Checking account for security deposits from multi unit properties

[Laci Rossett]

My question is: should I get one checking account for the deposits of all the tenants in the building or do I get separate checking accounts for each tenants security deposit? I'm asking because if I get a 25 unit apartment complex, 25 accounts seems like a lot.

[Marcia Maynard]

We keep a checking account for operational expenses, a savings account for capital expenses/reserves, and a money market account for tenant security deposits.  It is basically one bank account number with different suffixes -7 (checking) -0 (savings) - 9 (money market). 

When a tenant moves-in we deposit their security deposit in the -9 account. When the tenant moves-out we transfer their security deposit to the -7 account. Then we do our final accounting and write a refund check for any amount due back to the tenant out of the -7 account.

For accounting purposes, typically security deposits are considered income at the time they are received and as a expense at the time they are paid back to the tenant. Even if your state does not require you to keep them in a separate account, it is good practice to do so.

It would be cumbersome to set up a bank account for each rental unit and not at all necessary. Keeping track of the income and expenses for each unit can be easily accomplished with good bookkeeping procedures that record transactions by categories or registers.

Ditto about checking with the landlord-tenant laws for your jurisdiction. In Washington State rental agreements that require money fees and deposits must be in writing. We must describe the terms and conditions under which the deposit may be withheld. We must place the tenant security deposit in an account with a bank, savings and loan association or licensed escrow agency in the State of Washington. We must give the tenant a receipt for the deposit, indicating the location of the account. The account does not need to be interest bearing, but if it is the landlord can keep all interest earned.