Security deposit

19 Replies

Where do you put the tenants deposit? Is it OK to keep in the business account or does it have to be placed in a separate account from the business? Example: we have a business account at Chase with a checking and two savings account. Is it OK to keep the deposits in one of the savings account or does it need to go into a different bank or a totally different account at Chase?

I keep them in a savings account. But CO doesn't have any regulations about separate accounts.  

I guess it depends how big you are. If you just rent out your own home, who cares, keep the deposit anywhere. If you own a 100-unit apartment complex, well that's another story. You would probably have to have a separate account and comply with regulations. 

Hmmm good question. I would be interested if anyone in California knows the regulations here. I have properties in San Diego. Thanks.

I'm not sure if San Diego has any additional regulations about security deposit accounts, but I'm not aware of any in California.

@Ronnie Sparrow   If the properties are in Texas I believe that you do not have to keep the money in a separate account, but I would check the local laws.

@Priscila Argaez  Size would only depend on legal entities.  Whether you are a 1 unit or 1000 unit you cannot co mingle funds fro a business with personal accounts.  Money is an easy way to pierce the corporate vail when it comes to legal proceedings.

@Nazz Wang CA law found here:

http://housing.ucsc.edu/cro/pdf/CCC_security-depos...

I am not a lawyer/attorney and this should in no way be construed as advice.

One thing I know about California is that you're supposed to pay interest on the amount, when you return the deposit. 

Here in NE deposits are considered income from an accounting purpose and an expense when you pay them back.  For us they just go in the general business account like everything else and we keep a spreadsheet that lists the deposit each tenant has with us.  When they move out we just pay them out of the general account and book it as an expense.

Ask your accountant, but I would guess that because you have to account for deposits as rent income when they are received that there is probably no requirement that they be kept in a separate account.

Wade thanks for your reply. You are correct here in Texas it is considered income and an expense when we pay it back. I had a meeting with an accountant and that's exactly what she said. I just started using QuickBooks for our rental properties and in QuickBooks you enter it as income/expense.

I personally never commingle funds from my general account and my security deposit account. My tax guy let me know that. I'm also beginning to have all my tenants make checks out to my LLC, instead of my personal name. The bank was wondering why we had a general account in our LLC name and having the tenants make out the checks to us personally.

I hope this helps,

Swanny (Michael Swan)

@Ronnie Sparrow  Good question! Thanks for throwing out the question because it made me crack my Landlord's law Book and make sure I was still within the law. It sounds like you got you question answered for your state requirements. 

@Nazz Wang  For California's rental laws on security deposits there are no specifics on where to keep the deposit. "In other words, you can simply put the money in your pocket or bank account and use it, as long as you have it available when the tenant moves out" (Brown, Portman, & Warner 93).

@Michaela G.  As for the interest incurred on security deposits, the landlord does not have to pay interest to their tenants in all California cites. The majority of cities that have rent control requirements, require interest to be paid back to tenants except for Santa Cruz and Watsonville. There are specific cities that require interest that should be paid back to the tenant. Those cities are Berkeley, Hayward, Los Angeles, San Francisco, Santa Monica, and West Hollywood (Brown, Portman & Warner 94).

Brown, Portman, and Warner. The California Landlord's Law Book: Rights & Responsibilities 15th Edition. California: Berkeley, 2013. Print. 

@Peter Mckernan   , But it's California landlord-tenant law and I don't think cities can override state law

Hey @Michaela G.  

I wanted to see where you found that information? I looked in the book I have and also looked throughout the internet, but never found anything that stated the landlord needed to pay the tenant interest on a security deposit. I want to make sure I'm doing the right thing with my tenant that is why I ask.

Thanks!

@Peter Mckernan  

My understand is this: California doesn't require interest on security deposits but individual cities might. I have a property in Los Angeles and I am required to pay interest on security deposits. LA provides this information on how to administer the interest:

LA rent control info

Pretty sure it depends state to state.  Here in Ohio you have to have it in an interest bearing account.  I keep a seperate savings account specifically for the deposits.

Originally posted by @Phil Hong:

@Peter Mckernan  

My understand is this: California doesn't require interest on security deposits but individual cities might. I have a property in Los Angeles and I am required to pay interest on security deposits. LA provides this information on how to administer the interest:

LA rent control info

Only properties covered under the Rent Stabilization Ordinance are required to pay interest on security deposits, as your link points out, but not all properties are covered under RSO, detached SFR's are not covered for example ... RSO

That's what I have read too. I just wanted to get the correct facts and make sure my practices were congruent with the law. From what I have found and you both confirmed, interest on security deposits are only city based! Thank you for responding!  

Account Closed 

I am in Oklahoma and recently found out that I am supposed to have a separate escrow type account. In fact, it is a misdemeanor to put deposits into my operating account. This all came from a local attorney that spoke at a REIA meeting. I looked into an escrow account but the bank would not let me since I am not a closing company. I am a sole prop with a business checking account. I may have to just set up a separate savings account to keep funds. Here deposits are collateral and not technically mine. They still belong to the tenant. The fact that they are in my possession is a technicality that I have to deal with formally in order to take true possession....reimbursement for documented damages etc. The advantage of an escrow account vs a regular account is that it is protected like an IOLTA account for attorneys in that since it isn't really "my" money, it can't be garnished from me in the event i have a large judgment levied against me. I am still trying to figure this out. Ideas anyone?

The real estate commission in oklahoma does not require a "true escrow account" they just recommend that the word escrow be included in the name/title of the account.  for them this is sufficient so I am pretty sure that would be sufficient for you as well.  

I have a checking account for each house and a savings account. At this point I keep every house and security deposit separate. I use to have all the security in one account and checking (operating) in another. It became hard to lable who paid what because the bank didn't label the in coming amount. The only thing you had was the amount. So I separated it.