How are you solving security deposits?

Question

So much required for security deposits, it is a bit of headache for something that doesn't generate revenue.

Depending on State you might need to deal with:
Separate bank account
Interest Payable
Return on time
Send all information about security deposit deductions to avoid liability
Applying security deposit for rent and then monitoring the payback period
Accounting

RE: Accounting, when I was managing about 30-40 security deposits a month, my team did the following:
1. Take payments via Stripe (yes, you have to pay the fee, but it was super easy to set-up)
2. Export stripe data to excel
3. Manipulate excel so that it can be formatted for journal entries
4. Import into Quickbooks via TransactionPro

Does anyone have comments on how they are solving the rest of these issues?

Would love to chat in-person, too! Just DM me.

Steve Morris · Answer

"So much required for security deposits, it is a bit of headache for something that doesn't generate revenue."

Well, there's a reason - The refundable part is the tenant's (not your money).  In OR, you can only use it (unless you get something in writing and mutually signed) for repairs on move-out beyond normal wear-and-tear.

I don't think the accounting is any different beyond you putting money in an interest-bearing checking account at a bank.

I understand the pain in the a** part of it.  However, until someone gets surety bonds or lease insurance (insuring against tenant damage), it'll probably stay the same.

Ron Brady · Answer

@Daniel Francoeur We concur re: the screening element of a security deposit. Our target market is working class areas where the security deposit requirement would be pretty onerous and we specifically seek to cater to renters who are looking for a nice property at a reasonable price in a safe neighborhood.  It also helps us with limited tracking and deposit requirements, making it work for us.  If we were in A or B class neighborhoods, we'd probably take a different approach. Good luck to you!

Daniel Francoeur · Answer

@Ron Brady cutting out security deposits altogether is definitely one way to go about simplifying things, haha!Will be interesting to see how you feel about sayrhino after having to exercise your rights. I've heard some good things about their process/customer service!Some tenants I've spoken to, use security deposits and the ability to pay a security deposit as a bit of a litmus test for a good renter, but I can see how those types of products can open up the number of tenants you can accept!

Stephen Kehoe · Answer

Good tip on stripe.

Regarding "Send all information about security deposit deductions to avoid liability" I have started providing an addendum to the lease which is a list of the cost of repairs of most of the things that get damaged . You still need to provide an actual itemized list on move out in my state but this helps lower the shock value of the deductions.

On move out I show them the years left of useful life of the itemsaccording to the depreciation rules from the IRS (eg. 5 years for carpet). let's say there should have been 2 years left then they will pay two fifths of the cost of new carpet.

Zachary Ray · Answer

You could charge a Non-refundable fee upfront that equals up to one month's rent. If you do this you don't have to worry about tracking the security deposit and you also get that money up front if early issues arise. Worse case you can make a damage claim at the end of the term if anything pops up.

Ron Brady · Answer

We use sayrhino.com and it’s worked well for us thus far on 2 SFH rentals. No security deposit tracking hassle and our renters prefer it when we’ve given them this option. Not needed to exercise it so not sure about that end.

Daniel Francoeur · Answer

@Stephen Kehoe you are onto something there. Maximizing transparency is important. If you install a brand freaking new carpet right before a new tenant comes in, you aren't expecting to have to dole out $$$ after a year or 2-year lease.It is awesome you have payment records and cost accounting that is that detailed! I'm sure that the organization pays dividends, too.I forgot about the itemized deduction, that's another checklist item to make sure you aren't sitting in small claims court later on.

How are you solving security deposits?

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