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I just finished sending security deposit returns back to several tenants who moved out of their units on June 1.  We had a surge of turnover in some of our college rentals as students graduated and went home for the summer.  Most of the tenants got their entire deposit back, but the guys in one 3 bedroom unit lost it all.

We are very clear in our leases about what amounts and what conditions will result in security deposit deductions.  The law gives some guidelines on this, but to avoid questions and controversy, I like to spell out more detail in the lease.  For example, an addendum to the lease contains many miscellaneous house rules, and fees are included in this addendum.  One such fee is a minimum $50 charge for the removal of any personal item after move out.  If even a clothes hanger is left behind, we charge $50.  We charge more if there is more junk to remove.

Cleaning appliances, carpets, or units in general results in an hourly labor charge against the deposit.  Any repairs that are above normal wear and tear include costs and labor, even when the property manager does the work.  His time is valuable and it’s not free.  I pay the charges that have been deducted from the deposit directly through to him.  His “hourly rate” is specified in the lease so there are no surprises.  He keeps track of his time and it’s itemized in a letter back to the tenant.

We use a move-in move-out detailed checklist to help determine how much cleaning and what repairs are charged to the tenant.  The tenant documents the status of the unit within 7 days of moving in.  Part of the checklist details the cleanliness of the unit.  This way, when they move out, we are all in agreement about how clean the apartment was when they moved in, any state of disrepair they had to inherit, and any imperfections whatsoever that they don’t want to be charged for.  When the tenant moves out, we pull out the original checklist and use it to walk the apartment before any cleaning or work is done.  The tenant is encouraged to revisit their own checklist while they are moving out so they can bring the unit back to its original condition.

Most of our tenants are very cooperative and leave their unit in excellent condition.  This is the very first time in this building that I’ve had to withhold an entire deposit.  Charges add up fast!  It doesn’t take much labor to eat up a chunk of cash, and in this case there were personal items that needed to be removed as well as some minor repairs to screens and drywall.

Some landlords are afraid to deduct charges out of the deposit.  Some deduct on a whim without documentation and the tenant challenges it.  With knowledge of the law, the move-in move-out checklist, and an itemized letter breaking down the charges that goes back to the tenant, you can eliminate stress and worry, and maximize your cash flow in this area.  Very little cash needs to come out of pocket at turnover time if you’re organized.  Consider a review of your lease and your procedures to see if there is any room to improve this aspect of your rental property business.

This week we’re hosting the Carnival of Real Estate Investing and we’ve weeded through and picked out the best entries for your perusal.  Kind of reminds me of the weeding I just did in my yard, and all the times when I was a kid that I weeded the rows in the garden, being careful to only pick the weeds and save those little baby carrott sprouts!

My top pick this week is Equity Scout, with the runners up listed in no particular order.  Enjoy!

Equity Scout analyzes a study and answers the age-old dilemma about whether or not you should use a Realtor or go the FSBO route.  In today’s tight market, investors need to be more aware than ever of the potential for lost revenue during a sale.  Read FSBO Sellers Beat Realtors in Recent Study and decide for yourself.

Wealth Building Lessons has a great writeup on Understanding Your Mortgage.  It’s a buyer’s market in many areas right now, but we still need to make sure we’re getting the loans that fit our investment goals, not just the property or what our broker recommends.

Stewart Hsu writes about How to Build a Strong Real Estate Team and makes some great points about who you need for each facet of your REI business.  Thanks Stewart!

If you’re investing in single family homes, this post about C.L.U.E. reports on Debt Free might be insightful.

The Dough Roller discusses How To Make $1 Million in a Day and Other Titles You Shouldn’t Believe.  What a great commentary on reading beneath the media hype!

On Peter Pays Paul (love that blog name) Peter Maclennan writes about the implications of today’s buyers market in A Great Market To Buy Real Estate.

If you blog and want to get involved in the Carnival, please visit the site and volunteer and/or submit your posts!  Blog on!

This week’s edition of the Carnival of Real Estate Investing is now posted at Equity Scout. There are some interesting posts to read (as usual) so please check it out, AND, if you blog please consider getting involved in the carnival!

We made the top 10 at the Carnival of Real Estate Investing this week.  Check out this week’s edition over at Robert’s Real Estate Investing blog.

May is an extremely busy time for some of my rental properties.  I have a concentration of college students at a few of my buildings and most of their leases begin June 1 or September 1.  We have thirteen units turning over on June 1.

One great strategy that we use with college students who rent on June 1 is that we end the leases on May 25.  This only works for the June 1 starting dates, not the September 1 ones.  We end the leases five days early because most of the college students go home right after final exams, which complete mid-May.  They will move out and be gone before May 25 anyway, but by requiring them to leave a bit early, we have five extra days to get all of the units turned over.  It works great!

For the students who want to renew their leases and stay another year, we just go ahead and renew and there is no gap between May 25 and June 1.  For students who need to be out of our apartment on May 25 and are moving out and into a different apartment on June 1, you may be wondering where we expect them to go for five days.  This has never been an issue.  Students don’t ask or wonder.  They inevitably end up going home for a visit or they stay with friends during this time.

I love the extra five days we get for turnover!  When you have a lot of units turning over at the same time, it’s golden to have more time to get them all cleaned and ready.  We do minor updates to small details if needed, such as new outlet plates, faucets, shiny new unit numbers on the door, light fixtures, mailboxes, and paint.

One other objection that you may wonder about is whether the students expect to prorate rent and pay for 25 days in May rather than the full month.  This is not an issue either.  When they sign their leases on June 1, my manager explains how the system works, how the dates work, how the rent payments work.  There is no proration and to my knowledge we’ve never been asked about it.

My manager has been doing a great job getting all of the upcoming thirteen units filled!  Our marketing policy is such the he actively starts inquiring and marketing units 90 days before leases end.  He’s had many of the leases renewed for over a month already and has been showing the units regularly.  As of this writing, we still have 25 days left to get the units rented and I believe we have one or two still up for grabs.  I’m quite confident he’ll fill those in the next week or so and we’ll have no vacancies at all.

The 90 day marketing strategy and the May 25 strategy are techniques that my manager learned during his training time with me.  I created an entire system for him to follow that is complete with forms, procedures, policies, and step by step instructions.  The Landlord System that I make available is built around what I do in real life.  It really works.  You can learn more about it here, and you can find a much more in-depth training package here.

Collecting last month’s rent at the beginning of a lease term is an overlooked strategy that can really save and MAKE you extra money!  More and more investors are strapped for cash flow these days and here is one more little way you can keep an eye on your bottom line.  Here’s how:

When a tenant signs a lease, have them pay the first month’s rent, the security deposit, and the last month’s rent.  Yes, this likely means they are paying the equivalent of three months of rent all at once.

Who can afford such a large lump sum, you ask?  Tenants who can truly afford to live in your unit.  Tenants that are living paycheck to paycheck, and maybe even in the negative every month, may not be able to afford your terms.  Consider it part of your rental criteria, apply it across the board, and you have another built-in tenant screening mechanism.

Now one thing that you also can do is negotiate a short payment schedule for the last month’s rent.  For example, have the tenant pay the first month’s rent and the security deposit at lease signing, and then have them pay the last month’s rent over three months in three equal payments.  This spreads it out a little for them and you also receive it early in the tenancy (it is not likely they will move out before they pay it in full).

Aside from the tenant screening benefit, there are more direct money-making benefits from doing this.  It just happened to me.

I have a tenant who signed a one year lease last June 1.  She was planning to move out at the end of May.  My property manager was being proactive and checking in with all of our June 1 tenants 90 days before the end of their leases to learn their intentions.  This tenant said that she was going to be moving out of state and may leave a little early.

Sure enough!  She’s already gone and it’s not even May yet.  She had paid April rent on April 1, and she had paid May rent last year when she moved in.  She left mid-April, giving us about 45 days of PAID time to find a new tenant.  There’s a good chance we’ll re-rent the place before June 1, which means we get to collect double rent during the overlap time.  How cool is that?

How else does collecting last month’s rent help you?  It helps when a tenant skips, or breaks their lease and moves out early, possibly without even telling you.  You may not realize they are gone until they don’t pay their rent and you go looking for them.  You’ll eventually figure out they’ve left, and you’ll still have a month of pre-paid time to re-rent their unit.

Collecting money sooner rather than later is always a good thing.  Theoretically you get to sit on one month’s rent for a whole year, collecting interest on the dollars.

Disclaimer: be sure to check your state statutes to make sure the law allows you to collect last month’s rent.

Today’s Carnival of Real Estate Investing has been published on Equity Scout.

C’mon all you real estate bloggers… let’s see one of your posts make the list next week!  Write something brilliant (or just your random thoughts will do fine ) and submit your post to the carnival.  It’s easy and we all benefit!

Today’s carnival of real estate investing has been published at our fellow REI blog called Real Real Estate Investing.  Check it out for some great reading!

I had a minor situation happen this week that could easily have been avoided. I have several units that attract college students. This results in having many lease ending dates of May 25 (with college students I cut their year long leases 5 days short - more on that another day).

My property manager is feverishly and proactively getting these units filled before they become vacancies. We have a procedure to inquire with existing tenants 90 days before the end of their lease to see if they plan to stay or move out. He’s been inquiring, and some tenants are planning to stay another year. For these, we sign a new year lease immediately and get it out of the way.

Some of the tenants don’t know if they are staying another year or not. For these, he keeps inquiring every two weeks until they know what their plans are.

Some of the tenants know already that they will be moving out. What should happen with these is the property manager should get a letter in writing that says they will be moving out and on what date. This is a conclusive declaration that they are moving and gives us full license to re-rent their apartment.

In one unit, we had the tenant say she is moving out but my manager did not get a letter from her indicating such. He proceeded to advertise, show, and ultimately rent her apartment to someone else for a June 1 lease starting date. Just after lease signing, the existing tenant called him to say that she wouldn’t be moving out after all. She’d like to stay another year. UGH!

My manager had to tell her that her place has already been rented and that she would indeed need to move out. Lost opportunity! He could have rented another one of our units to the new tenant and had the existing tenant stay. This would eliminate the potential of one more vacancy. Now he has two options: either try to get the existing tenant to move to one of our other units, or try to get the new tenant who already signed the lease to agree to move into a different unit than he wanted.

Either way the hassle factor is way up as is the risk. It could have been avoided by getting the move out in writing. If you don’t have something in writing, don’t expect it to stick.

Welcome to the April 2, 2007 edition of carnival of real estate investing! Thanks to everyone who participated this week.In keeping with the theme of our carnival, investing, I had to eliminate several posts from the running. I chose several that I thought would benefit our investor audience.My top pick this week is from Josh Dorkin. I am still laughing about it, partly because there is a lot of truth in what he says, but also because I’m a pet owner and I completely identify with his pet-isms!!!

Joshua Dorkin presents Why Pets Are Better Tenants than Children posted at Real Estate Investing For Real, saying, “Some humor for the carnival this week.” Josh, you rock! I’m still laughing at how correct you are!

And the runners up are…

Michael K. Dawson presents We Are Not a Subprime Lender! posted at The Time and Money Group. I’m citing this post because so many investors have used stated income loans for their single family home purchases, and if not, IndyMac has purchased many of their loans.

Allen Young presents Real Estate Investing Out of State posted at Living the Dream. This is a GREAT post with some very timely information! We need to remember to remain open to possibilities that we may have previously considered out of the question.

James Klobasa presents It?s Flipping Payday?.How A $63,000K Studio turns into a $114,500K chq? posted at Real Real Estate Investing Blog. James reminds us that sometimes it’s not all about the money!

John presents Real Estate Value - Market Data vs. Income posted at OhCash.com. Ever wonder how appraisales are done? John explains!

Jeff Brown presents Sez Me — Random Sunday Thoughts — The Duh Factor posted at BloodhoundBlog. Jeff is not only hilarious, but brings us several nuggets from Captain Obvious that smack us across the face.

Victor Emeli presents Strategy for High Equity Rental Properties posted at Financial Freedom Through Real Estate. Victor reminds us that the famous “2 out of the last 5″ tax exclusion potentially applies to rental properties too!

THANK YOU to everyone who submitted this week. Keep ‘em comin’!!! We’re having a bye next week for Easter, but the following week… game on boys and girls!

That concludes this edition. Submit your blog article to the next edition of carnival of real estate investing using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page. If you have a blog, please consider hosting for us. We’d love to highlight your blog!