For example, when I take on a rehab I typically deposit the budget into a separate checking account solely for that rehab and pay all the rehab expenses from there making it easy to identify in my bookkeeping.

I also offer specialty deposits including real estate trust accounts.

If it's a wholesale deal then once you find the end buyer, their funds would cover the initial deposit.

You can deduct that amount from the deposit and refund the remainder.

If you’re concerned about the cash income, you could consider additional safeguards, like a higher security deposit or using a guarantor.

These self employed 2nd mtg's are typically based on alternative method of caluclation like profit and loss statements if you're self employed or the last 12 months of bank statement deposits using a formula to derive an income from these deposits (like 50% of all annual rolling 12 calendar month deposits X 50% /12 months = monthly income).

At a bare bones minimum, the letter confirms the start/end dates of the lease, monthly rent, paid-through date, absence of any prepaid rent other than the current month, and security deposit amount.Better, it will include statements there are no unresolved claims or disputes or repair issues with the current landlord, and no verbal or written side agreements.Better yet, it will include a copy of the tenant's lease, and a confirmation the lease is a true and correct copy with no amendments.

My inherited tenants ALL SMOKE and none had security deposits. 

@Chris SeveneyYesAllOf those things, just don’t forget to have receipts for everything you deduct from the security deposit.

I think using a deposit model where they can get some those prepaid rate back upon closing is a good way to induce commitment.