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Updated over 2 years ago on . Most recent reply
Where do you store your security deposits for growth
Random question! It's just recently occurred to me that I'm regularly holding $10k+ in security deposits. I'm sure many of you are holding $50k, $100k or $200k in security deposits. What would be a good place to put this money so it's "out of sight, out of mind" and also could get us a little return?
Obviously I / we could "invest" this money for rehabs, maintenance, operating costs, etc, but frankly, I don't trust myself, and I'd rather set it aside until it's time to pay back the tenant. Any ideas? CD? High yield 12 month savings? What do you guys do?
Most Popular Reply
Be careful about trying to "invest" security deposits. You still need to give it back. Maybe be more conservative and do a CD ladder. Depending on your State's requirements, you can't use the money for other investments such as rehabs, maintenance, covering your cash flow, etc. I don't see the deposit isn't just extra cash in your pocket. Its almost like money in a Trust account. Its not really my money, its the tenant's money. I just hold onto it just in case they cause damages... So, just follow your State's law and set it aside... That's my conservative viewpoint.
Put it all in Bitcoin! Just kidding - a Fidelity or Vanguard fund may be a smart move with the caveat that you are taking on a little risk, but just research funds that historically perform well each year. Maybe diversify and put half into these funds and another half into CD's.
As you’re looking at the various options, make sure you’re in line with the security deposit laws for the particular state the property is located.
The laws can vary significantly from state-to-state. For example, Texas law does not at all specify how landlords need to hold the security deposit.
Other states are much more restrictive…for example, Maryland law requires the security deposit be held in a federally-insured financial institution in an account exclusively for security deposits, and the account must be interest-bearing. When returning the security deposit to the tenant in Maryland you have to include the interest accrued, which is the greater of the US Treasury yield curve rate or 1.5% per year.
Who knew we’d have to do calculus to return a security deposit…lol.
Be careful about trying to "invest" security deposits. You still need to give it back. Maybe be more conservative and do a CD ladder. Depending on your State's requirements, you can't use the money for other investments such as rehabs, maintenance, covering your cash flow, etc. I don't see the deposit isn't just extra cash in your pocket. Its almost like money in a Trust account. Its not really my money, its the tenant's money. I just hold onto it just in case they cause damages... So, just follow your State's law and set it aside... That's my conservative viewpoint.
In Missouri from memory, the SDs need to be in a separate account. But you can place it in an interest bearing account and the LL gets to pocket the interest. If you feel nice, you can split the whole 90 cents earned with them. It's a good question given that high amounts of SDs could be earning interest.
