Rental Property Normal Wear & Tear Defined

Today I'm going to take you on a Final Walkthrough Inspection to determine what we can, and can not, charge a tenant's security deposit. Many of you know I do property management in Philadelphia and this is a big part of doing property management.

Most of this information is probably inline with your own state and city laws; but double check. Also, remember I'm not an attorney or an accountant.

I am a real estate broker, a property investor and I do property management in Philadelphia (I own Grow Property Management); so speak to those individuals if you need guidance.

If you rather read; then watch, here is the transcript:

Today I'm going to take you on a final Walkthrough Inspection to determine what we can and can not charge a tenant's security deposit. Many of you know I do property management in Philadelphia and this is a big part of doing property management.

Most of this information is probably in line with your own state and city laws, but double check. Also, remember I'm not an attorney or an accountant.

I am a real estate broker, a property investor and I do property management in Philadelphia (I own Grow Property Management); so speak to those individuals if you need guidance.

If you rather read; than watch, here is the transcript:

Good morning, this is Joe White. If you watch the podcast with any regularity you know I do property management in Philadelphia and one thing that a property manager does is a final walk-through inspection when the tenant moves out now.

Today is July 1st and happy July 4th to everybody watching. This move out inspection ended on a pretty nice note. Here let me see if you guys can see the sky - rainy overcast day but we could have worse views and over here we're getting some better views of Philadelphia. So kind of ended on a positive note; however when we get into the property I don't know if you can see this red staining. I believe this red staining is painted and that the tenants had some kind of mishap because it goes through the entire house. So when we open up this deck door you're going to see right away that whatever the tenants had going on, they got it into the home and it actually goes through the entire house.

I believe it must be painted and I don't know what the result of this is going to end up being. I don't know how we're going to get the paint off these floors because, to be honest, these floors are not the highest quality. You can see it's coming right out, looks like some kind of rust. Then maybe they dragged flower pots or something out. Maybe it'll clean up quickly. So basically what I want to talk about is what is normal wear and tear and what is excessive wear and tear.

So we're not allowed to charge the tenant for anything that would be normal wear and tear. What normally would occur when you use a property. So if you're a tenant that's staying there for a year, what's the normal wear and tear a tenant would put on a home in a year? If the tenant stays for three years, what is the normal wear and tear that the tenant would put for three years?

Now I define noble wear and tear and it is subject to the individual's opinion. I mean it isn’t if you're standing in front of a real estate judge, it's going to be subject to his opinion. But I define normal wear and tears. We allow nail holes if someone were to hang art. I'm pretty lenient in stairwells. So right now I'm in a stairwell so with smudges that would be on a wall. Let's see if I can pull some smudges up. Here we have some smudges on the wall. I would probably define this as normal wear and tear. So since this would be normal wear and tear I wouldn't tend to charge the tenants for that now if these were smudges around a bedroom wall.

I might see it a little bit differently; but these, to me, would be normal wear and tear so we can't charge the tenant for this since I'm defining it as normal wear and tear, but the landlord will be covered because I don't know if you can see down here we actually have some. This is not normal wear and tear, this is excessive wear and tear. So when I have to pay a contractor to come in here to fix these walls to make this property new again and get a tenant ready, a contractor is really expensive to get in your door. And they're expensive to open up a can of paint and to stir the paint, and to get ready. But, to be honest, by the time they get done fixing this situation, my having to pay them to touch up this situation, you're really talking about pennies.

So if the tenants left this property in near pristine condition with just some mild smudges here and there, then I would recommend to the landlord that out of their pocket they should pay to have the walls touched up. That is not a tenant expense. We can't charge the tenant for that. So it's kind of good news for the owners and the fact that we do get to charge the tenants for the excessive wear and tear, because then it's going to help to cover the expenses of just a quick touch up here and there.

So let's walk through the property now. In Philadelphia probably in a lot of areas we have 30 days to get the tenant their security deposit back. And we have to give them a final disposition letter, and that final disposition letter is to be extremely detailed so we can't just tell the tenant we're keeping your security deposit or keeping $500 of your security deposit. We have to tell them specifically what we have to say, that, we're keeping $225 to have the property cleaned, and even better would be if you had photos to support that. So we do take photos. We have property management software and we take photos as we go and that also helps when we hand these photos over to the attempts. We do so as a quash so these photos come in. It's just a collage of their filth and few tenants argue at that point when we send this over to them, and again it's better than writing, a picture is worth a thousand words. So we have 30 days to get them the final disposition letter and we have to outline exactly what we're charging them for. Now we don't have to charge them the actual cost. We have to charge them a reasonable cost. So how much would it cost reasonably for us to have this property professionally cleaned which it needs and we're allowed to charge that.

Now if you as the landlord decide I want to clean the property myself or I have a tenant that wants to move in and they don't care they're just so anxious to get in there, they don't care if it's clean or not and they just tell you they don't bother cleaning it, we just want it today. Well you don't have to get it professionally cleaned and you still get the compensation from the exiting tenant as you deserve because they devalued your property. The same thing if the tenants were to damage your 200 year old oak flooring with beautiful mahogany trim. If they somehow put a scratch in that you need to be compensated for that they devalued your property now you might not want to go ahead and fix these scratches. It might just be too near impossible to fix 200 year old oak flooring that has scratches in it, and in that scenario, you would probably tend to keep the money and your force is still going to look great, just that much less great than this. Another thing is sitting here let me pull this up.

Hopefully, you guys can see how filthy this fan is. The tenants want this property and that's a little bit disrespectful. That's certainly not the way I would leave the property. It's not even a way I would have left the property when I was in college, it looks like they must have hung some lights all the way around, and in peeling the lights off they ripped the paint right off of the walls. So now you know their behavior and we're gonna remember this is a new property when we gave it. Their behavior is fairly disrespectful they certainly didn't care for this property. That doesn't mean we get to charge them for being jerks. We don't get to punish them with the security deposit, so all we can charge them for say this the filthy fan that's here is the reasonable cost to clean. So if the tenants already leave a bag of garbage in the basement as these students did and things of that nature, we can't charge them for being jerks. We can't turn to them for being disrespectful.

We can only charge them the cost of what it will cost us to have that bag of garbage taken out of the curb.

All right let's walk through and take a look. Now we're also not allowed to charge the tenants for any replacement cost.

So, if they damage our floor, an example as we're gonna see down here in the basement, we can't charge them to replace the floor before. What we can charge them for is the cost of the flooring minus depreciation. Let's pull up this floor here. What is the average life expectancy of this flooring, and then we would divide that by the value of the flooring. We divide that by the life expectancy and then we would charge the tenant for that. So apparently what they did here is they must have been using the fridge, letting the water drip down for some reason, and water damaged the floor. So we're not gonna be able to charge these tenants for the full flooring repair. I'm not really sure what the resolution on that is, but we would be able to charge them for the value of the floor minus the depreciation. So those are just some thoughts that want to leave you with and I guess I'll end it there and happy real estate investing!

Author:

Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

View all posts by Joe White
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