Security Deposit

A security deposit is money a tenant pays at the start of a lease and the landlord holds against unpaid rent or damage beyond normal wear. It belongs to the tenant, not the owner. It is not income and never belongs in the rent figure of a gross rent multiplier.

Sellers sometimes present deposits as if they were cash flow, or fold last month's rent into a total that makes gross income look higher. Build the GRM on scheduled monthly rent times twelve and nothing else. A $4,000 deposit on a $500,000 house does not change its GRM of 10.4.

Deposits do matter at closing. The buyer takes on the obligation to return them, so they are usually credited to the buyer on the settlement statement. Confirm the amounts against each lease during due diligence, since a missing deposit becomes the new owner's liability.

Further reading: Security Deposit on Wikipedia.