Investing security deposits

Property Manager · Denver · Member since 2023 · 43 posts · 19 votes

Hey BP folks! Curious about potentially investing some of our tenant security deposits in CD's. Was thinking of taking about half of the deposits we currently have and doing some short term (12-24 month) CD's as a revenue stream. Does anyone have any experience with this? If so, curious about thoughts and if it is a good equitable transaction. Appreciate it!

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Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

Quote from @David Walton:

1st off NO, what if you have to evict, then you will get pre-payment for early withdrawal. 2nd so you want to profit on the tenants SD? Why even think about this? Why make more work, things more complicated. ? Why have to (assume you do) talk with tenants about this? PM is complicated enough, why make it more

All the best

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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Alex L.:
I love investing in Ohio, because the security deposit laws are so vague and bare bones. They don't even require them to be held in an account; I could keep them under my mattress for all the state cares for. I always put them in a high-interest savings account, and love the extra bit of money I get from it.

UMM not sure where you're getting your info but its incorrect (unless my attorney of 15 years is clueless ) SD must be kept in an AEOTA ACCT . We have about 500k sitting in the acct. So, you are saying I can do whatever I want with that 500k? Don't think so.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Everyone needs to check state law closely. Some states require the funds be held in an interest-bearing account and then pay that interest out to the tenant. Some won't allow you to collect interest, while others allow the landlord to collect the interest.
Know what your law allows, then explain in the lease where you are keeping the funds and handling any interest.
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Alex L.
Rental Property Investor · Youngstown, OH · Member since 2023 · 128 posts · 124 votes
2y
Quote from @Bob S.:

Quote from @Alex L.:
I love investing in Ohio, because the security deposit laws are so vague and bare bones. They don't even require them to be held in an account; I could keep them under my mattress for all the state cares for. I always put them in a high-interest savings account, and love the extra bit of money I get from it.

UMM not sure where you're getting your info but its incorrect (unless my attorney of 15 years is clueless ) SD must be kept in an AEOTA ACCT . We have about 500k sitting in the acct. So, you are saying I can do whatever I want with that 500k? Don't think so.

My info comes from my own attorney, as well as the Ohio Revised Code Section 5321.16 | Procedures for security deposits. The state code does not specify where or how security deposits are to be held. My particular cities & counties also do not have any laws about it, either. Perhaps it's different for your city & counties, or your attorney just has high compliance standards which is never a bad thing. FWIW I also only deal with residential, and am not familiar with commercial intricacies.

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Melanie P.Pro Member
Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
2y
Hello @David Walton

Colorado has no requirements as to how a landlord maintains their tenant's security deposit. Only that you have funds available to repay it within 30 days of move out. You can invest in CDs. Another option is to put it in TBills. The Treasury Direct website will debit the bank account holding the deposits to buy the TBills and when the bond matures automatically return the funds to the same account. The discounted purchase price gives you use of the interest on the date of purchase as opposed to the date of maturity. They are yielding 5.7% risk free and state income tax free.

Lots of really terrible and irrelevant advice on this thread. If you don't know, don't post. Read and you might learn something.
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David Walton
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Property Manager · Denver · Member since 2023 · 43 posts · 19 votes
2y
@Melanie P. Thank you so much for this insight. I will be looking into the TBills option.
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