When it comes to minimizing the amount of money lost due to vacancy at rental properties, many procedures might appear self-evident to you, such as carrying out thorough tenant inspections and doing routine inspections.
There is, however, one issue in specific that might be the deciding factor in whether or not you are required to return the security deposit that your renter paid to you. It may also help you decide whether or not you have the right to sue your tenant to recover the turnover expenses incurred as a result of damage or neglect.
When you consider strategies to prevent turnover expenses, that specific issue probably isn’t the first thing that comes to mind for you.
When renting a home or apartment to new occupants, it is important to do a move-in check to ensure that everything is in working order. But how much time and consideration do you put into the move-in inspections that you perform? I can almost ensure that you are doing the move-in inspection inappropriately, which may cost you thousands of dollars at your next turnover.
If you believe I’m exaggerating when I say that a poorly performed move-in inspection might cost you several thousand dollars, please allow me to share the unfortunate story of how I understand this to be true.
The Real-World Effects of an Insufficient Move-In Inspection
Since most of my rental properties are based in other states, I must depend on third-party managers to take care of them. In my perspective, property managers are unique creatures, and it’s not uncommon for a once-excellent manager to deteriorate to the point that I need to terminate them and find a replacement.
My go-to property manager went through a rough patch a few years ago, and I had no choice but to find someone else to take his place. A tenant in one of my rental houses stopped paying rent and moved out not long after a new property manager was hired to manage my portfolio of rental properties. After the previous renter moved out, the property manager came to the rental unit to begin the changeover process. This was done to rent the unit again as soon as feasible.
She was conscious that we were dealing with an issue before she set foot on the premises as the property manager. Most of the tenant’s things were found strewn throughout the front yard. Based on this information, one can only speculate about what is behind the front door.
There were major scratches on the walls, pieces of the carpet were ripped up, damaged kitchen equipment, and missing lamp covers. The property was simply in a generally less desirable state overall. It may have been in poorer shape, but there was sufficient damage to trigger an increased turnover cost headed my way. I was going to have to pay for it.
It seems sensible that the management company and I would conclude that we should withhold her repayment of the security deposit. Furthermore, we were getting ready to bring a decision against her regarding the additional costs.
However, we were brought to a halt in our tracks. In response to the letter that informed her that a portion of the security deposit would be taken, the renter said, “Everything was the same way when I moved in.” A quick and easy reaction, but one that packs a lot of punch. Because if that were, in fact, the case, we wouldn’t be allowed to keep the damage deposit that she gave us, and we definitely couldn’t sue her for the costs associated with the damages.
I began searching through my files for the move-in inspection report from when she moved in. I had reason to believe that she was being unethical because the premises were in excellent shape when she first moved in. When she was a renter, I had moved property managers, so the new property manager did not have this information easily on file when she took over. When I went searching for the report, I couldn’t help but feel anxious since I knew it would be my only chance of being able to sue her for the costs that I was now having to bear.
I was holding my breath until I unexpectedly came upon the inspection. At that point, I could finally breathe again. When I saw the file name pop up on my computer screen, I breathed relief and praised my blessings. As I reviewed the paper, I had the distinct impression that we could now demonstrate beyond a reasonable doubt that the renter had been lying.
However, I could not breathe for another moment when I read the text. All I could see was a barebones inventory of rooms, with just a single tick for the rest of the room if it was in “acceptable” shape, and three of the tiniest and blurriest photographs that had ever been shot since the invention of the camera.
Indeed, no evidence could be used to support our suspicions that the renter was lying. We had the option of continuing to argue with her over the return of the security deposit, but we were conscious that if she brought us to court over the matter, we would be unable to demonstrate that she was lying. In the end, we were only allowed to charge her $250 for the trash on the property, and we were required to pay her the remaining amount.
I was completely defeated. Because I did not have an appropriate move-in assessment report, we could not keep the security deposit and proceed through the process of filing a lawsuit against her. This was all because I did not have a move-in audit report that would have shown she was lying.
If you’re curious, the renter who moved out got away scot-free even though the turnover paid me over $14,000 in damages.
The Advantages and Disadvantages of Move-In Checks
It should come as no surprise that failing to conduct a move-in inspection is the most common and serious error made by investors in rental properties. However, if you are competent enough to conduct the move-in inspection, should you do it in a certain manner, and if not, is there a bad way to do it?
During a move-in check, ninety-nine-point one percent of investors write down and photograph everything that is broken or damaged in the property.
The proper way to do a move-in examination does not look like this at all.
When existing faults or problems with a rental home are recorded when a tenant moves in, the only person who benefits from this is the renter. This serves to safeguard the tenant. Because there is evidence that these problems were already there when the renter moved into the property, the owner will not be able to compensate the tenant for any faults or damages that may have occurred after the tenant has moved out of the rental unit.
Instead of worrying about broken or damaged things after a tenant comes in, a landlord should focus on ensuring everything is in great condition before the renter arrives. In other words, the paperwork for the property should place more emphasis on the positive aspects of the property than the negative aspects of property. Documenting what’s completely mistaken with the house is still possible, of course, but doing so will only protect the renter from being overcharged; it will do nothing to prevent the owner from having to pay for expenditures caused by problems the tenant created.
The ideal method to complete a move-in check is to include specific information about the property’s current state, with an emphasis on the aspects of the home that are in satisfactory or perfect shape at the time of the move.
Documentation in written form is beneficial and should be included, but pictures documenting everything in satisfactory condition are the essential component of a move-in inspection. Textual descriptions may well be challenged, but pictures, if challenged at all, are far more difficult to do so successfully.
Take this into consideration to produce the most rock-solid report possible on the move-in check of a rental property, which will provide the highest possibility of fighting against unnecessary costs caused by tenant damage to a rental unit:
- When making a record of the aspects of the satisfactory and unsatisfactory property, the major emphasis should be placed on the aspects of the satisfactory rather than on those unsatisfactory.
- It is recommended that photographs serve as the main form of documentation instead of written explanations.
- Take photographs of practically everything you can, emphasising documenting the aspects of the property that are in good shape rather than those that need improvement.
The best ways to prevent high turnover costs
It should come as no surprise that the move-in check is one of the most important efforts, if not the most important effort, to assist in minimizing high turnover costs. The following are some more things that you may do to cut down on the costs associated with tenant turnover:
- Careful and detailed tenant verification
- Inspections of the rental property regularly throughout all leases
- Installation of more durable materials that tenants are less likely to be able to readily damage
It doesn’t matter how carefully you manage your properties; you’ll never be able to completely prevent the high turnover expenses with renters who don’t care for them. As an owner, all you can do is your best to minimize vacancy rates and associated expenses by taking all the precautionary measures.
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