Security Deposit

[Ryan Sajdera]

Hello,

I'm new to real estate investing and I just recently purchased my first duplex. I live in one side and rent the other. I am wondering, since I am not using a third party property manager, how I should store the rent? Does anyone put the security deposit into a low risk money market account? or do you simply put it into a savings account? Thanks! 

[Marcia Maynard]

Checking- Operating Expenses  [We deposit rents, tenant fees (non-refundable) and other income into the checking account.]

Savings- Capital Expenses  [We transfer money from the checking account to the savings account as needed for capital expenses and urgent expenses.]

Money Market- Security Deposits  [We deposit tenant deposits (refundable) into the money market account for safe keeping.]

When a tenant moves out, we move their security deposit from the money market account to the checking account. Then we complete our final accounting for their tenancy; if they are due a refund, we pay it out of our checking account.

We use cash-basis accounting. When the security deposit is received, it counts as income. When the security deposit is refunded, it counts as an expense.

As others have said, check into what is required for your jurisdiction. In Washington State we must keep the security deposit in an account which is designated for tenant deposits, in trust, and we can't touch it until the tenant moves out. If the tenant deposits are held in an interest bearing account, we can keep the interest. This varies with different states and provinces.