Basic security deposit question for a Midterm rental

[Victor Verano]

It's our first time setting up a medium term rental and bought a house with 6 bedrooms that the previous owner had been renting out as an MTR for travelling nurses (by the bedroom). We intend to continue with the same business model. We're not sure how to handle the security deposit. Do we need to put the security deposits into their own separate bank accounts for each tenant? We intend to list on Furnished Finder and use Avail.co to manage. Does Avail.co have a mechanism for holding security deposits?

Thank you. I appreciate any feedback.

[Nathan Gesner]

Quote from @Victor Verano:

Mid-term rentals are actually long-term rentals in the eyes of the law and should be treated the same. Tenants should be screened and approved. You should have a written lease, security deposit, inspections, etc. Too many investors make the mistake of trying to treat it like a short-term rental, which is a great way to get yourself into a bind.

You can keep more than one security deposit in the same bank account, but it should be held separate from any of your own 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 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.