New Renter First Month Rent and Security Deposit Handling

[Brice Alef-Torrisi]

Hello Everyone,

I recently bought a 3-unit investment property in Michigan and have plans to rent out one of the units to the sister of one of the neighbors. I have her staying in the one br while we renovate the other unit she wants to move into so I can begin collecting cashflow. She moves in mid-June so I collected the Security Deposit and First month's rent ($1200 sd + 800 for the 1br). I have a couple of questions. Do I prorate the amount for her first month in the one-bedroom and then charge her the full month's rent for the following month? Secondly, how do I deposit the Security deposit into my account from Venmo in order to keep it separate from my other funds? Lastly, should I continue collecting rent through Venmo or should I have her set up automatic payments with my bank? 

Thank you very much.

[Nathan Gesner]

Quote from @Brice Alef-Torrisi:

Yes, I would prorate her rent for the one-bedroom and then for the two-bedroom. She should only pay for the unit she occupies and the days she occupies it.

I'm not real familiar with Venmo. I believe you can transfer the money from Venmo to your bank account. Set up an account specifically for your rental to keep it separated. Personally, I would have the tenant direct deposit the funds straight into your bank account so neither of you are paying fees.

I recommend two accounts: checking and savings. If the properties are split into more than one LLC, then each LLC will need its own accounts.

Checking: collect all income here, then use it to pay bills. Pay the mortgage. Pay for maintenance. If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or refund the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account designated explicitly for future investments. That ensures you don't spend it on other things and know exactly how much you have to spend on the next purchase. If mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.