Why Do I Need to Track Tenant Security Deposits?
We all know why security deposits exist. They function as insurance for the landlord that their property will be taken care of while the tenants live there.
They are also an incentive for the tenants to look after the property to the best of their abilities. Most tenants want to receive their deposit back when they move out. Clearly, a security deposit is not the landlord’s money to keep. In fact, many states have laws requiring landlords to pay back the deposit. Regardless of this fact, many landlords struggle to keep accurate records of these important deposits. Often when this happens, the bank balance does not agree with the landlord’s records.
Why Are Security Deposits Important?
Each state has its own laws pertaining to security deposits. For this reason, it can be a challenging system for landlords to navigate. However, you should be aware of some best practices. You want to keep your deposits safe and protect yourself from lawsuits. In a bookkeeping sense, it’s helpful to keep the money received for a security deposit in a separate account. In fact, many states require this.
When security deposits are accurately recorded in your records, it makes the entire process easier. These funds can be used to pay for damages. However, they should not be used to cover normal wear, cleaning costs between tenants, unpaid rent, a tenant breaking their lease, or any unpaid bills. Finally, it’s hard to identify where the money went when it’s not accurately recorded in the landlord’s records. This could result in legal problems.
Some states require an itemized list of reasons for keeping the security deposits. For other states, the deposit must be returned within two weeks. Regardless, when the records do not match what is in the bank for the security deposit, these tasks are more challenging for the landlord.
The Legal Side of Things
Not only can they be more challenging, but not tracking these deposits can have legal ramifications. Separation is key so these problems don’t arise. Security deposits do not belong to the landlord and should not be kept in the same accounts.
Amy Heinen, Quickbooks Proadvisor says, “Making sure your Security Deposit Trust account always reconciles to the Security Deposit Liability account will safeguard the funds that will be paid back to a tenant or used to repair a rental unit. It’s important to be sure the amount in the bank is sufficient to cover the liability.” The most important thing in your business is protecting yourself and your business.
How Can STRATAFOLIO Help
This is where STRATAFOLIO can help. STRATAFOLIO can help to keep track of the security deposits for each of your properties. It makes it easy to check to reconcile account balances for each property. We track the money received as a deposit when the tenant moves in. Likewise, we track the deposit returned to the tenant when they leave the unit, as well as deductions for damages.
With this view, the landlord sees the exact security deposit liability balance for each building. It’s all in one convenient location. With STRATAFOLIO’s help, you can keep a better record of your properties. Reconciliation is a breeze. And tracking of these balances is much easier. You are in control.
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Originally published at https://stratafolio.com on February 19, 2020.
