May 24, 2023
Last Updated
Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlord’s podcast. This is episode number 389, and I’m your host, Andrew Schultz. On today’s episode, we’re gonna be talking about when you should collect the security deposit dealing with non-working appliances, and should tenants do repairs on your rental. We’ll get to all that right after this.
Voice Over: (00:24)
Welcome to the Rent Prep for Landlord’s podcast. Now your host, Andrew Schultz.
Andrew Schultz: (00:29)
Before we jump into today’s episode, have you joined the free rent prep for Landlord’s Facebook group? We just reached 13,000 members and of course that now means we’re on the hunt for 14,000. So if you have a question or a situation that you’ve never encountered before or you just need to bounce an idea off a big group of housing providers, this is the place. If you haven’t checked that out yet, do it today over at facebook.com/groups/rentprep. Don’t forget to mention the podcast when answering the questions so we know how you found us.
Voice Over: (00:58)
Water cooler wisdom expert advice from real estate pros.
Andrew Schultz: (01:06)
We’re gonna start things off this week with our water cooler wisdom segment. This one comes to us from the Rent Prep Landlord’s Facebook group, and it’s all about security deposits. Let’s go ahead and jump right in here. When do most people collect their security deposit? Also, do you collect it all at once or before they get the keys? And I’m in California, and again, this one comes from the Rent Prep for Landlord’s Facebook group. I personally feel that it’s important to get the security deposit as soon as possible after you’ve approved an application. Keep in mind that until a tenant is paid a full security deposit, they may very well be out there continuing to shop for other apartments. So their commitment to you is likely no more than an application fee at this point. So whatever you can do to get the security deposit as quickly as possible once you’ve approved an application is a good idea.
Andrew Schultz: (01:52)
Over at Own Buffalo, we require the tenants to pay their security deposit in full within five days of the approval of their application, and we let the tenant know that their apartment is not guaranteed to them until such time that that deposit is paid in full and their lease is signed in full. We continue to show the apartment right up to that point, uh, because we’ve had people walk away even after having rental applications approved. We’ve actually had people walk away right up, up to and including move-in day. They just never showed up to actually take possession of the unit and ended up walking away from their security deposit. Keep in mind that some states will require you to rent to the first application processed that meets your requirements and you may not be able to do what I just said. So double check your state law for more information on whether you have to approve the first application or if you can continue to screen for best qualified.
Andrew Schultz: (02:42)
Uh, I also mentioned that we require the tenants to pay the full deposit in order to take that apartment off the market. If someone doesn’t have their full deposit ready to hand us within five days of their approval, it raises a couple of red flags for us. Number one, they’re out searching for an apartment without being financially stable enough to secure the apartment once they’ve been approved. If you don’t have the security deposit, chances are you also don’t have the first month of rent and every month after that is probably gonna be a struggle too. I understand that there are some circumstances where people are getting deposits from community organizations and things of that nature, but that’s not really what I’m referring to here. I’m talking about the cash paying tenant that tells you that they need more time to come up with a security deposit.
Andrew Schultz: (03:23)
If they’re in a position where they can’t find that money within the five days after you’ve approved them or they don’t have that money before they’re out there looking for an apartment, chances are that there’s going to be something more to the situation. And number two, this is probably a pretty good sign that you need to go back and double check that rental application a little bit more closely to see if there’s something that you missed during the screening process. This should also be assigned to you that it might be time to look at your overall screening process to make sure you don’t wind up in a situation like this down the road. Again, we don’t split our security deposits across multiple payments or multiple months, and I think that that’s one of the riskiest situations that you can put yourself in as a landlord is not having the full deposit before someone moves in.
Andrew Schultz: (04:04)
I’ve heard of landlords making exceptions and allowing tenants to pay their deposit over the first few months that they live in a property or something along those lines. And the problem with that is if your tenant never actually makes that remainder of that security deposit payment, they’re still in possession of the unit. So your only option for resolution at that point is to evict that tenant. And is that really the type of situation that you wanna put yourself in? It’s very seldom that I ever hear of situations like that playing out where there are no issues whatsoever. Almost every time I’ve heard someone say that they made an exception like this, it comes back to bite them. Simply put, don’t do it. We don’t allow a tenant to move in until we have their security and their first month’s rent in full until they have a $0 balance due on their account.
Andrew Schultz: (04:48)
We don’t turn the keys over. It’s also worth noting that you should be getting your security deposit and your first month’s rent in some form of certified funds. The reason for this is that it’s the, Actually, it’s the same reason that you don’t want to go splitting your security deposit payment over the course of several months. Once someone has possession of that unit, you have to go through the full eviction process to get rid of them. So for instance, if someone bounces their first month’s rent check after you handed them the keys and allowed them to move in, you’ve gotta go through the full process to get rid of that tenant. It sounds crazy for someone to bounce the first month’s rent check, but we’ve seen it happen To prevent yourself from winding up in a situation like that, the best thing that you can do is get certified funds on the front end, at least for your security and your first month of rent.
Andrew Schultz: (05:30)
If you’re local to the property, this is a pretty straightforward process. Just have the applicant bring you their money order or their certified bank check, or I suppose cash if you really wanna be walking around with a big lot of cash, but we try to avoid that whenever possible. If you’re not local to the property or if the applicant isn’t local to the property, maybe they’re moving from outside the state or something like that, you do still have a few different options available to you. Two options that we’ve used with a lot of success in the past are wire transfers or ACH transfers from the applicants bank account to your bank account. You could talk to your bank for more information on how this works and what the fee schedule’s gonna look like, but generally speaking, a wire transfer is gonna be same day and an ACH is gonna be maybe a couple of business days before those funds hit your account.
Andrew Schultz: (06:12)
Another option would be to use one of the several different payment apps that are available out there to send and receive money. The one thing that I would caution you about if you decide to use a payment app is to make sure that you’re using one that does not allow for the reversal of payments. You don’t wanna get a month down the road and then find out that your applicant went ahead and pulled a reversal on their security deposit funds. So there are another option out there. There is another option out there. It’s a little less technology centric, and that’s obviously the good old paper. In pen method. Half the applicant go get a certified check or money order and then have them mail that to you if they mail it certified or if they mail it overnight, they’re going to have a tracking number that they can then provide to you so you know when it’s going to arrive.
Andrew Schultz: (06:51)
And they can use the same tracking number obviously to see whether or not you’ve received it. If you really wanted to go a little bit further, you could have them take a picture of the check and send it to your phone or email prior to sending it out in the mail, and at least that way you know that they’re actually going forward. Something else that I briefly want to touch on is how much you can charge for a security deposit. Every state’s gonna be a little bit different and have a little bit different rules on this, so you do need to check your state law to ensure what you can and can’t do in terms of security deposits. For instance, here in New York, the laws changed back in 2019 such that we can now only hold up to one month of rent in reserve or one month of rent as a security deposit.
Andrew Schultz: (07:31)
So your security can be more than one month of rent. So definitely double check your laws to see what you can and can’t do with regards to what you can charge for security deposits. And last but not least, I wanted to touch on the rules for how you’re supposed to handle deposits once you’ve received them. I strongly recommend that you put your deposit in a separate bank account so that you’re not commingling your security deposits with your operating funds. Keep in mind that the security deposit is a liability to you, not an asset. You can’t just go and spend that money any way you want. Many states do require you to keep those funds in a separate account by law, and some states will even require you to account for any interest received and pay for some of that interest back out to the tenant.
Andrew Schultz: (08:10)
So definitely understand what your obligations are. Good luck and happy landlording. Our second water cooler wisdom segment also comes to us via the Rent Prep for Landlord’s Facebook group. This one is on broken stoves. Let’s take a look. What is a fair amount to offer off of rent for not having a working stovetop or oven for a four to six week period? And this is on a family of four. Again, this one comes to us via the Rent Prep for Landlord’s Facebook group, and if it was me, I likely would not offer a credit for a non-working stove and oven. Uh, typically speaking, you have either a stove that goes or an oven that goes, but typically not both at the same time unless it’s an issue with the outlet or an issue with the control board inside the stove. So more often than not, you find that your tenant is in a a situation where they still have use of one or the other component on the stove.
Andrew Schultz: (08:59)
In this particular instance, it sounds like it’s just plain not working at all. So I can absolutely see why a tenant would be requesting a credit, and I can also absolutely understand why a landlord would think about giving a credit, but I would look at this much like when a refrigerator goes bad, we don’t offer any sort of credit for food spoilage because we weren’t the ones that caused the fridge to malfunction in the first place. And I would try to apply that same logic here. We didn’t break the stove and we’re doing everything that we can to get it repaired, but the loss of use isn’t something that we cover in our leases. This would be something like a property owner trying to blame the bank when they’re hot water tank fails. Now, I’m not saying that you should leave your tenants completely stranded here without any way to cook anything in their home.
Andrew Schultz: (09:39)
There are some options out there that you might wanna consider for the period of time where the appliance is gonna be down. For instance, you could consider supplying the tenants with a hot plate, a microwave, an air fryer, something along those lines where there’s still able to cook inside their home. Is it the most ideal situation? No, of course not. But by the same token, there’s very little difference between a hot plate and a stove burner. In most instances, you can throw a frying pan or a pot on top of a hot plate just as well as you can cook on a stove burner and heat something up. You’re probably not gonna be making multi-course meals here, but at least you’re able to heat up food and keep moving forward. Another option that might work, depending on if it’s seasonally appropriate or if you have an area where you could set one up would be a grill.
Andrew Schultz: (10:23)
Again, it might not be ideal, especially if someone isn’t used to using a grill, but you can still cook, you can still keep moving forward. What are some other options? Uh, you could always replace the stove with something new. Most basic stoves are a few hundred dollars brand new and generally aren’t taking four to six weeks to arrive at this point. A lot of the supply chain issues that we were seeing in the past couple years have pretty much resolved themselves and getting appliances seems to be a lot easier now than it has been in the recent past. This is obviously gonna be a much more expensive option than waiting for a repair, especially if that repair is something that’s covered under warranty or something like that. But it does get your unit back to full functionality right away. You can still keep that old oven and have it repaired, just keep it in storage in case something like this pops up again in the future.
Andrew Schultz: (11:10)
And if you’re going to own multiple units and you’re going to include appliances, I can guarantee you that it’s not a matter of if it happens again, it’s a matter of when it happens. Again, it’s really just a matter of time. Every appliance has a usable lifespan and eventually they do reach the end of ’em either way. I think that there are options that you can look into other than a rent credit in this circumstance. If you’re thinking about supplying some sort of an alternative means to cook, you may find that you’re better off actually offering the tenant credit rather than buying the appliance and supplying it. That’s up to you. Ultimately, we try to avoid rental credits for appliances whenever possible. Double check your state laws because there are some instances where you have timeframes or obligations that may require you to offer a credit if you can’t get the appliance repaired in a timely fashion. But as with many things in real estate, there’s more than one way to get to the end result you’re looking for. Ultimately, I think that this is something that’s going to depend on your style of doing business. Some people take a more relaxed approach and will offer up the rent, credit and others take a more hard line approach and simply won’t. Ultimately, what you decide to do is up to you
Voice Over: (12:17)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.
Andrew Schultz: (12:26)
Our final segment of the day is our forum quorum segment. This one also comes from the Rent Prep for Facebook group. Let’s go ahead and take a look here. My tenant asked to borrow a pressure washer to clean the decks. Do I pay them for doing this? Absolutely not. Not only do you not pay a tenant to do work around the property for you, you simply don’t allow tenants to do work on your ties. Anytime you have someone doing PR work on your property on your behalf, you’re opening yourself up to some liability. Whenever you have someone that’s uninsured doing work on your property, you open yourself up to a whole lot more liability. And I can guarantee you that unless your tenant owns some sort of a contracting company, they likely don’t have the correct insurance to be doing work on your property for you.
Andrew Schultz: (13:12)
But most that we ask our tenants to do in terms of working on the property is change their own light bulbs and smoke detector batteries and shovel off the front steps and sidewalks when it snows. And all of that is written right into our leases requirements. We even take care of the lawn for them. We really don’t want tenants working on the properties if we can at all avoid it. You could do a pretty sable amount of damage with a pressure washer if you don’t know what you’re doing. If you don’t know what you’re doing and you’re using the wrong type of tip, or you have your stream too close to the the deck boards, you can blow deck boards apart, create splinters all over the place. If you’re using the TRX decking, it can become an even bigger mess. If you’re not wearing proper foot protection, it’s really easy to take a whole bunch of skin right off the top of your foot.
Andrew Schultz: (13:55)
It’s very easily to cause bodily injury with a pressure washer if you don’t know what you’re doing. Uh, and if you don’t know what you’re doing and you start spraying around on your siding and things of that nature, you can blow holes in the siding or blow water underneath the siding, and of course, that’s even gonna result in some issues and some water damage. So there are a lot of reasons not to do this. If your tenant somehow manages to injure themselves while using that power washer, chances are they’re going to be looking to start a lawsuit, and I can almost guarantee you that your rent money is gonna stop coming in the second the injury happens. My recommendation would be have an insured company come out and do the pressure washing on the decks. That way if there’s any issue with how the work is done, or if they cause you a bunch of damage to your decks or blow a hole in the siding accidentally or something like that, at least that company will have an insurance policy that you can go back against for those damages.
Andrew Schultz: (14:46)
Make sure that your contractor is properly insured and puts you on that, their general liability insurance policy as an additional insured, especially if you plan on using them frequently. I would say the one exception to this would be if you’re in a position where you can put that tenant on the books as an actual employee, because if you’re gonna go through the hoops that you need to go through to actually put someone on payroll, meaning they have general liability, they have workers comp, they’re covered under unemployment, things of that nature. If you’re going through all of those hoops to make sure that you’re able to actually put someone on staff and do it the correct way, then yeah, at that point I would say add them as an employee. Treat them like an employee, give them responsibilities and expect that they’re going to uphold their end of it, and then understand that that’s going to change the dynamic of your landlord tenant relationship because now you’re also their employer.
Andrew Schultz: (15:34)
So there’s a whole different set of, you know, circumstances that go along with that. I’m not gonna jump into all that, but that would be the one exception that I would make to this rule would be if I was in a position where I could put that person truly on payroll to make sure that everything is covered from a liability standpoint. That would be the one exception that I would make to this rule. Do not trade rent for work, period. It’s a scenario that very, very seldom ever works out in the favor of the landlord. For all you commercial landlords out there, this one’s for you, Rent Prep recently released their 2022 guide on maintaining your commercial buildings. Check it out today over at rentprep.com/blog.
Andrew Schultz: (16:16)
That pretty much wraps up this episode of the Rent Prep for Landlord’s podcast. Thank you all so much for listening. We truly do appreciate it. The goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, and you can help us to reach our goal. If you heard anything in this week’s episode or any of our other episodes that will help someone you know, please do us a favor and share it with them. If you’re looking to get in contact with me, I can be reached over at whatsdrewupto.com. From there, you’ll find links to everything going on with me over at Own Buffalo, as well as other projects that we’re working on. Feel free to grab a copy of our deal analysis tool over at whatsdrewupto.com. It’s free, there’s no obligation, and it comes with a companion video showing you how to use it.
Andrew Schultz: (16:58)
If you’re looking for top tier tenant screening services, head on over to rentprep.com. There are multiple products to choose from, including tenant paid options, and if you’re over 50 doors, ask about the enterprise level programs and pricing. I’ve been at Enterprise user at Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check it out today over at rentprep.com. Again, thank you all so much for listening. We’ll be back in a couple weeks with an all new episode that you won’t wanna miss. Until then, I’m Andrew Schultz with own buffalo.com for rent prep.com, and we’ll talk to you soon.