Today’s REI Classroom Lesson

Today, Pete Neubig chats with us about the importance of collecting a security deposit, including the idea that residents will leave the property in good condition so that they can get their security deposit back.

REI Classroom Summary

Without a security deposit, the tenants who are leaving don’t have a monetary risk attached to the condition they leave the property in.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Announcer: 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 will be the host of your REI classroom today. And today, we’re going to talk about the importance of collecting a security deposit.
Announcer: This show is sponsored by
Pete: So why we collect the security deposit is to ensure that the property is received, the same way it was given to the resident less fair wear and tear. This is our main defense. It is our security deposit that we get our property back the way we got it.
And what happens is, especially during a slow market, a lot of landlords start creating move-in specials, and one of the things that they do is they lower the security deposit or get rid of the security deposit overall.
What I would say to you is, if you want to do a move-in special, which means the residents have to bring in less money to get in the property, I would highly recommend actually giving them money off of rent before giving money off the security deposit. Again, that security deposit is to take care of the property on the way out.
So why is collecting a security deposit important? The main thing is you’re holding the money for any damages. You cannot collect what you don’t have, so if you don’t take the security deposit upfront, then you have no money to repair any damages that that resident has done. So it’s protection for your property.
Second reason why you want to collect the security deposit, why it’s important, is it makes sure you get a resident who’s going to take care of the home. If you think about this, if they don’t have a security deposit, then they’re not expecting any money back, so why would they go above and beyond to take care of your house?
So, by them having a security deposit, in most cases they want that money back, so that’s their prize or that’s their reward for keeping care of the home, treating it like it was their home. And so you want to make sure you get a security deposit so that it enables them or forces them to take care of the home.
It covers damages that are broken by the resident, right? So typical damages are maid service, carpet cleaning, smoke alarms, light bulbs, mini blinds. These are all the items that when the resident leaves, they think they left the house in good shape, but yet you realized that they cleaned it, but they really didn’t clean it thoroughly.
They thought all the blinds were working, but then you realize that some of the blinds weren’t working. Some of the smoke detectors were pulled off or lost because they didn’t replace battery when it was beeping.
And so, although they think they’re taking good care of the house, if you don’t security deposit you can’t deduct any money to take care of these items that they’re responsible for. So, these are the main reasons why you want to collect a security deposit.
My name is Pete Nuebig. I am the co-founder of Empire Industries Property Management, and this has been the REI classroom on the importance of collecting security deposits.
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