Who Holds the Security Deposit?

The Mike Dunfee Group holds the security deposits in a trust account for most of the properties we manage, and when we first started, we insisted the owners hold the security deposits. Now, with many more years’ of experience and greatly improved systems, we have seen the advantages of keeping security deposits in a trust account.

Here are five reasons we encourage owners to leave the tenant’s security deposit in the trust account rather than holding it themselves:

  1. The security deposit is technically the tenant’s money. Once you hold the “tenant’s” security deposit, you essentially owe the tenant money.
  2. The money ultimately does not go to the owner. At the end of the lease, the funds are used for cleaning and repairs, or the money goes back to the tenant. With the exception for unpaid rent and late fees. When the owner holds the deposit, we usually end up distributing it to everyone but the owner.
  3. Property owners don’t like how it feels to return a deposit. Landlords are people too. Let’s face it, especially after spending money getting a property ready to lease, it is kind of cool to receive a check for a security deposit.

    However, a few years later, it’s not so fun to write a check back to the tenant; even when they are entitled to it.

    We find that when the property owner is not holding the deposit they feel less attached to the funds.

  4. There is a 21-day deadline. This may sound like plenty of time but there are often bids involved and work needing to be performed, making the 21 days go fast. A manager can distribute the funds more efficiently straight from a trust account. This is much simpler than collecting funds from the owner to pay the tenant or even having the owner pay the tenant directly, which is a hard track. Cutting out these unnecessary steps, helps us beat the deadline.
  5. It is easier for the property owner. In the end, one of the main reasons you hire a property management company is to make it easier to own rental property. Holding the security deposit in trust eliminates an unnecessary step making it easier to be a landlord.

I hope that these five reasons help convince property owners to be accustomed to holding security deposits to leave them in the trust account. If you still prefer holding the deposit and wish to do so, that is OK. Our property management software allows us to handle it either way and we are happy to accommodate.

Dunfee Real Estate Services, Inc.

DRE # 02026232

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