Sorry, I guess it's a little difficult for me to describe since I'm not a financial expert familiar with the terminology.

Being a 20 year mortgage expert and real estate investment veteran, we used our mortgage company to secure below market financing.

Quote from @Phillip Austin: There are two alternatives to a security deposit, which I speak about in my book.

We don’t try further diversification by investing in residential mortgage loans, mortgage loans secured by property outside the U.S., loans not secured by real estate, or loans secured by farmland, recreational land, or oil and gas ,mining.  

HUD 4000.1 (I believe) is the latest HUD handbook and it goes over all requirements for originating the loan, including but not limited to occupancy requirements and exemptions.FHA occupancy : "At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year."

You must keep the tenants security deposit at a bank that physically operates a branch office in the State of NC.  

I recently had a long-term (5.5 years) tenant move out. She was a fantastic tenant—always paid on time, easy to work with, and took good care of the property overall. She did move in two cats during her tenancy (with ...

We have been fortunate to rarely hold any security funds from former tenants.

Ask an expert of course but that is my idea for it! 

Syndicators do this because most passive investors are not sophisticated enough to realize the "security" of the preferred return means they usually are giving up the potential for massive returns if the deal does well.This next comment would apply for all syndication.