Today’s REI Classroom Lesson

Pete Neubig elaborates about steps you can take to help ensure you won’t be sued when a tenant moves out of a property.

REI Classroom Summary

Listen in as Pete shares how to make a tenant leaving a stress-free process, including forms to be given when a tenant moves in and what to provide when they move out.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Pete: Hi, my name is Pete Neubig, co-founder of Empire Industries Property Management located in Houston, Texas, and I’ll be your host for the REI Classroom. Today we’re going to talk about how to ensure that you are not sued when a resident moves out.
Mike: This show is sponsored by
Pete: Did you know that some statistics show that one out of every three landlords get sued each year? The number one reason is a security deposit dispute. Either the landlord did not deliver the security deposit in the allotted time, or there was discrepancy in the amount the landlord took out of the security deposit. Do you know that in most states, if you do not deliver the security deposit within a specific allotted time period, you will be responsible for three times the amount of the deposit?
So imagine that if the security deposits $1,500, that’s $4,500 that you’re responsible for. I can speak to Texas in particular, because that’s where we’re located. In Texas, we have 30 days to get the security deposit disposition out. If it’s not out by then, we can be sued for three times the amount of security deposit. I know in Washington State that number is actually 15 days.
So at Empire, we have over 20 move-outs each month. We’ve never had to pay three times the amount of the rent, and we’ve never been sued. So let me tell you how to make your security deposit disposition an easy and stress-free process. So here are some tips.
So number one, walk the property a day or two prior to the resident moving in and take photos of everything and even a video. So the more information we get on the inbound, the better off we’re going to be on the outbound.
At Empire, we take over 100 photos, including insides of cabinets and appliances. So here’s a tip, never walk the property with the resident. It will turn into a maintenance request meeting and will last over two hours. You’re doing a move-in report. We actually do move-in reports with the photos. And we even make notes on each one of those items if there is something that might be damaged and that we’re giving the property in a less than stellar or just might be something might be wrong. So photos, even a video beforehand.
Number two, make sure that the property’s been professionally cleaned, and the carpets have been cleaned professionally. We expect this to be done when the resident moves out. And you cannot expect this to be done if you do not provide it this way. So again you want the property turned over to you the same way you gave the property over to the resident. So have everything cleaned beforehand.
Have move-out procedures created and given to the resident at move-in and again when they give notice that they’re moving out. So again, we always speak about you owning a business, you have to have policies and procedures. You must have a move-out procedure. Our move-out procedure basically tells them everything they need to do, and it also gives them a list of items that they should be looking for that we may charge for. For example, if they did damage to a wall, what that would charge would be if we had to fix a hole in the wall, if we had to clean the property.
And we give them it says a minimum amount of. And so let them know what the move-out process looks like. Give it to them again in the front end and also when they give their notice.
Give the resident an inventory condition form. Here’s the kicker though. Give them only X amount of days to fill out the form and return it to you. So we allow them five days. Some people do 3, some people do 10. Do not allow anything more than 10 or 12 days. You’re not going let them live there for a month and then create damage to the property and then put it on an inventory condition form.
If they don’t give you the condition form within the allotted time, then that means they did not submit one. This form is not meant for maintenance requests. So let them know that they are not putting maintenance requests in here. They’re just documenting the way they received the property. Okay, that’s all this is.
Next thing you need to do is walk the property within three days after the resident moves out. And again, never walk the property with the resident. It will take you two hours, and they’ll have a story about everything in the property.
Take photos and video just like you did on the move-in report. You want to do a move-out report, and you want to be able to compare the move-in report and the move-out report.
Then the next thing would be to get a professional to come in and give you a bid on what it will take to get the property renter ready. Make sure you send them out as soon as you walk the property and get the bid back within three days. Remember, time is of the essence. You only have 30 days to do all this stuff. Do not wait 15 days later to walk the property in order to go out and get a bid. You want to get that bid.
The reason why you want a bid is when you do your disposition, meaning you’re comparing the inventory condition form, you’re comparing your move-in and move-out, and you want to charge, now you have back-up with the bid that says how much you’re going to charge for the damages, the maid service, the landscaping, things like that. So again, you’re going to review the inventory condition form, the before and after photos and the make-ready bid all at once.
Now, the next thing you’ll do is you determine what damage the resident has done and charge them the amount that is on the make-ready bid. So typical items that we see include light bulbs, air filters, battery smoke alarms, door stops, maid service, carpet cleaning, landscaping, broken windows, things like that. You do not want to charge for items that are normal wear and tear. So if somebody had been living in the property for three years, you’re not going to charge them a full repaint. So you have to understand where your charges lie versus damage and versus fair wear and tear.
Always get a forwarding address when they move out an send the check to the forwarding address along with the breakdown in charges. This is the actual disposition. So send a check along with the breakdown so they know what it is that they got charged for. If they have a dispute, have a procedure on how they can dispute the security deposit. So this way they’re not going right to the courts and put you in court. At Empire, we have a dispute, that if they have a dispute, they can fill out a form.
And then they have to submit. So they have to fill out a form and submit any evidence they have that might contradict what we’re charging them. It’s some red tape, and a lot of people won’t do it, but at least it gives them an outlet to go ahead and fill that out. We did have a couple of people who do fill out the form, give us some evidence. And we review it, and if we have to give them more money back, we do. And if we don’t find that the evidence is sufficient, we do not give them back the monies.
But those are some tips that you can do to make sure that you stay out of court, that you don’t have to pay the three times the amount of the security deposit, and that you are not being sued.
So this is Pete Neubig with Empire Industries. And thank you so much for listening to this REI Classroom.
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