How do you prevent co-mingling of funds?
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Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
1y@Bob Asad at our bank, we have an escrow account for security deposits, it is set up with sub-accounts for each tenant with their security deposit amount and their SSN. This is a FREE service provided by the bank, and we have used this account for about 15 years or so.
24 Replies
- San Diego, CA · Member since 2024 · 88 posts · 67 votes1y
Hey @Bob Asad, that’s a great question about co-mingling. One thing I’ve picked up from years of managing rentals in San Diego is that organization is everything.. If you’re putting last-month rent and secuity deposits together in a separate savings account, you’re on the right track. My friend in Austin was telling me how he once lost track of funds because he used only one main bank account.. that got messy real fast.
According to something I read in Forbes, many banks let you label accounts in a more flexible way. BoA is fine for this sort of setup.. but consider a local credit union in San Diego for lower fees and simpler sub-accounts from what I’ve heard. Curiosity got me.. does anyone else have a favorite strategy for keeping deposits crystal-clear?
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Bob Asad:
If I have 2 rental properties and charging 1st, last, and security; can I take the last and security for both places (combined) and put them into a Bank of America savings account?
In other words, I already have a checking and savings with BoA, but I would create a 2nd savings account (within my regular account) and put all the rental properties last months and security into that account (combined).
Is this the correct way to prevent co-mingling of funds, or what would you recommend?
Are you concerned about co-mingling of funds for asset protection or for some other reason?
My opinion is that an umbrella policy will provide easier and more comprehensive asset protection.
With 2 rentals, i would keep it as simple as i could and one bank account is less complex than 2. I would use quickbooks to perform bookkeeping for tax purposes. I am a fan of KISS in most things and this is not an exception.
Good luck
- 1yBob AsadInvestor · West Palm Beach FL · Member since 2024 · 66 posts · 25 votesOP
So I read that you can keep the last month's rent in your own account because it doesn't need to be separated; however, security deposits cannot be mingled with the landlord's other accounts or business funds.
If that's the case (in Florida), does anyone know if you have 2 SFH, then do you need two separate savings accounts for each tenant's security deposit or can you combine them?
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes1y
@Bob Asad at our bank, we have an escrow account for security deposits, it is set up with sub-accounts for each tenant with their security deposit amount and their SSN. This is a FREE service provided by the bank, and we have used this account for about 15 years or so.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Bob Asad:
So I read that you can keep the last month's rent in your own account because it doesn't need to be separated; however, security deposits cannot be mingled with the landlord's other accounts or business funds.
If that's the case (in Florida), does anyone know if you have 2 SFH, then do you need two separate savings accounts for each tenant's security deposit or can you combine them?
before I had a PM I have one account and use quickbooks and just classify each tenants deposit as a class. It was a savings account that had not ATM card etc.
Also reality is the only time you will get nailed for not managing deposits properly is if you use that money. Be smart.
7e investments53 Reviews - 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesIn my state i have no such requirement on security deposits but i question the feasibility of doing this as well as how will anyone know as long as you have the means to pay the tenant their deposit when they move out.
Quote from @Bob Asad:
So I read that you can keep the last month's rent in your own account because it doesn't need to be separated; however, security deposits cannot be mingled with the landlord's other accounts or business funds.
If that's the case (in Florida), does anyone know if you have 2 SFH, then do you need two separate savings accounts for each tenant's security deposit or can you combine them?
most banks charge for low balance accounts. If i have only a single unit security deposit in the account, it will likely get a service charge. In addition, 100 units would necessitate 100 accounts. For these reasons i am confident you do not need an account per unit as having that requirement would be crazy complicated (the opposite if kiss).
in addition, how will anyone know that you are not following the law? Taxes are private, 1099 are private. I suspect it would require a court order to be able to show that you have not followed this law assuming that you have the money to pay the tenant their deposit at move out.
for me, i would likely ignore this law. However, if that is undesired i would create a single account to hold all deposits. I would still use quickbooks to track the finances in that account snd all rental associated finances (we use it to track are personal finances also).
by the way it is worth the cost of paying someone good with quickbooks to do the initial setup. We did not do this and still encounter less than ideal setup the result of our initial setup many years ago. Bookkeepers are fairly cheap, even good ones and should be able to setup for 2 units in a couple/few hours.
good luck - 1yBob AsadInvestor · West Palm Beach FL · Member since 2024 · 66 posts · 25 votesOP
Quote from @Dan H.:
In my state i have no such requirement on security deposits but i question the feasibility of doing this as well as how will anyone know as long as you have the means to pay the tenant their deposit when they move out.Quote from @Bob Asad:
So I read that you can keep the last month's rent in your own account because it doesn't need to be separated; however, security deposits cannot be mingled with the landlord's other accounts or business funds.
If that's the case (in Florida), does anyone know if you have 2 SFH, then do you need two separate savings accounts for each tenant's security deposit or can you combine them?
most banks charge for low balance accounts. If i have only a single unit security deposit in the account, it will likely get a service charge. In addition, 100 units would necessitate 100 accounts. For these reasons i am confident you do not need an account per unit as having that requirement would be crazy complicated (the opposite if kiss).
in addition, how will anyone know that you are not following the law? Taxes are private, 1099 are private. I suspect it would require a court order to be able to show that you have not followed this law assuming that you have the money to pay the tenant their deposit at move out.
for me, i would likely ignore this law. However, if that is undesired i would create a single account to hold all deposits. I would still use quickbooks to track the finances in that account snd all rental associated finances (we use it to track are personal finances also).
by the way it is worth the cost of paying someone good with quickbooks to do the initial setup. We did not do this and still encounter less than ideal setup the result of our initial setup many years ago. Bookkeepers are fairly cheap, even good ones and should be able to setup for 2 units in a couple/few hours.
good luckThat's a good point and along the lines of what I was thinking. If each tenant pays you a security deposit (ex. $2,200 and $1,800), couldn't you just put the $4k into a seperate bank of america checking account and not touch it?
Then when the tenants moves out, you can assess if there's any damages or cleaning. Normally, you would charge a cleaning fee (ex. $250), then refund them back the remaining.I don't understand why some people say you need a seperate account for every tenant, that's a bit ridiculous especially since banks normally require min balances, so you'll end up owing thousands to the bank everytime you pay back the tenant's security deposit.
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Dan H. How would an umbrella policy protect against a security deposit related claim? If the money is not held according to local landlord tenant law and/or was was spent (either intentionally or unintentionally), that act would be treated as an exclusion no different than under any other insurance policy. I have yet to come across a policy that covered for fraud or illegal activities.
@Chris Seveney is correct, security deposit claims only arise if the funds are not returned. I would venture to say very few landlords correctly hold their deposits based on local landlord/tenant law but as long as the money doesn't walk away and is not wrongly withheld from tenants its highly unlikely wrongfully storing the funds will become problematic. By no means am I suggesting the funds should not be held correctly but there are other areas a landlord should focus their attention if they are concerned about tenant related liability.
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Stuart Udis:
@Dan H. How would an umbrella policy protect against a security deposit related claim? If the money is not held according to local landlord tenant law and/or was was spent (either intentionally or unintentionally), that act would be treated as an exclusion no different than under any other insurance policy. I have yet to come across a policy that covered for fraud or illegal activities.
@Chris Seveney is correct, security deposit claims only arise if the funds are not returned. I would venture to say very few landlords correctly hold their deposits based on local landlord/tenant law but as long as the money doesn't walk away and is not wrongly withheld from tenants its highly unlikely wrongfully storing the funds will become problematic. By no means am I suggesting the funds should not be held correctly but there are other areas a landlord should focus their attention if they are concerned about tenant related liability.
I proposed the question if the separation of funds was for asset protection. It was a subsequent post in response to my question that OP made clear it was because the state required deposits to be held separate. California does not have a law requiring deposits to be held separately (neither did Alabama when i had Alabama properties) and it seems like a significant hassle to address a virtually never occurring event (not having money to return deposit to the tenant).
If the separation of funds was for asset protection (in this case there was another reason), it is my belief that an umbrella policy is easier than trying to maintain separation of assets especially when the property has been purchased with individual’s money and financing. Again KISS principle. I also like having an insurance company on my side in any dispute.
best wishes - Member since 2020 · 351 posts · 329 votes1y
I don't know if I would trust me on this as a newbie. I keep my security deposits in separate recurring 6mo CDs. It's set up to roll over when the lease expires. This prevents me from accidentally spending the money or thinking it is mine. If for some reason I need to return security deposit at a different time I'll either take the 3mo interest from their security deposit, or I'll do a trade from my reserves. The 4% isn't much, but it's better than nothing and it means my security deposits increases with rent each year. I would do treasuries rather than CDs for liquidity and the slightly better yield, however I believe I have to keep it in a bank.
- Rental Property Investor · Member since 2018 · 826 posts · 809 votes1y
@Bob Asad I have rentals in a city that requires separate accounts for deposits. I keep all deposits from separate properties in one single account.
Open the account under same bank as your operating account and most banks will waive min balance requirements. Your bank should also be able to link the accounts to one login so you can manage multiple accounts from single interface.
- 1yBonnie LowPro MemberLender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
It seems like there's some confusion between the asset protection one would want to achieve by ensuring that personal and business funds are never commingled vs. the BMP of separating deposits to ensure they are available to the tenant when due. With the former question, if you are trying to achieve asset protection it's imperative that you don't commingle personal and business funds. Talk to an attorney about this because there is so much more to asset protection than just that. However, I think your question was more about the latter: making sure the security deposit is never touched until it's due back to the renter. I've been religious about this because I know how easy it is to lose track of what you're spending when it's all going into and out of a single pot. I use Baselane for my banking and bookkeeping platform and I really love how easy it is to set up accounts and sub-accounts for just such purposes. For example, I have an account set up for each of my rental properties. This is my main account for each one. But I also have sub-accounts set up for the security deposit and to set aside funds for CapEx. All of my day-to-day expenses and the bulk of the revenue flow through the main account. The security deposit goes into its own account and stays there, untouched. And a percentage of the revenue gets auto-directed to the CapEx subaccount. It's very easy to keep it all straight.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes1y
There seems to be a mis-understanding about what ESCROW accounts are. There are NO minimium balances. When the tenant moves out and the funds are distributed either to the tenant or the landlord for damages, then the subaccount for that specific tenant has a zero balance and that subaccount is closed. Each subaccount is for a seperate tenant with THEIR unique SSN. Its not my account, its not my SSN and its not my money up and until the end of that tenants occupancy and the funds revert to them or to the landlord for damages. We also have a different ESCROW account that holds the deposits for buyers purchasing our listed properties. Those funds are not mine until there is a sales settlment, or default or refund to the buyer. Its not my money. And all the tenants' security deposits and all the buyers'Earnest Money Deposits don't need my asset protection, as they are not my funds, and are certainly not covered by any of our Umbrella Insurance Policies.
- 1yBob AsadInvestor · West Palm Beach FL · Member since 2024 · 66 posts · 25 votesOP
Quote from @David Krulac:
There seems to be a mis-understanding about what ESCROW accounts are. There are NO minimium balances. When the tenant moves out and the funds are distributed either to the tenant or the landlord for damages, then the subaccount for that specific tenant has a zero balance and that subaccount is closed. Each subaccount is for a seperate tenant with THEIR unique SSN. Its not my account, its not my SSN and its not my money up and until the end of that tenants occupancy and the funds revert to them or to the landlord for damages. We also have a different ESCROW account that holds the deposits for buyers purchasing our listed properties. Those funds are not mine until there is a sales settlment, or default or refund to the buyer. Its not my money. And all the tenants' security deposits and all the buyers'Earnest Money Deposits don't need my asset protection, as they are not my funds, and are certainly not covered by any of our Umbrella Insurance Policies.
I was thinking of combining all tenants security deposits into one Bank of America checking account, is this not the right way to go?
- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes1yFlorida's treatment of security deposits varies from many states in that it is required that a security deposit be kept in its own account in a Florida bank. The account does not have to be an interest bearing account but if it is, then a portion of that interest earned has to be returned to the tenant annually. (this is how it was 3 years ago when we had Florida property). So, based on that, you need to keep the security deposits separate from your own funds and also from each other. It's possible the laws have recently changed so reference the Florida landlord/tenant handbook. There's also disclosures in there that have to be included in your lease paperwork. Get it right. Avoid future trouble.
- 1ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votes
As an Accountant and CFO with two decades of experience in real estate management, I’ve observed that landlords often handle things differently. However, it is perfectly acceptable to combine all tenants’ security deposits into a single account. Some banks even offer features that allow account holders to manage individual tenant information within one account, making the process more convenient. About 15 years ago, Chase provided such a service, though I am unsure if they still offer it today. Essentially, it was one account with the bank tracking individual tenant details on your behalf.
That said, it’s critical to ensure your financial records remain accurate by reconciling the account on a monthly basis.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes1y
I like the individual sub account method escrow account, but there are multiple different ways to hold security deposits and multiple laws in different states.
- 1yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I'm sure some locations have specific rules, but I just put everything into one account. The lease clearly states how much I have from the deposit and where I have rentals (BC), you have to return it with interest. There is an online calculator that tells you how much interest you have to give them (no it doesn't matter if you actually made that amount of interest or not on the deposit).
- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes1y
This is from the State of Florida's website and here's the answer to the op's question.
Title VI
CIVIL PRACTICE AND PROCEDUREChapter 83
LANDLORD AND TENANTView Entire Chapter 83.49 Deposit money or advance rent; duty of landlord and tenant.—(1) Whenever money is deposited or advanced by a tenant on a rental agreement as security for performance of the rental agreement or as advance rent for other than the next immediate rental period, the landlord or the landlord’s agent shall either:(a) Hold the total amount of such money in a separate non-interest-bearing account in a Florida banking institution for the benefit of the tenant or tenants. The landlord shall not commingle such moneys with any other funds of the landlord or hypothecate, pledge, or in any other way make use of such moneys until such moneys are actually due the landlord;(b) Hold the total amount of such money in a separate interest-bearing account in a Florida banking institution for the benefit of the tenant or tenants, in which case the tenant shall receive and collect interest in an amount of at least 75 percent of the annualized average interest rate payable on such account or interest at the rate of 5 percent per year, simple interest, whichever the landlord elects. The landlord shall not commingle such moneys with any other funds of the landlord or hypothecate, pledge, or in any other way make use of such moneys until such moneys are actually due the landlord; or - 1yAdam BartomeoBusiness MemberReal Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
In the state of Florida, you should have two bank accounts, operating and escrow.
Operating is where you collect the rents and pay expenses. Escrow is where you hold the security deposits and advanced rents.
It is NOT necessary to have multiple escrow accounts, you can hold all deposits and advanced rents in one escrow account. If it is an interest-bearing account, you will be giving the tenant 75% of the interest accumulated.
Bartomeo Property Management4.7150 Reviews - Investor · Tacoma, WA · Member since 2021 · 97 posts · 28 votes1y
I’d recommend keeping the funds separate for each property to avoid any potential co-mingling issues. I personally have different savings accounts for each rental property, even if they’re all under my main BoA account. It’s much easier to track everything that way and ensures you don’t run into problems down the line with taxes or legal stuff. Just make sure to keep good records of which funds belong to which property, and it’ll help keep things smooth.
- Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes1y
If you are running a LLC for your rentals is essential that you keep all business funds in a separate account I like Credit unions the best .
- Accountant · 100% Remote · Member since 2019 · 495 posts · 215 votes1y
@Bob Asad, there are a lot of different account structures out there but absolutely keep security deposits in a separate account from your opex/income account.
It can be a separate checking or savings but just make sure to have a "holding" account where only security deposits are held for your sanity.
I won't speak to liability since I'm not a property manager, attorney, etc.
Just speaking from a cash flow management/account structure perspective.
- 1ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votesAs for someone being in the real estate accounting industry for over 2 decades, I can say that State Law compliance is big on this. Legal violations and penalities(fines) even if you have accounting software to track the difference.
Quote from @Max Emory:
@Bob Asad, there are a lot of different account structures out there but absolutely keep security deposits in a separate account from your opex/income account.
It can be a separate checking or savings but just make sure to have a "holding" account where only security deposits are held for your sanity.
I won't speak to liability since I'm not a property manager, attorney, etc.
Just speaking from a cash flow management/account structure perspective.
Also, the idea separating them is so you don't accidentally spend them and then no way to pay it back when the time comes.
Some states if you don't refund the security deposit within X amount of days, the penality is that you will have to pay back the security deposit x2.
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