Author Topic: How do you handle security deposits?  (Read 4544 times)

Basment Dweller

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How do you handle security deposits?
« on: September 03, 2014, 01:33:37 AM »
Hi guys,

If you have a number of rental units, say 5-6, do you keep all the security deposits in an interest bearing account and leave it there, or do you put some of that money into your working capital and spend it on other things?


Kierun

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Re: How do you handle security deposits?
« Reply #1 on: September 03, 2014, 01:54:46 AM »
I keep the deposits in an interest bearing account and leave it there.  Personally, if I were to put some of that money into my working capital, I'd view it as commingling of funds and I'm not okay with doing that.

ems2014

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Re: How do you handle security deposits?
« Reply #2 on: September 03, 2014, 07:39:55 AM »
I maintain a savings account for each apartment (3), and I deposit the security deposit into the account for the duration of the tenancy. If there is damage at move out, I withdraw the amount needed for repairs from the savings account and deposit it into my account. I give the tenant an itemized list showing interest earned and any charges for repairs.

Fishingmn

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Re: How do you handle security deposits?
« Reply #3 on: September 03, 2014, 08:07:43 AM »
I have a totally separate savings account and lump all of the security deposits in there and don't touch it.

Hardly earning any interest earned and Minnesota law requires I pay 1% interest so I'm losing money on it but it is what it is.

babysteps

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Re: How do you handle security deposits?
« Reply #4 on: September 03, 2014, 08:26:20 AM »
We have a landlord account.

State regulations vary (you will want to check - your own landlord/tenant lawyer or local tenant rights organization are 2 places to check)

Where the state requires that the security deposit be segregated, many banks offer "landlord" accounts where you manage all the funds but each tenant's monies are in separate sub-accounts.  For our bank, tenants with security give us their ss# and a copy of a photo ID, we take these in and the bank sets up their sub-account on the tenant's behalf (the tenant doesn't have to be there).

In some states, any monies you collect above 1 month's rent count as security, even if in your view it is "first and last month's rent" or "pet deposit".

Related topic - taking pictures on move-in day and move-out day can help settle differences of opinion on damage (vs. normal wear & tear) to a unit.

johnhenry

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Re: How do you handle security deposits?
« Reply #5 on: September 03, 2014, 09:41:11 AM »
I keep my "rental business" accounts (checking and savings) with a local credit union.  I just keep the security deposits in the savings account, which, together with the checking account, is the "working capital" or operating account for the business.

The security deposits are indeed liabilities, and they are recorded that way in the accounting software to make it clear what the assets/liabilities of the business are.  But I don't think it's worth the extra effort of maintaining yet another account for the security deposits.... especially not one for each property.

My credit union does pay higher rates on savings balances over $10K. To me it makes sense to keep the security deposits in the pot with the rest of the working capital to get the higher interest.

Basment Dweller

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Re: How do you handle security deposits?
« Reply #6 on: September 03, 2014, 10:37:45 AM »
To me it makes sense to keep the security deposits in the pot with the rest of the working capital to get the higher interest.

Good points from all thanks, this is what I had in mind ^

Instead of managing lots of different acocunts, I'll use a fixed deposit account for the deposits, emergency funds, surplus and any extra cash needed for repairs and vacancies. I'll make sure that the account doesn't dip below the total of all the rental deposits.

Gin1984

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Re: How do you handle security deposits?
« Reply #7 on: September 03, 2014, 10:51:32 AM »
To me it makes sense to keep the security deposits in the pot with the rest of the working capital to get the higher interest.

Good points from all thanks, this is what I had in mind ^

Instead of managing lots of different acocunts, I'll use a fixed deposit account for the deposits, emergency funds, surplus and any extra cash needed for repairs and vacancies. I'll make sure that the account doesn't dip below the total of all the rental deposits.
You need to check your state laws.  That would not be legal in my state.

Basment Dweller

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Re: How do you handle security deposits?
« Reply #8 on: September 03, 2014, 11:07:14 AM »
I live in South Africa brother, it's the wild west out here...unless the lease stipulates otherwise, us landlords deposit the cash in investment accounts and skim the interest for ourselves at the end of the lease.

mooreprop

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Re: How do you handle security deposits?
« Reply #9 on: September 03, 2014, 11:39:24 AM »
Definitely check your State laws on this.  It varies. 

johnhenry

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Re: How do you handle security deposits?
« Reply #10 on: September 03, 2014, 02:42:11 PM »
To me it makes sense to keep the security deposits in the pot with the rest of the working capital to get the higher interest.

Good points from all thanks, this is what I had in mind ^

Instead of managing lots of different acocunts, I'll use a fixed deposit account for the deposits, emergency funds, surplus and any extra cash needed for repairs and vacancies. I'll make sure that the account doesn't dip below the total of all the rental deposits.
You need to check your state laws.  That would not be legal in my state.

Good advice.  I just called to create a sub-account to keep the security deposits in a separate interest-bearing account.

Mr Mark

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Re: How do you handle security deposits?
« Reply #11 on: September 03, 2014, 05:02:12 PM »
I live in South Africa brother, it's the wild west out here...unless the lease stipulates otherwise, us landlords deposit the cash in investment accounts and skim the interest for ourselves at the end of the lease.

+1

Whats the ratio price to rent in where you are in South africa?

Basment Dweller

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Re: How do you handle security deposits?
« Reply #12 on: September 04, 2014, 12:25:56 AM »
Definitely check your State laws on this.  It varies.

I checked SA law and yes I have to keep deposits in an interest bearing account so will have to start doing this.

Quote
Whats the ratio price to rent in where you are in South africa
?

Depends on what demographic you rent to, slumlords do pretty well here. High end housing doesn't yield good rental returns in general.

arebelspy

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Re: How do you handle security deposits?
« Reply #13 on: September 04, 2014, 04:15:52 PM »
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If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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