Changing In-Tenancy Chargebacks Can Redefine Multifamily Management
With residents staying longer in multifamily and single-family rental dwellings, the need is greater than ever for property managers and owners to handle chargebacks during residency rather than waiting to garnish the security deposit when occupants move out. Say the occupants damage a garbage disposal with inappropriate waste, constantly overloading the dishwasher, or clogging the drain with hair and toys? These are maintenance tasks that must be fixed but are also resident-caused issues that the residents should pay for. If the resident doesn’t move out until years later, will the property team remember to charge them for those services? If they did, would those moved-out residents feel any pressure to pay them?
Most multifamily property teams rely on the Security Deposit Return Statement of Deposit Account or Final Account Statement process to handle resident-caused damages. Familiar and well-regulated, garnishing a resident’s Security Deposit on move-out is a reliable way to recoup losses from some damage. The problem is that this approach leaves a steady stream of resident-responsible issues unaddressed during residency, as the resident only must worry about paying for damages after they leave. These issues can build up into a heavy bill, eating up staff hours, making post-move-out turnover a costly chore, and giving residents no incentive to change irresponsible behaviors.
By handling all these charges after the resident has moved out, the property team faces a more difficult, costly, and frustrating turnover process. The residents may forget about the damage they caused, and the property management company may lose the appropriate documentation. The property management company often forgets about everything that they had to fix during the lease. Instead, an ideal best practice is to handle resident-caused damages as they occur, a process called resident chargebacks. By documenting issues in real time, then quickly reviewing and posting charges, property management companies can reduce their workloads, recoup damages efficiently, and help residents avoid such charges moving forward.
Attitude adjustment
Security Deposit Refund workflows essentially ignore the operator-resident relationship because the property team has no opportunity to help residents adjust problematic behaviors to ensure a productive occupancy. Resident chargebacks completely reverse this dynamic. By charging residents as problems occur, caused, for example, by residents forgetting to change the HVAC filter or backing a car into their garage door, operators can encourage better behavior. A resident whose irresponsible behavior causes unnecessary property damage and is charged for repairs will be less likely to repeat their mistake and will show more respect for their homes in the future.
An added benefit to this behavioral adjustment is in reducing unnecessary upkeep or repair tickets. Many times, residents will demand that their property managers fix issues that are actually the resident’s responsibility. Owners often just eat the costs rather than differentiate between tickets based on obligation. By immediately flagging and promptly billing for frivolous tickets, operators can encourage residents to handle issues that fall outside the renter’s agreement on their own. Suddenly, operators save costs on these tickets and the time and labor to sort through excess requests.
In-residence chargebacks raise NOI in multiple ways, the most obvious being by recouping damages as they occur, rather than waiting until after the resident departs. This not only guarantees a steady stream of chargebacks to pay for damages as they happen (rather than a single lump sum, which may or may not cover everything), but generally has a higher rate of reliable returns, as occupants in residence are more incentivized to pay what they owe.
Likewise, implementing chargebacks for frivolous or unnecessary maintenance tickets helps residents take care of their own needs and understand the line between their responsibilities and the property owner’s. This reduces the number of tickets coming in, creating NOI not only by removing work orders, but also by making repair and maintenance teams more efficient, as they don’t use their time handling unnecessary tasks.
Catching the strain
Reducing unnecessary maintenance tickets is just one-way resident chargebacks alleviate operational strain, reducing the hours and team cycles spent trying to recoup costs. Because in-residence chargebacks focus on early detection and real-time response, operators can avoid a heavy backlog of issues that emerge all at once after moving-out. Maintenance personnel log chargeback issues and start the internal approval process at once, so issues are handled as they arise rather than building up into an exhausting and time-consuming cascade.
One of the main challenges facing property management companies looking to implement resident chargebacks is the issue of local regulations. Most states and cities have their own rules about what a property owner can charge residents for, and how they can collect the money. Breaking these rules can lead to regulatory consequences, fines, and even litigation. For operators with properties across multiple jurisdictions, this can make a vigilant and timely approach to chargebacks challenging.
The good news is that automated property maintenance systems can avoid these problems altogether by confirming whether a chargeback is valid in a particular city. Powered by AI verification and communications technology, automated systems can essentially take all the busywork out of logging and validating chargebacks and explain to renters about potential charges. This way, property management companies can make the chargebacks process effortless, turning a laborious struggle at the end of a move-out into a seamless ongoing process.
Solely relying upon Security Deposit Refunds is simply an outdated way to approach resident-caused damage to a rental property. It’s reactive rather than proactive and puts all the pressure on property management companies to recoup damages in one stressful rush. In-tenancy chargebacks avoid these problems, and with the right automated approach, can streamline the process of recouping damages to save operator time, improve resident behaviour, and save significantly on repairs for which the resident is responsible.
