How to refund or withhold security deposits held by a rental owner

If you're tracking tenant security deposits that are being held by a rental owner, you need to take steps to properly reflect that the deposit has been refunded or withheld.

In this article, you'll learn how to:

  1. Withhold a security deposit held by a rental owner for outstanding charges
  2. Refund an owner held security deposit to a tenant

1. Withhold a security deposit held by a rental owner

For example, the tenant breaks the lease or damages the unit and forfeits their security deposit.

  1. Charge the tenant for damages.
  2. Withhold the security deposit to cover these new charges.
  3. Create an adjusting entry in Buildium within the Owner Held Security Deposits bank account. To do this:

    Record a check to the rental owner from the Owner Held Security Deposits bank account. Use Owner Draw equity as the offsetting account.

    withhold_owner_held.png

    What's this adjusting entry for? By withholding the deposit in step 2 above, we increased the available cash on the property by converting the security deposit to income. Because the rental owner already has this money in hand, we don't want to send additional money from our bank account to the owner.

    Our adjusting entry tells the software not to pay this new income to the rental owner. It also changes the Owner Held Security Deposits bank account balances to reflect the new amount that the rental owner has on hand.

2. Refund an owner held security deposit to a tenant

There are three different ways to record a tenant refund for a security deposit held by an owner.

  • Refund a security deposit held by an owner using the rental owner's available cash
  • Refund a security deposit held by an owner who issues the refund directly to the tenant
  • Refund a security deposit to the tenant when the refund is completed by your management company

To refund a security deposit held by an owner using the rental owner's available cash:

For example, the rental owner asks you to pay the tenant's security deposit with the "rent money" collected from another unit.

  1. Create an adjusting entry in Buildium within the Owner Held Security Deposits bank account.

    Record a check to the rental owner from the Owner Held Security Deposits bank account. Use Owner Draw equity as the offsetting account.

  2. Issue a refund to the tenant. Write the refund from wherever the "rent money" sits in the real world. Use security deposit liability as the offsetting account. 

Refund a security deposit held by an owner who issues the refund directly to the tenant

If the rental owner issues a security deposit refund directly to a tenant, you still need to record a transaction to show that the funds are no longer being held as security deposit.

  1. Navigate to Rentals > Rent Roll.
  2. Click on the lease you need to show the refund on.
  3. Issue a refund from the Owner Held Security Deposit bank account to show that the funds are no longer being held by the owner.

Refund a security deposit to the tenant when the owner sends back the deposit to your company:

  1. Create an adjusting entry to show that the rental owner no longer holds the funds.

    This is an adjusting entry. It's not a real check.

    Record a check to the rental owner from the Owner Held Security Deposits bank account. Use Owner Draw equity as the offsetting account.

    withhold_owner_held.png

  2. Record an owner contribution from the rental owner to represent the check that they gave you for the deposit.

  3. Deposit the owner contribution into your operating bank account.
  4. Issue a refund to the tenant. Write the refund from the same bank account that you used in the previous step (step 3). Use security deposit liability as the offsetting account.

Article #: 111219

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