Deposit and first/last months rent

6 Replies

I have 2 properties I am putting under management.

One is a duplex that is already rented. The current tenants have put a deposit and first/last months rent down.

The property manager has that money right now. I want to hold that money myself rather than the property manager.

I was told the property management firm has to hold that money. I can't find any information to verify that.

Is that a true statement?

Hi @Ray Chambers ,

That is strange. Unless there is something specified in the contract/agreement you signed with the property management company, that money is yours/your responsibility. 

I'm guessing that perhaps you owe the property management company a fee, and that fee could come out of the 1st month's rent?   Also, security deposits should be handled very carefully (not co-mingled with personal accounts)-so this could be a reason why they want to hold on to it?  

If I were you I would read through the agreement you made with them carefully, and then have a chat with them. 


I have not signed any agreement yet.

Your statement further confirms my thinking. I believe he is doing it for the prior landlord to generate more money off interest and such.

Which is what I will be doing. I know the owner personally, and am now suspicious...

Time for a tough conversation I suppose. 

@Ray Chambers It is not uncommon for the PM to hold the security deposit and last months rent until the money is rightfully the owners, i.e. the last month or at move out. If you think about it, the PM is required to do the move out inspection, record damages, and return the security deposit within 30 days (your state may require something different). If the PM doesn't have the security deposit it becomes difficult for them to legally fulfill their obligations. Selfishly, the PM wants the interest generated from the security deposit. I know you want the interest as well, but a good interest rate would be 2%, which of $1,000 is $20. Find a good PM that will save you a $100 through good management.

If you have a property manager for your properties they will typically sign the lease with the tenants, so they would be required to hold the security deposit. Typically it is illegal, or very difficult to collect interest on security deposits. If  you do collect interest it typically has to be given to the tenant at the end. This is because the security deposit is the tenants money, held to secure the property. 

This will all depend on your state and local real estate commission laws, and the agreement you sign with the property manager. Not sure why they would want to hold the first months rent. In my experience the manager would collect that and then pay out to the owner at certain times. 

Hope this helps! Aaron

I highly doubt they are keeping it for the interest. Most accounts that they keep these and have to be a trust account and are typically non-interest-bearing. He would obviously pay the first months rent but hold the last months rent and the security deposit in trust. The last months rent is still the tenets money until the last months rent bill is due. A lot of people think they should get that money upfront but it is not the owners money. What if the house burns down six months into the lease. He tenant would get his money back. If the Broker is holding the money in trust it is an easy transaction to refund. Last king comes around you get paid.

As others have said, you'll need to read the PM's contract for why they're keeping the security deposit and last month's rent.  They could be holding that money in some sort of trust.  But I can't see any reason they'd be keeping the first month's rent if the existing tenants were already in there.  With new tenants it could be a fee for renting the place initially but I wouldn't think that would apply if they were already in there.  Seems like that should be your money unless we're missing some details.