Podcast 379: How to Charge for Damage to Rental

In this week’s episode, Podcast Host, Property Manager & Business Owner, Andrew Schultz, chats about how to go about charging tenants for any damage they caused to a rental property.

So, your tenants were given a move-out date and agreed that it would work for them, but days after that date, all of their belongings are still in the rental. What do you do?

As a landlord, can you request for rent up to a year? Find out on our latest podcast.

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent prep for Landlord’s podcast. This is episode number 379. And I’m your host, Andrew Schultz. On today’s episode, we’re gonna be talking about tenants, lying about their move-out date, how to charge for damage to a rental property, and asking for a year’s worth of rent upfront. 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: (00:30)
If you join the free Rent Prep for Landlord’s Facebook group, we’re on the push for 13,000 members. If you have a question or a situation that you’ve never encountered, or you just need to bounce an idea off a big group of housing providers, this is the place. So if you haven’t checked it 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: (00:53)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (01:02)
Our questions in this week’s podcast, all come from the Rent Prep for Landlord’s Facebook group. We’re gonna start with water cooler wisdom here. This first one has to do with tenants. Giving notice let’s jump right in my tenants have given notice that they are moving out by May 31st. I believe that they’ve already left the unit, but they are being secretive about it. If the house is empty, which they will not say, would it be okay for me to go inside after giving them 24-hour notice that I’m having some inspections and work done, assuming that it’s empty? And again, this one comes to us via the Rent Prep for Landlord’s Facebook group. So there are two questions here. One, can you enter the unit, and two, can you reclaim the unit if it’s been vacated? So we’re gonna start with the first question on entry into a unit.

Andrew Schultz: (01:43)
This is always going to depend on the laws in your state. So that’s obviously a good starting point. Most states are gonna have some sort of process that you can follow to enter a unit, even when the tenant does not necessarily want you to enter the unit. It may require posting a notice for a certain amount of time in advance, or you may have to do some sort of a certified mailing or have it served or whatever the case may be. Obviously, I’m not an attorney. I’m just a real estate broker, and you should probably speak to your attorney. Um, but here in New York, we can post a 24-hour notice in advance of an inspection. And then we can enter the unit. Once that 24 hours has passed. Keep in mind that there are different laws in different areas of the state. Even, for instance, downstate New York City.

Andrew Schultz: (02:24)
I believe they have to give a one-week notice if the landlord is intending to enter to complete repairs versus just 24 hours for like an inspection or a showing. So you really do need to understand the law of the land as it were before you just go walking into an occupied apartment or a potentially occupied apartment. It’s also worth mentioning that if there’s an emergency situation, you typically do not have to wait 24 hours to walk into an apartment. So obviously in a situation where there’s a fire or a flood, that’s gonna be considered an emergency. You wanna stop additional damage from happening and you wanna stop it as soon as possible, not tomorrow. So like something like a fire or a flood, something like a gas leak would constitute emergency wellness checks might meet that threshold, but I would certainly advise you to speak to an attorney before attempting to go that route when gaining access to an apartment and a little story to go along with that, we were recently contacted by a local police department who was looking to access an apartment, um, that is under our management.

Andrew Schultz: (03:24)
So the tenant’s family hadn’t heard from her in some time, and they were concerned that something might have happened to her. That’s absolutely the type of welfare check that we would respond to. We’re gonna go open the door for the police department so they can see what’s going on so they can make that welfare check, but that’s pretty substantial. Um, pretty substantial difference between that. And then walking in unannounced for a wellness check, because someone just isn’t communicating with you though, the way that you would like. So understand what your, your laws are in your area, what your rights are as a property owner, when it comes to entering the property. If you’re not sure if a tenant has abandoned a unit, uh, and you’re not sure if you wanna make that entry yet, there are a couple things you can do. A couple things that you can check into that may offer you some guidance as to whether or not the tenant is still living there.

Andrew Schultz: (04:08)
The first thing I would do would be check the status of the utilities. So here in Western New York tenants are typically paying for their own gas and electric bills. And in some instances, they pay for their own water as well. The utility companies won’t necessarily tell you if an account is current or not, but they can generally tell you if a service is active on a meter or not. So like, they can tell you whether there’s electric gas or water flowing to the household. It’s not foolproof obviously, but it is something. So if you call the utility company and they say, yeah, the gas and the electric are both off, well, chances are, someone’s not living in that property because they don’t have any utilities with which to do. So you can also check for obvious signs, such as stack of mail or newspapers in the front of the house, uh, a lawn that isn’t being taken care of, something along those lines, something that would just kind of indicate that the property may be abandoned.

Andrew Schultz: (04:59)
Um, going along with that, if you suddenly see that all of the curtains on the house are missing, there might be an opportunity to say, Hmm, this may be abandoned. So let’s assume that you’ve posted whatever notice you need to completed whatever process you need to complete in order to enter the unit, you unlock the door, you turn the knob, you push that door open and you find it completely spotless, ready to rent, no turnover needed apartment. So like in a perfect world, maybe that might happen. So we’re gonna assume that we’re living in a perfect world for a day. Uh, and then this unit really is 100% ready to Rere it. The day that you walk into it, can you reclaim this unit since the tenant is no longer living in it? Chances are no, you cannot. You’re still gonna be bound by the laws of your state, as well as bound by your lease agreement, any rent payments that you’ve received cetera.

Andrew Schultz: (05:46)
So if that tenant moved all of their stuff out to their new place early, but paid you for the full month, they’re still in possession of that unit until the end of the month, they would need to release that unit to you. And you may be required to prorate their rent for that remaining month. If you decide that you wanna try to take this home back from the tenant early, don’t forget that if there’s anything left behind by the outgoing tenants, that you may also be responsible for storing those items for a period of time after the move-out or after the abandonment, different states will have different rules on this. And you should definitely check the rules in your area. Uh, in some instances you can set things out to the side of the road, the same day of the eviction. And in some instances, you may need to store it for 30, 60, or 90 days.

Andrew Schultz: (06:27)
It really just depends on where you live and what the requirements are in your state or in your municipality. So there you have a very basic overview of entering a unit that may or may not be occupied retaking possession of that unit, and understanding that spending a little bit of time doing some research could mean keeping yourself out of a lot of hot water, good luck. Our next water cooler wisdom deals with the issue of prepaid rent. Is it a good idea? And should you accept it as a landlord? Let’s go ahead and jump right in here. Can you ask for a whole year’s rent upfront? If a tenant is moving from another state and checks all of your boxes, except that they’re not working yet, but they will be looking for work and they have the money. What if they only agreed to pay six months upfront?

Andrew Schultz: (07:10)
This one comes to us via the Rent Prep for Landlord’s Facebook group. And essentially the look sounds like they’re asking, um, what do you do if you have someone that wants to move, they have a pile of money, but they don’t have stable income. So there are definitely some situations where something like this would occur. We’ve had instances where somebody has sold a house in another state and they’re moving to our area, but they haven’t necessarily secured a job yet. And have a, basically just a large pile of cash due to the sale of their asset. Uh, we’ve had similar circumstances where someone has recently sold a business and it’s kind of in the same situation. We’ve also had some people who were able to live off their investment income, which obviously isn’t traditional employment. So you have three different opportunities there to verify income on a nontraditional employed person.

Andrew Schultz: (07:54)
We have had a lot of these little circumstances pop up over the course of the years. So it’s a good idea to have some sort of a policy in place on how to screen nontraditional applicants, whether or not you can ask for prepaid rent upfront will likely depend on the laws in your state. I’m not an attorney. I say that pretty much in every single one of these, and you should consult yours, but here in New York, for instance, back in 2019, there were a lot of changes to the landlord-tenant law, which now prevent us from holding any more than one month of rent in escrow as either prepaid rent or security deposit. So for instance, if your rent is a thousand dollars, your security deposit maxes out at a thousand dollars, this became an issue here at Own Buffalo, because we would oftentimes offer applicants that didn’t meet all of our selection criteria and apartment with an additional month of security deposit on file to help us offset that risk.

Andrew Schultz: (08:47)
And essentially when that law passed, we were no longer able to offer that as any sort of a solution to people who were right on the cusp of being able to be approved. So as a result, we ended up no longer being able to approve those people. And essentially those are just flat-out denials. Now, in all reality, I think that most landlords responded to that piece of legislation more or less the same way that we did. And I think that that piece of legislation that was supposedly designed to help tenants ultimately wound up causing more damage than it did good, but I digress. We gotta get back to security deposits here, uh, in the situation that’s being proposed here. If an applicant was to approach us and offer six months or a year of rent upfront, because we’re in New York state, we would not be able to take that.

Andrew Schultz: (09:32)
We would be in a violation of the state’s laws if we did. And there are some states that are a lot less restrictive on security deposits in how much you can collect in terms of having a deposit or prepaid rent. And then there are some states that are, believe it or not even more restrictive. Um, for instance, in some states who may be able to just keep this prepaid rent in a savings account or in an escrow account and draw down on it on a monthly basis, if you’re in a state that allows you to do something like this, I don’t necessarily have a problem with doing it. It’s a good way to know that you have guaranteed rental income for the next however many months, but it does come with some potential pitfalls that do need to be taken into account. Uh, some people do say that it’s harder to evict.

Andrew Schultz: (10:12)
If a tenant has prepaid all the rent money. In some states, you may find that the prepaid rent does become an issue when you get to court. My recommendation is to come to court with a certified check for the amount of the rental funds that are still in escrow. I think the main reason that people have this opinion is because they aren’t setting the cash aside and drawing down on it monthly. They aren’t treating that liability like a liability. They’re treating it like an asset. And as an aside on that, the tenant prepays you a full year of rent upfront. You don’t have 12 months of rent money to use as UC fit as an asset, you have one month of rent money as an asset on day one of the lease. And you have 11 months of rent money as a liability with a portion that converts over to an asset every single month.

Andrew Schultz: (11:01)
If you treat it this way, if you treat it the way that you’re supposed to treat it, this should not become an issue for you in court because you’ll have the money to refund the tenant for the prepaid rent. Hopefully obviously minus any damages fees, court costs, things of that nature. Um, but having the money on hand and showing that you have the money on hand does give you a little bit of an edge there in court. I would think being able to show that no, this money hasn’t just disappeared. We’re prepared to refund this tenant. If it means that we can get control of the asset back, another major concern that pops up every time someone talks about prepaying rent for a year is that it’s a major red flag that the tenant doesn’t want you looking over their application too deeply, or doesn’t want you to visit the property very frequently, which is why they’re trying to give you as many reasons as possible not to review the application or not to go to the property once they’re in possession of it.

Andrew Schultz: (11:55)
Yeah. That’s a very valid concern. You have to screen every application to make sure that it meets your standards regardless of whether or not they’re offering you a year of rent upfront or not just because someone has a pile of money does not automatically make them a good tenant. You have to run them through your process and make sure that everything checks out the way that you would expect it to don’t allow yourself to compromise on your selection criteria, just to get a hold of a chunk of money. I guarantee you that when you start compromising on your standards for dollars, the wheels fall off of the whole thing, real, real quick, have a good set of written criteria and follow it every single time. Our selection criteria for someone who’s just sitting on a large pile of money with no regular source of income is that the applicant must show an average of 12 months of rent on deposit for the last 12 months.

Andrew Schultz: (12:46)
So for instance, if you have a thousand dollars rent, you have to be able to show us an average of $12,000 in your bank account for the past 12 months. This works really well when someone has seasoned funds in their bank account. Um, but it does not work quite as well when someone has just recently sold a home and is sitting on a big stockpile of cash. Uh, it might be a little bit more tricky for them because their balance for 11 of the 12 months is probably gonna be significantly lower than on that 12 month. And that may throw the equation off when you do the math. Really what you’re doing is just averaging everything together and dividing by 12 to determine how much money they’re keeping in their account, and then making your determination from there. Our determination is do they have 12 months of rent in their bank account at all times over the last 12 months, that to us tells us that they’re probably going to be relatively stable.

Andrew Schultz: (13:38)
All things considered. If I was going to do this, I’d write the lease for the exact number of months that the tenant had prepaid for. And I’d be rescreening that tenant before I offered them a new lease extension. If the tenant wants to prepay you for six months of rent, I would write the lease for six months. When you get to the point where it’s time to start thinking about renewing that lease 30 or 60 days out, have your tenant reapply for the apartment, showing whatever proof of income that they now have at this stage of the game. Perhaps they’ve located a job and can show you proof of income. Maybe they haven’t located a job, uh, and they’re still living off of savings, but you still need to reevaluate that savings position. Are they still in a position where they can prepay you again? Those are all things to evaluate when you get to that stage where it’s time to renew the lease. Um, but I would not extend the lease unless I knew that the, a occupant had met our requirements or was going to continue to prepay ahead. If they did not have a situation in place, uh, where they had regular employment at that time

Voice Over: (14:40)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (14:48)
Last but not least, we have our forum quorum segment. This one is all about security deposit deductions. We’re gonna go ahead and jump right in here. My most recent tenants that are leaving next month have done some damage. I went to show the unit and the place was filthy messy and reeked of weed. There was a bong sitting out on the kitchen table. I now understand why they’re attracting rats. They also hired their own gardener who removed some of my landscaping and the yard is overrun with weeds. There’s also some damage to my garage door. It looks like it’s stuck and won’t move. And the closet doors and laundry room doors are also damaged and or removed. My question is how do you charge for these things from the security deposit? Do you charge half the full amount I’m guessing because of the smoking in the unit, it will also need to be retained.

Andrew Schultz: (15:31)
Please help. Unfortunately, the no-smoking that I thought I had in the lease was not in the lease. And again, this one comes to us via the Rent Prep for Landlord’s Facebook group. So my first piece of advice is to stop showing occupied units without checking them first. No one is going to be able to see past the issues that you just described in this unit. And you are just burning through leads, burning through people who are interested in your apartment by showing them a unit that is not up to spec. We’ve talked about that in other episodes. So I’m not gonna jump into it too awful deeply here other than to say, just don’t do it unless the unit is clean. It sounds like all of the items that you mentioned in your question are chargeable as damages. Now, again, obviously, I’m not an attorney.

Andrew Schultz: (16:13)
I think that’s the third time I’ve said that in this podcast, but the law typically does provide for landlords to be able to charge for tenant damages, uh, as well as things like unpaid charges, unpaid rent, and sometimes unpaid utilities against the security deposit. I’m gonna preface all of this by saying that you need to follow the state laws in your area on withholding. Some are gonna require you to do a pre-inspection and notify the tenant on your intent to withhold. Um, some are going to require that you give the tenant’s time to correct any damages that you found. And this is one of those weird ones that may put you at odds with the tenant. If they do a substandard repair, or if you require them to use your vendor, instead of their friend who, you know, quote unquote knows how to fix anything, some laws will require you to do things within certain timeframes.

Andrew Schultz: (16:59)
And this is important, um, because screwing stuff like this up can have serious consequences. For instance, in some states you have to pay out the damages in triplicate when you screw up a security deposit disposition. So this is not something that you wanna screw up. You may even need to use a specific form in your state. There are a lot of ins and outs when it comes to security deposits. I’ve seen a lot of crazy stuff when it comes to deposits over the years, and you really need to understand what it is that you’re doing when you go to do a security deposit disposition. Now, generally speaking, tenants are going to be required to pay for damages beyond reasonable wear and tear scuff on the wall. That’s reasonable wear and tear baseball sized hole on the wall. That’s damage. Keep in mind that wear and tear is something that also increases over time.

Andrew Schultz: (17:43)
So if you have a tenant that moves and stays for a year, then the expected wear and tear is gonna be much less than a tenant that moves in and stays for, for instance, 10 years. The problem with wear and tear is that it requires some common sense to apply it, which seems to be on backorder across the country. Having good move in and good move out, photos will help sort out most of these arguments very, very quickly. So how much can you charge for the hole on the wallet? For instance, um, you can chart a full price on that repair. There’s really nothing to depreciate here as its direct damage. The wall didn’t have a hole in it before it does have a hole in it. Now there’s really nothing to depreciate there. At least in my opinion. Now let’s say that your tenant put large gouges in your three year old vinyl plank flooring.

Andrew Schultz: (18:25)
In this instance, you would likely be able to charge for the depreciated value of the damaged flooring, which means it’s gonna be time to do some math. You’re gonna need to determine the lifespan of the flooring. And there’s gonna be some charts that you can look upon both the HUD website and the IRS website, but essentially you’re gonna take the, uh, lifespan of the flooring and depreciate it based on how long ago it was installed. And then you’re gonna wanna base your repair charges off of that depreciated amount. If the flooring is good for say 10 years, and it was damaged in year three, then 30% of its usable lifespan has already been consumed and you should be basing your charges off of that depreciated value. So the question here becomes, can you charge for the whole floor if you replace the whole floor or can you only charge for the area that was damaged even though the whole floor is being replaced, that’s a good conversation to have with your attorney and your accountant.

Andrew Schultz: (19:17)
And ultimately that’s one of those things that would certainly wind up being discussed in the courtroom, uh, more than likely if it ever got to that point, there’s still a lot of ambiguity when it comes to security deposit refunds, despite all the rules in place. And if you’re upgrading at the same time that you’re doing a replacement, that adds a little bit more fog to the situation, because now you can’t charge the tenant for your improvement, uh, above and beyond the baseline of what it was originally. So that adds a little bit more complexity to the situation. What about a direct damage that requires a replacement? So for this example, we’re gonna use a glass top stove. The tenant has a two year old glass, top stove in their unit, and they somehow manage to shatter the glass top since the damage was caused by the tenant.

Andrew Schultz: (20:00)
And it’s part of the overall appliance. I would charge them for the entirety of that repair with no depreciation. The appliance has to be returned in the same condition as it was given per our lease agreement. So they would have to make that repair in order to make good on their promise to return it in good working order. An argument could be made to depreciate the top, I suppose, but the top was working fine and it was broken by the tenant. So I would argue in this instance, there really should not be a depreciation factor on this. Ultimately, there are a million things that can be damaged in a rental. Sometimes they break or wear from normal usage and they just simply shouldn’t be charged to the tenant. Other times, it’s very clear that the tenant caused the damage and they should be charged. And sometimes you just have an old item that was being used inappropriately by the tenant and it breaks.

Andrew Schultz: (20:46)
And the solution typically lies somewhere in the middle. I think that if you’re able to read up on your legal requirements in your state and apply some common sense in areas where there’s ambiguity on what you should and shouldn’t charge, you’re probably gonna be fine. If your tenant wants to argue the deductions, the best protection you can possibly have is before and after photos showing the condition of the unit, how it was given to the tenant and how it was left by the tenant at move out, that’s gonna make it very, very easy to show exactly what has happened to the tenant or to the court. If it ever got to that point, most security deposit, disposition arguments are settled well before you see a courtroom, especially when you have those photos. Um, it just helps to really set the pace and set the course for where you’re going and why.

Andrew Schultz: (21:29)
And if you do get to the stage where you’re going to court, it’s important for you to have your documentation and, uh, be able to explain the reasoning for your deductions and then let the courts ultimately decide but do what you can on the front end before you get to court, to make sure that you have covered your bases. When the judge starts asking questions, summer’s almost here, which means it’s lawn care season. Are you responsible for the lawn or is the tenant to find out what a tenant should or should not be doing to maintain your rental property? Check out our latest post over at rentprep.com slash blog today. That pretty much wraps things up for this episode of the Rent Prep for Landlord’s podcast. Thank you all so much for listening. We truly do appreciate it. And our goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, the way that you can help us to reach our goal is to share it with someone who might benefit from the information.

Andrew Schultz: (22:22)
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 I’m working on. Grab a copy of our free deal analysis tool today over at whatsdrewupto.com. There’s no obligation and it comes with a free companion video showing you how to use it. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including a tenant-paid option. And if you’re over 50 doors, ask about the enterprise-level programs and pricing. I’ve been an enterprise user of Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back in two weeks with an all-new episode that you won’t wanna miss until then I’m Andrew Schultz with ownbuffalo.com for rentprep.com and we’ll talk to you soon.

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