I agree that if you had to track it like you say, it would be a pretty cumbersome hassle (though I don’t know if it would be as much trouble as you describe if you just put every tenant’s deposit in a separate savings account and passed on the tax liability to them). But, I don’t think that is really necessary, as you could just set an interest rate and then just multiply it by the amount of the deposit and then time it was held. In Los Angeles, the interest rate for 2011 is .29% — so if the deposit is $1000, that’s less than 3 dollars a year (and negligibly more if you compounded it continuously, though that would be above and beyond). In terms of costs, it is extremely trivial, but it is a matter of principle and, at least for a certain population of potential tenants like myself, it is a way to compete against other landlords. For me, it isn’t about the savings– it’s a cue I use to help predict how fair the landlord is going to be with me. In that respect, it works better in places where it isn’t legally mandated, as it is then that there is an opportunity to use it to distinguish between otherwise equal potential apartments.

I’ve never lived in Texas and it may be so alien there that it wouldn’t make a difference, but I dunno, I think the cost is so low that it is a basically free advertisement. And if/when there is a conflict with a tenant, if the tenant thinks you are being fair, they are probably going to be a little more reasonable (speculation on my part since I’ve never been a landlord, but it seems logical).

Anyway, just a thought.

I simply spelled out why I do it the way I do. It’s a business decision and it’s a fair and reasonable approach.

Well, no Texas Landlord I know of pays interest. We’d have to send a 1099 to the tenant for interest earned, plus other regulatory hassles, not to mention the difficulty of tracking this without special software. Some professional property managers manage 100s of tenants and the reporting and compliance costs would be higher than the interest amount earned on the deposit. Then you have the small mom and pop landlord who owns only one rent house and isn’t equiped to deal with the reporting burdens.

It’s nothing to do with fairness or ethics. It’s simply a needless burden on business which would cause more trouble than it solves. It’s the sort of “feel good” law that is now driving business away from California to Texas, by the droves.

Luckily Texas leads the Nation in NOT imposing this sort of nonsense on business owners.

Steve

The law in Los Angeles is basically this — landlords are required to do walk-throughs if requested, but they are allowed to make deductions from the security deposit for damages that weren’t visible or apparent during the walk-through, either b/c furniture was in the way, or because it was temporarily concealed by a cleaner but clearly visible after.

I know this might seem like a hassle, and it might be personally annoying to deal with combative renters, but if everyone is very clear in advance about the non-binding nature of the walk-through, there isn’t any reason why the tenants would be combative, since knowing it is not binding, they will only request it if they genuinely want some direction (rather than trying to lock the landlord into agreeing that the tenant isn’t liable for anything not seen in the walk-through).

Besides, if a hidden smell or something comes up after the tenant moves out, what are they going to say, that the landlord intentionally damaged his/her own apartment so that he/she could deduct additional damages? In any event, it won’t matter b/c there is no legally binding document.

As for Joe’s comment about interest on security deposits — this is obviously right, and is I think a clear litmus test to see whether the landlord is acting in good faith. I’ve lived in several different states (military), and wherever I go, whether it is required by law or not, there are honest landlords who will pay interest on security deposits, and I would never agree to lease from a landlord who won’t. The deposit is the tenant’s money, held in trust to cover damages. If the landlord is going to use that money in the meantime either as an investment or to facilitate operations, the tenant is ethically and in many places legally entitled to interest. That being said, if the landlord chooses to invest the money, he/she shouldn’t be forced to pay any more than the actual interest earned. But I think everyone can agree that it is a common sense good faith practice — I’ve never heard an explanation for why the landlord shouldn’t pay interest, though if I’m not seeing this properly, I invite someone to explain the justification.

Paying interest on deposits is done in some states, but not all. It’s a huge hassle, especially for the software makers and also when the agreed rate (as prescribed by some states) is higher than the rate paid by the banks who hold the actual deposit funds.

> Most Real Estate agents are not properly trained or qualified to be in the business, and are very disorganized.

I agree. Those of us who have been professional property managers constantly encounter part timers who have no idea how to run a management company. The serious property managers belong to NARPM (National Association of Residential Property Managers) and obtain professional designations such as MPM (Master Property Manager).

Thanks for your comments.

Steve

Do some landlords try to screw tenants out of deposits? Of course. But if you’re trying to make the argument that the typical American lease contract is violated more by landlords than by tenants, the actual facts say otherwise.

But this article was simply explaining why we have this particular business practice and why it makes sense to do it our way. Any landlord is free to do it differently, but in Texas, a tenant in fact has no right to a move-out walk-through and it would serve no useful purpose if they did. That’s the point I’m making.
Steve

I had a landlord in Los Angeles once try to not pay any interest on my security deposit — something required by law in Los Angeles, and where it isn’t prescribed by law, it is certainly the only ethical thing to do, for obvious reasons. When I pointed out the law, the landlord with a straight face said “oh that doesn’t apply.” The same day he was served, he wrote me a check.

People, whether landlords or tenants, can be evil. I’m sure not giving your tenants walkthroughs saves you money, and you might very well be relatively honest in your dealings with your tenants. But please don’t pretend that there isn’t a substantial amount of fraud, charges for ordinary wear and tear, repainting charges after a tenant lived there for 10 years, etc., and that not giving a walkthrough is a strategy used by unscrupulous landlords to facilitate fraud. It happens all the time. You might not care since you’ll never be on the receiving end, just like people who aren’t landlords might not be very sensitive to the terrible things tenants do, but if you deny that it happens on a regular basis, you are out of touch.

Property Managers don’t “make” any money on repairs. We only deduct for legitimate damages. The entire balance is returned to the departing tenant.

I have a lot of property manager friends in California. It’s hardly a model of sanity. It’s the joke of our nationwide email list-serve. The laws there are so pro-tenant it’s ridiculous. And despite that, based on the war stories shared on the list-serve, the tenants there have the biggest chips on their shoulders and complain more than in any other state. Which really just proves my point. No good deed goes unpunished. The more accommodating and “nice” landlords are, the more complaining and flack they receive at move-outs.

Texas has sensible, fair laws that balance landlord-tenant rights. Nowadays, every tenant can take a gazillion photos before move-in and at move-out to document condition. Texas has a triple-damage law for unlawful withholding of deposits, and JP Courts are very accessible and easy to use. There is nothing a Texas tenant can hope to gain by trying to pin down a move-out assessment at an attended walk-through. They just need to follow the lease and Texas Property Code and their rights remain fully intact.
Steve

The potential of a tenant being awarded 3-6x damages, the necessity to prove such damages were real, and the hassle of court are enough to make any ill-gotten gain be not worthwhile. What we are talking about here is the reality that the vast majority of tenants will never admit to you that there is any damage. Infact, they will argue with you. A lot. At this point, even if you go back to your photos and documents and can prove the damage, you’ve riled them up. Now they’re fired up and when they get that deduction, I personally believe they’re going to argue more. My best tenants ever turned nasty when I pointed out a few minor things. And that was even prefaced by “I’m not going to charge you for this”.

If I were forced to do a walkthrough, I would make it so brutal the tenant would leave early on their own. Why should I be held to that which I spot immediately, under pressure, under certain lighting and conditions? I’d get out pictures, carefully examine the place, and so on. What about the urine smell in the carpet that is not evident until you clean–but once you start doing so is unbearable? What about scratches and gouges on expensive wood floors that aren’t immediately obvious, but once you see them, you see that they’re all over the place and show an obvious carelessness, and constitute significant damage? Oh yeah, I’m the scumbag.. right.. but the tenant who managed to puncture a laminate floor in 7 different places–they’re the poor, oppressed tenant that I’m taking advantage of. Yeah, I’m what’s wrong with America. Do you have any idea how difficult it is to puncture a well made laminate floor? That’s not even in the class of accidental damage. That’s deliberate damage.

As a practical matter, I suspect that the way you deal with your tenants in the long run saves you money, because most tenants are ignorant of their rights and get intimidated by classic unethical practices like restrictive endorsements (e.g., “by cashing this check I agree…”). Your readers should know, however, that at least in states in which landlord-tenant laws are fair, that in individual cases where the tenant presses his or her rights, a court can and often does award substantial punitive statutory damages, sometimes up to double the original security deposit amount (in addition to the security deposit itself).

Tenants are always at a disadvantage in these kinds of conflicts, because the landlord is holding their money (and as you well know, a security deposit belongs to the tenant and is held in trust by the landlord), and for financial reasons they have to give in to landlords’ demands. Don’t get me wrong, I know that some tenants are out to rip you off, but you act like they all are. You may make a few extra bucks conducting yourself this way, but your priority seems to be to retain the largest amount of money possible, rather than making sure the right thing happens, and frankly, that is why so many Americans regard business practices like those you advocate as slimy and unethical. You really make good landlords look bad.

Thanks for your comments. You’re certainly welcome to run your landlording business a different way once you acquire some rentals of your own. How I handle move-outs with tenants is a tried and tested business decision, and it’s fair for to tenant, as explained in the article.

But thanks for your feedback.

Steve

As landlords, my husband and I abide by California law which requires the final walk-through. It may not be required in your state but really opens you up to litigation. Also, as one poster remarked, it doesn’t make for a strong tenant-landlord relationship.

Thanks for the vote of understanding! Sounds like you’ve “been there, done that”.

Steve

Every time, tenants argue about everything. EVERYTHING. They throw every excuse in the book at me. They say ANYTHING. I was about to undertake the policy of refusing to do it simply because I do not want the agony of dealing with a 30-60 minute argument over something that is, inherently, not subjective:

1) Was it there when you moved in?
2) Does it fall under the definition of “reasonable wear and tear”?

No, and no? Simple. You get billed. Shut up.

It seems like renters often are people who are incapable of reading or understanding leases, and beyond that, are people who are incapable of grasping a basic sense of responsibility for what they’re paying for. I think that they think I’m getting rich off of them, but they don’t see the cost of vacancy, repairs, updates, and property tax.