Or, am I overreacting and PMs truly just lease the property, hold on to deposits, and fix things when they're broken?

@Zehua Zhou,You can use a Fidelity non-prototype account to manage the rentals, but it will have some of the features available with the bank's checking accounts, such as having a debit card, mobile deposit, and bill pay.

Our preferred method was to have them deposit the money in our bank account, we gave them deposit slips. 

The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations.

And of course do NOT pay personal, or unrelated expenses directly from the LLC bank account (maintain an LLC bank account - do NOT use a personal account for LLC expenses or deposits!).  

Do I have to return his security deposit?

Project Parameters:Flips only, no buy and holdResidential onlyCost to Value (purchase and rehab budget) to be around 70% of ARV or belowProfit is shared at 50% (after costs, deposits and fees)Properties must have $50k profit or morePrefer homes in suburban areas with area population above 100kMost projects approved will be flips, wholesaling to our network is considered as wellSales contract should be in your name and assignable (we can make it work if it isn’t)Please include the following information in when submitting a project for evaluation with our funding group:-Stage 1-Initial Project Submission.

How are people holding security deposits in NC?

It is increasingly common for a PM to charge a "leasing fee" which covers all the costs of marketing, showing, screening, placing tenant under contract, collecting deposit and rent, setting up utilities, getting the tenant placed, etc.If the PM can't justify the cost, then they shouldn't be charging it.

In my financial statement to the tenant concerning the deposit I itemized all the deductions.