Realtor · Manhattan, KS · Member since 2016 · 170 posts · 89 votes
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!
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
10y
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.
Northborough, MA · Member since 2015 · 57 posts · 10 votes
10y
yes. Look into local laws. You can also walk into a bank and ask them for help. They might be able to help you or explain to you what you might need to do.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
10y
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.
Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
10y
If I remember correctly, Colorado says that interest belongs to the tenant so there would be no reason to do so. As @Marcia Maynard said, check your State requirements. You may find it's more of a pain to track the interest you are trying to generate for someone else :)
(a) A landlord shall not demand or receive as a security deposit an amount or value in excess of two months' rent. (b) All security deposits shall be held by the landlord for the tenant, who is a party to the agreement, in a bank, credit union or savings and loan association which is insured by an agency of the federal government. Security deposits shall not be commingled with the personal funds of the landlord. All security deposits may be held in a trust account, which may be a common trust account and which may be an interest bearing account. Any interest earned on a security deposit shall be the property of the landlord.
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Please note: In addition to state statutes, check for those of your local municipality too. Sometimes a city, township or county will add an additional requirements.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
If you want to keep it simple, put the deposit into a non-interest bearing account. The interest earned is not worth the time to deal with it. Remember, security deposits belong to the tenant unless/until you make a legal claim against them. I have 3 accounts: a non-interest bearing checking account to hold deposits, an interest bearing account where I deposit rental income, and an operating account for paying bills. The liability account (security deposits) only has activity when I have a tenant move in or out. The rental income account is a savings account for CapEx, etc. The operating account is for paying bills, etc (I move portions of the rental income each month to the operating account for bills, etc). You could actually get by with just two (liabilities for deposits) and an operating account but having three and holding back funds in reserves is easier and this helps keep one disciplined.