security deposits must be kept in trust accounts for the duration of tenancy. Keeping the security deposit in the appropriate bank account is vitally important to long-term property ownership. Not only will this help end-of-year reconciliations, but it will assure that the security deposit is properly earmarked and ready to be disbursed back to the tenants when they vacate. You should never comingle accounts (this is illegal) and you should talk to an accountant about establishing a trust or escrow account.
4. Charge the appropriate amount. Be sure to get the number right. You need to make sure the amount charged for a security deposit is enough to cover any repairs you may need to make; however, keep in mind that a security deposit in North Carolina can never exceed an amount equal to two months’ rent.
5. Know your community association’s rules and be sure those are part of the tenants’ expectations. If your rental property is in a community governed by association rules, be sure that tenants understand that they must comply with those rules. If your tenants are in violation of community covenants, you will need funds at your disposal to get your property into compliance, pay any fines or both. These types of situations can be avoided if you are sure all expectations are clearly set in writing with your tenants and that they’ve been provided a copy of the community rules.
6. Document the property. Before new tenants occupy your rental home, be sure to do a walk through and make a video of the entire property, inside and out. This will make any damage claims at the end of the lease easier to prove as the video provides you visual proof of the property’s condition at the beginning of the lease.

The importance of collecting a security deposit and setting clear expectations at the outset of a tenant’s occupancy cannot be emphasized enough. As a property owner, it is vital that you seize the opportunity to set expectations and collect funds to protect your property from potential damages. It is in an owner’s best interest to document property condition, be knowledgeable of community rules, set clear expectations, request the correct amount in deposit funds, and comply with all state laws.

Source: wilmingtonbiz.com