Rental Security Deposit- Trust account or just dedicated saving account

[Anjum Yaseen]

Hi,

Do I need to put my tenant’s security deposit in trust account or do I just simply open a separate dedicated account for security deposit and put the deposit there?

Thanks in Advance

[Nathan Gesner]

Quote from @Anjum Yaseen:

Here is the actual law: https://www.ncleg.net/EnactedL...

The law is confusing when it says "trust account" because you don't require an actual trust. All you need is an account for holding the security deposit separate from your money.

You need 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 to refund to the Tenant.

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