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Best Practice - Small Investor Requesting to Hold Deposits

I'm looking for some feedback/advice on a conundrum I'm having with a potential investor. First though, let me tell you about our company. We are a small-mid sized management company. We generally have about 165 - 175 properties. I have 3 employees for the management division including a part time leasing assistant. We are being interviewed by an investor that has been burned in the past (previous manager was a single real estate agent who was unaffiliated with a brokerage or a management company, he took off with about 60K of this investors funds). He is requesting to hold all security deposits which I am adamantly against both in liability and just overall pain in the rear. This potential investor also only has 18 units, so it's not a big enough property to even entertain the idea. My question is, have you been asked for this before and if so, what was your reasoning behind declining the request? This investor is VERY thorough and analytical so I know the liability reasons alone will not be enough to satiate his demands. Is there a type of insurance we can carry or advise him to purchase that would cover something like that? Help!  ¿
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If your first instinct is going against the way you like to do things do not go with it. You can decline on that alone saying that it is just not the right time for this type of move. You clearly are successful and have a great deal of properties that are doing well and sometimes a move that looks like it could be beneficial may be a step back. If it is a deal that you are making make it go your way and make sure your lawyer looks thoroughly through everything so that it reads in your benefit.
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