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​Rent, Pre-Paid Rents, Security Deposit and Other Fees

​By Pierre Mouchette | Real Property Experts LLC

How you run your rental business, will impact if the business is successful, or due to fail.  The successful investor will have an operation manual which will qualify their operating procedures and help to keep them out of trouble by making autonomous decisions. 

Some of the most bothersome questions are rent, security deposit, pre-paid rents, and or other fees that you may want to charge the tenant but are unsure if you can - rent wise or legally.  The following insight may help you in making these determinations.
 
Rent - the amount that you ask for rent is dictated by what your expenses are, for instance, the monthly mortgage, tax, and insurance payment (PITI), overhead and profit.  You should also contribute to a reserve (repair and capital improvements) account.  The total of the foregoing should be congruent with your competition.

First month rent (pre-paid) - the lease should state a yearly amount (the term of the lease), of which you for the convenience of the tenant will collect in twelve equal payments.  This payment should be made by Bank Check (alleviates the possibility of a bad check) and should be presented to you before the tenant occupies the property.

Security deposit - the security deposit should be the maximum amount allowed by law in your jurisdiction, but no less than one month’s rent.  This is preferential to collecting the last month’s rent since the amount of damage that can be done most likely will exceed a month’s rent.  Additionally, it keeps the transaction straight-forward (no complicated mess).   Here again, this payment should be made by Bank Check, should be presented to you before the tenant occupies the property.

The security deposit should be held in a separate account and never commingled with your other funds.  The lease should state that the security deposit (with interest if required by state statue), will be refunded back to the tenant in-full under the following conditions:
  • The tenant abides by all terms of the lease.
  • That the tenant has caused no damages to the property (normal wear-and-tear excluded).
The landlord should schedule a walk-through with the tenant after they vacate, and the property is broom clean.  The landlord should:
  • Discuss any damages, make note of same, and photograph it.
  • Obtain a forwarding address for the former tenant.
  • Change the locks after the walk-through.
  • Send the former tenant an itemized list of damages if any.
  • Itemize credits (if law requires interest be paid it is part of the credit), and debits with the returned balance security check.
 
Notes: 
  1. Never give the keys to the tenant without first collecting your first month’s rent, and security deposit!

  2. If your tenant does not give you the last month’s rent with an excuse such as “I need the money to move, besides, you have my security deposit,” the only thing that you can do is to handle the situation as you would anyone who does not pay their rent.  Send them a notice of non-payment (XX-day notice to pay or quit).  Then, if they do not pay after the notice period has expired, you can file an eviction case (the change of getting them through the courts is slim-to-none, but no one wants an eviction record), this might induce them to pay the rent.  If not, and they wait it out, and then move within thirty-days, you could still sue them for unpaid rent, and then use the security deposit for damages to the property, unpaid rent, eviction costs, and send them a bill for any balance.  If after receiving the final bill they decide not to pay, you can file a small claims suit, and get a judgement for the balance.  If they become a hold-over, you have already stared the proper actions.

RPE Category (Digital Digest)
REAL ESTATE | RESIDENTIAL SMALL ASSET INVESTOR | Landlord | Tenant
PUBLISHED:
March 22, 2021

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