The concept of normal wear and tear on a rental property can be a bit confusing at times. Since there is no clear-cut definition of what it entails, figuring out what is and isn’t “normal” can sometimes be difficult. Read on to find out everything you need to know.
What Is Wear and Tear?
Normal wear and tear is the reasonable depreciation in quality which can be expected in an inhabited real estate rental property. With daily usage and tenant turnover, the quality of many facilities and fixtures will inevitably degrade over time. All durable items have a useful life, after all, and they won’t be in top condition forever.
It is important, however, to distinguish wear and tear from damage. Damage on a rental property is the result of negligence or misuse of the living space by the tenants. This would include more severe instances of malfunction, such as broken windows, major stains on carpeting, or malfunctioning appliances. In general, any action by the tenant which leads to a reduction in value or usefulness of a fixture would be considered rental property damage. The way that damage should be dealt with is entirely different from wear and tear.
What Is Considered Normal Wear and Tear on a Rental Property?
Normal wear and tear on an investment property may sometimes be difficult to discern. Since there are no clear guidelines, one must often refer to common sense. Paint which is fading or peeling would, of course, be considered wear and tear. This is because the fading of the paint is a consequence of time, rather than negligence from the tenants.
Another example would be the dulling of hardwood floors. This would be a function of sun damage over the course of several years, rather than misuse. Discoloration of tiles would also be considered wear and tear since this inevitably happens with daily use over the course of years.
Most of the time, normal wear and tear on a rental property should be evaluated on a case-by-case basis. If there is no misuse or negligence by the tenants, then the deterioration in quality is simply wear and tear.
What Can You Do About Normal Wear and Tear?
In almost all cases, it is the responsibility of the property owner to cover the costs of regular maintenance. As rental property ages, reductions in quality are inevitable. In order to stay competitive and ensure that renters would be interested in your property, regular maintenance is critical.
When calculating your cash flow, it is, therefore, crucial that landlords and property owners budget for maintenance work on a regular basis. One of the most common ways landlords budget for this is to set aside 2%-3% of the property value for annual rental property maintenance. Therefore, if your investment property is valued at 300,000 USD, it would be wise to set aside around 6,000 – 9,000 USD annually for repairs.
This repair budget, however, should be specific to wear and tear, rather than damage. This would go towards things like a leaking roof, upgrading insulation, or other items within the realm of landlord responsibilities. Damage, on the other hand, should be dealt with differently.
What Can You Do About Damage?
In the circumstance that damage is caused by negligence or misuse by the tenants, holding their security deposit might be the way to go. For this exact reason, landlords and real estate investors should be wary that all lease agreements include a security deposit, as well as a detailed explanation of when it would come into play.
Whether you are able to use the security deposit for specific damage depends on your local rental laws. In a majority of cases, you will need to prove that the damage is beyond regular wear and tear, and instead caused by the tenants. Be sure to look into your real estate market’s specific landlord tenant laws, since regulations will differ by state.
In order to protect yourself legally, it is wise that you take pictures of the rental property’s condition before the tenants move in. This has a twofold function: foremost, it would allow you to visualize the difference in condition before and after the tenants’ stay, allowing you to track the difference. Furthermore, these images could be used to support your case, if the matter ever requires litigation.
Along the same lines, rental inspections could be very helpful in identifying problem areas. A licensed home inspector will have the needed experience to tell you whether a particular malfunction is the result of damage or simply wear and tear.
Another wise choice could be to invest in rental property insurance. There is a multitude of options out there that will offer different perks. But you should know that insurance typically won’t cover normal wear and tear on a rental property, but rather only damages inflicted by tenants. Considering the huge added cost that damage to real estate property may impose on your business, protecting yourself with insurance is always a good idea to consider.
How Can You Prevent Damages in the First Place?
There are a number of things that landlords can do in order to ensure that damage to the rental property is not extensive.
Foremost, it is crucial that you properly screen your tenants. Make sure that this process includes contact information of former landlords. By contacting them directly, you’ll have the ability to know whether they have previously caused undue damage to property.
Furthermore, make sure that your tenants are fully informed of the function of their security deposit, and show them the conditions in the rental agreement which pertain to this matter. Returning a security deposit is contingent on them fulfilling their tenant responsibilities, and leaving the place undamaged. By understanding the ins and outs of the process, it will be much less likely that tenants raise an issue if ever you need to utilize their security deposit.
The Bottom Line
Owning a rental property inevitably means you’ll have to deal with wear and tear, and most likely damage as well. Be sure that you’ve got yourself covered on both fronts. For wear and tear, make sure you’re budgeting appropriately and inspecting the rental property before tenants move in. With regards to damage, a security deposit and rental insurance should usually keep you covered.