Now a couple of things have to happen between the moment they move out and when you return that security deposit.
One is - you would do some sort of move out inspection, and you would do that to look for any damage in the property that is over and above normal wear and tear. What is normal wear and tear? Well, that's always a tough one. I would suggest that you probably have a pretty good sense of that yourself.
If the carpets are dirty and could be obviously shampooed and vacuumed and would be fine again, that's normal wear and tear. If the carpets are so dirty and so smelly that you could no longer clean them and bring them back to sufficient condition, that can be considered damage over and above wear and tear, and you can assess the charge to replace the carpet to that tenant's security deposit.
If the tenant does something like break a window, that's very obvious. One of the things we see a lot is that in a kid's room they will put the fancy details on the walls or whatever on the ceiling. We see that a lot. Then you try to pull those details off and the paint comes off with it. That to me is excessive above normal wear and tear that requires you to go back and paint that room again. That is an example of where you can charge the tenant some extra money.
You've got to use some common sense. One of the things I suggest in this course is to have a schedule of some sort that you provide the tenant when they move in. If we have to shampoo the carpets, it's a $200 charge. If a window's broken it's $X. If the oven's knobs are misplaced, it's a charge, or a charge per room for painting.
If you provide that information ahead of time, later on when they move out, you can say, "All right, one, two, three, four items," and then you simply add those items up and then you deduct that from the security deposit.
A couple other things to keep in mind, again using the state of Pennsylvania, things like key deposit is not really required to be escrowed. A pet deposit is not required to be escrowed. If you have any other types of deposits, you do not have to escrow those in the same manner that we're talking about with the security deposits. Those you could, in theory, put in your general operating fund and go ahead and use that.
Then if you have to, when they move out, you would have to pay those back, of course, but you do not have to escrow those into some sort of special account. I think that's it on security deposit. Again, focus in on what your state requires. Spend a few minutes and read it.
I will just give you a concept here, which is do not try to take advantage of security deposits. It's a bad business practice, frankly, and it's not something I would recommend. I've been in front of a lot of judges over the years. Judges do not like landlords that abuse security deposits. They really take that to heart.
They think that is - well, they don't think, they know that money is the tenants and you are holding it on their behalf. If you try to use that in some sort of abusive way, let's say the tenant's paid late or you and the tenant just never got along, whatever. It was an emotional thing and you tried to make up a bunch of repairs to try to get kind of get back at the tenant and the tenant took you to court, the judge is not going to look very kindly upon that. I guarantee you, not only will you probably lose, you could potentially pay two times the amount that you withheld.
That's the way Pennsylvania works, they can double the fine, but also if you're ever in front of that judge again he'll remember that and you'll really have a damaged reputation in front of that judge. I recommend being very careful. Do not use security deposits in a punitive way against tenants.
Move Out Inspection
One is - you would do some sort of move out inspection, and you would do that to look for any damage in the property that is over and above normal wear and tear. What is normal wear and tear? Well, that's always a tough one. I would suggest that you probably have a pretty good sense of that yourself.
If the carpets are dirty and could be obviously shampooed and vacuumed and would be fine again, that's normal wear and tear. If the carpets are so dirty and so smelly that you could no longer clean them and bring them back to sufficient condition, that can be considered damage over and above wear and tear, and you can assess the charge to replace the carpet to that tenant's security deposit.
If the tenant does something like break a window, that's very obvious. One of the things we see a lot is that in a kid's room they will put the fancy details on the walls or whatever on the ceiling. We see that a lot. Then you try to pull those details off and the paint comes off with it. That to me is excessive above normal wear and tear that requires you to go back and paint that room again. That is an example of where you can charge the tenant some extra money.
You've got to use some common sense. One of the things I suggest in this course is to have a schedule of some sort that you provide the tenant when they move in. If we have to shampoo the carpets, it's a $200 charge. If a window's broken it's $X. If the oven's knobs are misplaced, it's a charge, or a charge per room for painting.
If you provide that information ahead of time, later on when they move out, you can say, "All right, one, two, three, four items," and then you simply add those items up and then you deduct that from the security deposit.
Other Deposits
A couple other things to keep in mind, again using the state of Pennsylvania, things like key deposit is not really required to be escrowed. A pet deposit is not required to be escrowed. If you have any other types of deposits, you do not have to escrow those in the same manner that we're talking about with the security deposits. Those you could, in theory, put in your general operating fund and go ahead and use that.
Then if you have to, when they move out, you would have to pay those back, of course, but you do not have to escrow those into some sort of special account. I think that's it on security deposit. Again, focus in on what your state requires. Spend a few minutes and read it.
Do Not Abuse Security Deposits
I will just give you a concept here, which is do not try to take advantage of security deposits. It's a bad business practice, frankly, and it's not something I would recommend. I've been in front of a lot of judges over the years. Judges do not like landlords that abuse security deposits. They really take that to heart.
They think that is - well, they don't think, they know that money is the tenants and you are holding it on their behalf. If you try to use that in some sort of abusive way, let's say the tenant's paid late or you and the tenant just never got along, whatever. It was an emotional thing and you tried to make up a bunch of repairs to try to get kind of get back at the tenant and the tenant took you to court, the judge is not going to look very kindly upon that. I guarantee you, not only will you probably lose, you could potentially pay two times the amount that you withheld.
That's the way Pennsylvania works, they can double the fine, but also if you're ever in front of that judge again he'll remember that and you'll really have a damaged reputation in front of that judge. I recommend being very careful. Do not use security deposits in a punitive way against tenants.
