When you take in security deposits, you’re telling a tenant that you need a buffer in case they don’t pay their rent or damage something on your property. You need something in the bank in case the tenant takes off and breaks their lease or damages something that is going to need repaired. When you take in a security deposit and your tenant doesn’t do anything wrong to require you to keep it, how are you supposed to come up with that cost to pay them back after move out?
Unless you’ve kept it in a special account and never touched it, you may have already spent the money and will have to pull it from your pocket to reimburse your tenant. Here is a look at why separate accounts for security deposits are smart.
The security deposit is put in place to protect you as a landlord against possible damage or unpaid rent. While you get to hold on to the money, the security deposit still belongs to the tenant. You cannot spend it or deduct anything from it until legal action has taken place. You should really keep it in a separate account to avoid mixing it up with your tenants’ rent or personal accounts.
Some states have laws that determine a landlord must keep it in a separate account but other states allow it to be mixed with other rental property accounts.
In addition to the convenience of having it in a separate account not to be mixed up with other money, other benefits of keeping it separate include the fact that you can accrue interest on the money and it’s easy to access when it’s time to return the money.
You won’t be confused when trying to keep track of it in the same account as your personal money or other tenants’ money. It’s simple, shouldn’t really cost anything to do and you may even make interest off of the money sitting in an account that is specific to security deposits.
Consider adding a separate bank account to your life to act as a tenant security deposit account only.