Author Topic: Where do you put your tenant's security deposit?  (Read 1283 times)

MJseast

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Where do you put your tenant's security deposit?
« on: April 17, 2018, 10:13:16 AM »
I am renting my house for at least 18 months, possibly longer. I have received the security deposit and it's just sitting in my saving's account (typical low interest bank account). I was thinking it may be better to put it in a CD so I could at least earn some interest on it, though the amount of interest may not be worth dealing with opening an account?

I've never used CDs before so I'm not real clear on what they entail. From my reading of some online CD FAQs (Barclays, for example), I see that if you try to withdraw early you get a penalty of 90 days interest. I assume this means that as long as I keep it in the CD for at least 90 days I won't lose any money from the initial contribution?

What do you do with your tenant's security deposit? If CDs, any in particular you recommend?

Thank you!

braje

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Re: Where do you put your tenant's security deposit?
« Reply #1 on: April 17, 2018, 11:43:32 AM »
You loss the 90 days interest if you don't hold til maturity.  Also, check your state law. I thought any interest earned would actually be the tenants.

MJseast

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Re: Where do you put your tenant's security deposit?
« Reply #2 on: April 17, 2018, 01:07:17 PM »
In my state (WA), the landlord gets the interest unless they made a different agreement with the tenant. Thanks!

Neo

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Re: Where do you put your tenant's security deposit?
« Reply #3 on: April 17, 2018, 09:35:38 PM »
We just keep the deposits in our general operations account. Just be sure not to count the deposit as income on taxes. You will either have to return it or use it for repairs.

MaikoTsumi

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Re: Where do you put your tenant's security deposit?
« Reply #4 on: April 18, 2018, 09:05:59 AM »
There's no interest requirement in my state, so I just throw it in regular savings. 

tralfamadorian

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Re: Where do you put your tenant's security deposit?
« Reply #5 on: April 18, 2018, 01:07:19 PM »
I place all security deposits in a separate savings account so they are not co-mingled with other property funds. There are no interest requirements in my state either.

clutchy

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Re: Where do you put your tenant's security deposit?
« Reply #6 on: April 18, 2018, 01:23:12 PM »
We just keep the deposits in our general operations account. Just be sure not to count the deposit as income on taxes. You will either have to return it or use it for repairs.

you can count it as income and then deduct it from income when repaid also. 


to OP; I just keep a big slush savings fund for emergencies and track everything in excel.  Cash is just cash; the income statement is where the action is. 

I would never invest or lockup in any way a deposit.

SeaWA

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Re: Where do you put your tenant's security deposit?
« Reply #7 on: April 19, 2018, 10:32:46 AM »
Good question. I'm a novice landlord, and I'm interested in what other people recommend as best practices.

I agree with the poster above that the #1 thing is to keep a separate account for your rental.

I would strongly recommend that you not put that check in a personal checking or savings account. As your rental business gets more complicated (deposits, repairs, depreciation, taxes, insurance, additional rentals) you will want to be very clear about what money belongs to the rental account and what money belongs to you.

I live in Washington State as well, so I get to keep any earned interest or appreciation. I put the rental deposit and last month of rent into a separate taxable investment account and buy VTI. I am not worried about liquidity for that account. Should the tenant leave early I can cover the deposit and last month. Should the tenant not leave early I will get replacement deposit and last month from the next tenant. I want the rental property to make money through (possible) appreciation, cash flow and investment of cash. In my HCOL city the deposit & last month is ~$7,000. That is more than I want to leave in an unproductive account.

My goal is to use the property and cash to make more money, then I'll buy another rental property.

I'm interested in feedback as well.

FatFI2025

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Re: Where do you put your tenant's security deposit?
« Reply #8 on: April 22, 2018, 08:39:57 AM »
We just keep the deposits in our general operations account. Just be sure not to count the deposit as income on taxes. You will either have to return it or use it for repairs.

you can count it as income and then deduct it from income when repaid also. 


If we're talking about US RE, I wouldn't recommend doing this since it's counter to IRS treatment requirements. Recommend reviewing https://www.irs.gov/taxtopics/tc414.

My property managers keep the deposits now, but when I self-managed, I kept deposits in a separate checking account. It's a good idea to put it in one of those high yield savings accounts if you get to keep the interest. Definitely do not put the money in CDs since you might want to apply it earlier than 12/18 months if you have tenants vacate early...happens all the time.
« Last Edit: April 22, 2018, 08:42:00 AM by RyaninLA »

Dicey

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Re: Where do you put your tenant's security deposit?
« Reply #9 on: April 22, 2018, 10:30:55 PM »
We keep a separate account for our rentals at the bank that holds the majority of our loans. We keep the security deposits and our contingency funds (typically, emergency, scheduled repairs, and maintenance) there. We don't worry about interest rates, because we have lots of other soldiers working diligently elsewhere. Last year we had a lot of repairs and it was bliss not having to worry about where the money was going to come from.