Security deposits, auto adjusting with charges against

In ‘Leases & Tenants’ section, I add a new lease with details including the security deposit amount.
This automatically sets up a ‘Security Deposit’ charge in the ledger associated with that lease.
I then create a new transaction to charge tenant for damage using ‘money out’ of the ‘Security Deposits’ category and date this transaction prior to lease end.
When the lease ends a ‘Security Deposit Refund’ transaction is automatically appended in the ‘charge’ category of teh lease ledger as a negative value.

Issue(s) I am having.
The ‘Security Deposit Refund’ amount remains the full amount of initial security deposit paid, not taking into account any of the manually created transactions charging tenant for damages.
I cannot find a way to manually adjust the amount of ‘Security Deposit Refund’.
One of your threads mentions we should adjust the security deposit in the lease so we remember not to give the full amount back. This suggested approach creates an imbalance through the entire ledger for the length of the lease as this change also changes the initial ‘security deposit paid’ as well.
How can I make this work correctly?

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@greg3 Good questions. Let’s try to unravel this a bit.

So, assuming your tenant paid the full Security Deposit at the start of the lease and this payment is logged on your Transactions page, there should be no outstanding Security Deposit balance prior to the damage charges. The damage charge should not be entered on the Transactions page because this page is for actual funds paid or received only, not outstanding charges, bills, etc. The damage charge should instead be set up using the “Add a Charge” button on the Leases & Tenants page with whatever category most closely matches how the funds will be deployed (R&M, etc).

The damage charge will in fact never show up on the Transactions page automatically, since the tenant has already paid the full security deposit from which the damage charge will be deducted. Additionally, you’ll want to make sure you have entered a “Move-Out Date” in addition to the lease “End Date.” The Move-Out Date is what triggers the appearance of the Security Deposit Refund on the tenant ledger. Once that’s done, the outstanding balance on the tenant ledger should now indicate exactly how much Security Deposit is due back to the tenant upon move out.

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maybe make a tutorial on this as i didnt find workflow intuitive

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I also don’t like the automatic security deposit refund. What if we don’t refund it at all for some reason?

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@tbrolaski The refund shows up automatically on the ledger as a reminder to send it back to the tenant. Of course, if there’s a legitimate reason not to refund the deposit, then Stessa is flexible enough to handle that scenario, per the instructions above.

Hello Devin,
First of all, congratulations on an overall great product! The more I use it the more I enjoy the ease and seamlessness.
Pertaining to the security deposit however, I have to agree that the workflow is not intuitive. Perhaps that’s because I don’t grasp what the “add a charge” in the "lease and tenants’’ section is intended for. What is its definition? Does this button get used for more than charges or refunds against the security deposit?

Additionally, I’m still not clear on choosing the appropriate category. You mention choosing a category how the funds will be deployed. Seemingly simple and straightforward. But unless this “add a charge” button is used specifically for security deposit transactions only, well then how do I be sure the charge goes against the security deposit? And if the button is used only for transactions against the security, then perhaps the whole issue is that the button seems to be misnamed. In which case I can get over that and just remember what it’s for.
I want to be sure I understand clearly that I don’t have to choose the “security deposits” category. And if I don’t, then what is a reason I would ever choose that category if it’s listed as an option, if not to direct the charge /refund to the security deposit?

Thank you,
Greg

…and an additional related question, since all transactions against a security deposit need to be backed up with a receipt for legal reasons (in my jurisdiction), where would I attach the receipt?
There doesn’t seem to be an option in the “add a charge” splash window.

@greg3 It would be more accurate to think of Security Deposits as one among many different types of tenant “Charges.” Rent is a charge (auto-generated by Stessa based on rent roll information), Security Deposit is a charge (also auto-generated), utility and other reimbursements are also “Charges” that are entered into the tenant ledger manually.

In regards to your related question, “Charges” don’t go “against” any particular line item on the ledger. Rather, all “Charges” and all “Payments” simply net out against each other to produce either an outstanding balance due from the tenant or a balance due to the tenant.

Hope that helps!

Hi Devin, in addition to greg3’s questions, if the tenant owes me one month rent, when I enter move out date it will apply the security deposit refund to the tenants balance which is the rent, so the security deposit turn into a income, but in fact when you will run a report it won’t count the security deposit as a income, how can I do it the correct way?

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Devin,

I also have a question on how to handle the return of security deposit money. I have a tenant who left an outstanding utility bill after she moved out. I deducted that from her security deposit and sent her a check with the remainder. That check hits my transactions because it is in my bank account. Your note above suggests to not put any security deposit transactions into the Transactions page and instead use the tenant ledger. The ledger automatically gave back the full security deposit when the move out date was entered, which it sounds like is by design. How do I account for the automatic return of the security deposit in the ledger along with a check in my transactions for the former tenant? It is like it is credited twice. I don’t know how to reconcile the check in my transactions with the automatic refund given in the ledger, which is not editable in any way.

Please advise.

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Hi Devin,
Thanks. That was very helpful. I think I have done exactly as you described. I had a tenant move out. They had a $1500 deposit. I added charges worth $1225 onto the “leases and tenants” page. I returned the remainder of the deposit to the tenants and the balance (on leases and tenants) went to zero. Perfect! The only problem now is, when I go to the “balance sheet,” I still see $1225 under “short term liabilities.” Since I have returned the deposit and the balance is at zero, this liability should be at zero, too. What am I doing wrong? When the tenant paid the security deposit, it showed up in my transactions and I categorized it as “Security Deposit.” Same with the $275 I returned to the tenants. Should I change these to “Transfers” or delete them? Thanks a lot!

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I’m still trying to figure this one out.

My understanding is that forfeited security deposits should be reported as income. You then offset that income with the related expenses. I don’t see how to do that in Stessa.

I would think you’d need a “Security Deposit Forfeited” income category.

If you simply add a charge for expenses incurred and refund the balance of the security deposit, you’d underreport your income and potentially screw up your balance sheet.

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If you “Add a Charge” for damages on the “Leases & Tenants” page that doesn’t show up as a transaction, do you also add equivalent transaction amounts for 1) “Security Deposits Forfeited Income” and 2) the related expenses?

If you accept any automatic expenses but don’t add the security deposit as income, then that understates your income. Either way, I don’t see how to get the forfeited security deposit off the balance sheet.

Sounds like this may need some work. I’ve had some move outs with tenants owing money, and now transferred their deposits out of the trust account and into the working account. It seems if I apply them as “rent”, I will be double crediting the tenant accounts because when I ended the tenancy, the security deposits shown on the tenants and leases page automatically credited to the tenants account. The two actions which need to be done seem completely separate from one another instead of working together.

When you apply a security deposit to unpaid rent, it should show as income, and it doesn’t. This should be fixed.

I figured a work around. I apply the transactions as rent , so it shows up as income, but I do not apply the rent to any unit so I don’t get the double security deposit credit

Yes, exactly, if there is unpaid rent (or any other charges) you enter the move out date & then the security deposit is applied against the unpaid rent, but it does not show up as income. How can you make it show up as income? Especially without creating an imbalance somewhere else?
Seriously, you guys have never properly answered this issue. You should make a tutorial video. I really don’t think there is a formal way to handle it. It seems to be one of Stessa’s shortcomings.

This question has been here for almost three years without an answer that any user seems to be able to understand or implement. It seems clear to me that Stessa simply needs to fix this problem. There needs to be some additional development of this feature so that we can property deal with security deposits and charges against them without creating imbalances in the books.

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