Security Deposit

Tenants usually hand over a security deposit when they move in, and the landlord keeps it as a cushion in case of skipped rent or damage past ordinary wear. For a BRRRR rental it protects the new finishes from the rehab, but it belongs to the tenant and is not income.

Many states cap the deposit, often at one or two months of rent, and set rules on where it is held, whether it earns interest and how fast it must be returned. Some require a written move-in condition report.

Photos of the finished rehab make that report easy and help with any deduction later. Because the deposit is returned when the tenant leaves, it should not be counted toward the cash needed for the deal or used to fund repairs.

Further reading: Security Deposit on Wikipedia.