I use a combination of Baselane for banking, bookkeeping and collecting rents and security deposits.

We charge a non-refundable deposit and then a monthly fee.

Were any of the repairs something that should have been deducted from the previous tenants security deposit? 

Any suggestions on how to legally put Damage Deposits into a CD to gain interest? 

Otherwise, it may be worth losing the security deposit if the house is in really bad condition. 

Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.5.

The only out of the box solution, is to use her deposit this month, and increase her rent $50-100.

So, to answer your question, if it is simply a payroll deposit, that is sourced funds and you have no issue using those  funds. 

Sell, pocket $200k in equity, appreciation since they bought it, bank 25% for a new deposit in a year once they repair credit, buy two new second hand cars because they need them, pay off credit card debt, put a little extra to the side for increased rent payments for next 12 months, and reorganize to buy in 12-18 months... now they see the light, a chance to move forward, to not stress, and they're lucky the market increased so much... but if they struggle to keep it, struggle to make payments, then 10 months realize they need to sell, would they have as much equity, maybe, maybe not..  

Probably the same for most BP members.Both of our bankers $25mm and $1.5mm Fed loan Cap rate said their customers are out of Covid Government money deposits, thus they, the banks, are not pushing loans now.