When trying to reduce high turnover expenses for a rental property, you may be aware of several simple measures, such as performing regular inspections and rigorous tenant screenings.
However, there is one element in particular that could determine whether you have to return your tenant's security deposit or not. It may also influence whether you can sue your renter to recover turnover costs incurred as a result of damage or neglect.
And when you consider how to cut down on turnover expenses, that one thing is probably not the first thing that comes to mind.
A move-in inspection.
Feels unsettling? Let me explain.
Yes, a move-in inspection is a prerequisite when finding new renters for a rental. However, how much time and attention do you devote to your move-in inspections? You're performing the move-in inspection incorrectly, and it could end up costing you thousands of dollars at your subsequent turnover.
Allow me to share the tragic story of how I came to know this to be true in case you believe I'm exaggerating when I say that a move-in inspection that was improperly conducted cost you thousands of dollars.
Consequences of a Subpar Move-In Inspection in Real Life
A Major portion of my rental properties is located out of state. Due to the distance, they are managed by property managers for me.
Property managers are a special breed, and in my view, it happens frequently that a good property manager eventually loses their edge, forcing me to terminate them and find a replacement.
My preferred property manager went bad a few years ago, and I had to find a new one. A tenant at one of my homes stopped paying rent and left soon after the next property manager took over. The property manager went to the rental after the tenant left to start the turnover process so we had it rented back out as soon as possible.
She realized we had a problem before even entering the property. How? Well, the majority of the tenant's possessions were left in the front yard. Based on this, one could only speculate as to what would be inside the entrance.
As it turned out, the house had significant damage, including large scuffs on the walls, ripped carpet in certain areas, damaged kitchen equipment, missing light covers, and other undesirable conditions
It may have been worse off, but the damage was enough to justify the hefty turnover cost that was headed my way.
Naturally, the property manager and I decided to keep the money from her returned security deposit. We also planned to bring a lawsuit against her to recover the additional costs.
However, we came to an abrupt halt. The tenant replied, "All of those things were like that when I moved in," to the letter informing her that her security deposit was being held back. A straightforward but impactful reaction. Because if that were the case, we wouldn't be able to keep her security deposit or sue her for the costs associated with the damage.
I immediately went searching through my records for the move-in inspection report dated when she had moved in because I knew she was lying and the home was in wonderful shape when she moved in.
The current property manager didn't have this information right away because I had changed property managers throughout her tenancy. I was anxious as I searched for the report because I knew that finding it would be my only chance to sue her for the costs I was now paying.
I held my breath till suddenly I came upon the inspection report. On my computer, the file name immediately popped out at me, and I exhaled in relief. I opened the file with the confidence that we could now confirm the tenant was telling lies to us..
But as I took a closer look at the document, my breathing stopped once more. All I saw was a simple list of rooms, with only one checkmark for a whole room if it was in "good" condition, and three of the tiniest, blurriest photographs ever made since the invention of the camera.
Uh oh. Not again!
Indeed, we lacked any credible evidence that the tenant was lying. We could have persisted in our dispute over the security deposit refund, but we were aware that if she sued us, we wouldn't be able to demonstrate that she was actually lying. In the end, we were only allowed to charge her $250 for the yard waste; the remaining sum had to be paid back to her.
I lost terribly. It was all because I lacked a thorough move-in inspection report that could have shown she was misleading and allowed us to keep her security deposit and continue forward with suing her.
If you're curious, that turnover cost me almost $13,000 in repairs, while the tenant walked away unpunished.
Move-In Inspections: The Good, the Bad, and the Ugly
Obviously, failing to conduct a move-in inspection is the biggest mistake landlords make.
Even if you are responsible to do conduct an inspection. There is a good way and a bad way to conduct the move-in inspection.
99% of investors document and photograph any flaws or damage to the property during a move-in inspection.
This is not the proper way to conduct a move-in inspection.
When existing faults or defects are documented when a renter comes into a rental property, the tenant is the only one who helps to protect. Due to evidence indicating that the defects or damages already existed when the tenant moved into the property, the owner is unable to hold the renter responsible for them after the tenant vacates the premises.
Instead of worrying about what is already broken or damaged, a landlord should focus on what is in perfect working order when the tenant gets in. In other words, the documentation must place more emphasis on the positive aspects of the property than on its flaws. Of course, the defects in the property can still be documented, but this paperwork only shields the tenant from excessive fees; it offers no protection to the owner from costs associated with problems the tenant created.
The ideal way to carry out a move-in inspection is to provide thorough details on the entire condition of the property, focusing on what is in excellent or perfect condition at the moment of move-in.
A textual documentation is useful and must be included, but images of everything in good shape are the heart of a move-in inspection. Photos can't be challenged as readily, if at all, as textual descriptions may.
Consider the following if you want to have the move-in inspection report that will give you the best opportunity of defending against excessive costs brought on by tenant damage to a rental property:
While describing the good and bad aspects of the property's state, the emphasis should be on the positive aspects rather than the negative.
Instead of literary descriptions, photographs need to be the major element of documentation.
Take as many images of the property as you can, paying more attention to the positive aspects than the negative ones.
Best Defenses Against Expensive Turnover
Undoubtedly, one of the most important initiatives to reduce high turnover costs is the move-in inspection. You can also take the following measures to reduce the costs associated with tenant turnover:
Rigorous and comprehensive tenant screening
Routine inspections throughout all tenancies
Installation of more durable materials that tenants won't be able to damage as readily
Final Thoughts
Despite your best efforts, there is no guarantee that you will be completely protected from high turnover expenses caused by careless tenants. The best you as the landlord of a rental units can do is to take as many steps as you can to reduce the costs associated with high turnover.