Is it normal for a management company to withhold repaid rent?

13 Replies

Good morning, BP fellows.

I have a rental property in Indianapolis managed by a big PM company. They tell me that the tenant has paid three months rent in advance. However, they have to withhold the extra two months' rent and transfer when the months come.

This scenario is not covered in the contract. So I am wondering if this is the industry standard? Thanks in advance.

I would recommend extreme caution with this. I took over from another company that went out of business on another rental. the tenant had paid the full year in advance but as the lease was only 3 months in the owner only got 3 months of the rent. if something were to happen you may end up out of your rent and be required to let the tenant stay as they had already paid the rent. maybe look at changing mgmt companies.

Originally posted by @Rhett Tullis :
I would recommend extreme caution with this. I took over from another company that went out of business on another rental. the tenant had paid the full year in advance but as the lease was only 3 months in the owner only got 3 months of the rent. if something were to happen you may end up out of your rent and be required to let the tenant stay as they had already paid the rent. maybe look at changing mgmt companies.

Thanks, Rhett Tullis, this is a big PM company recommended by a BP member, so I don't think they will be out of business any time soon.

I don't get it. If the tenant indeed paid the rent, how can the landlord not get the money? It is just a timing issue. In my case, the PM will only pay me when it is the time, no matter whether the tenant pay in advance or not. Of course, I won't get the money if the tenant refuse to pay.

Aaron,

I operate a property management company and we manage about 100 properties for ourselves and our clients. We pay our to our clients everything received from the tenant for the 30 day period. So if the tenant paid 3 months of rent then we pay our client 3 months of rent less our management fee. Your property management company should do the same.

This is just another case of the pm making rules that benefit themselves more than the owner in my opinion. That money is your money and should be turned over to you when it is available for them to transfer to you. I cannot see any reason for them to hold onto it. Also be I would be cautious in your assumption they are stable, all companies can and do fail sometime or another. Another option would be for you to contact the supervisor of the branch and if that does not help, if they are licensed by the state you can contact the local real estate commission. Again I do not know who they are but I don't see any reason for them to keep those funds from you.

This is what my PM is doing right now as well. The reason is that that rental income hasn't been "earned" yet. If you were in control of the place and managing yourself, you would need to be escrowing those funds in a separate account and then only "receiving" them as the individual months passed. It protects the tenant from ending up in a situation where the property is unusable to them for a period of time and they needed to have that money repaid. So if they paid it out right now and then next month the home burned down you would need to reimburse them those funds. It is much easier to make sure that happens correctly when the control of those funds is still in the hands of the PM who would be dealing with the tenant side of things in a situation like that.

Thanks, folks, now I have a much clear idea about the industry standard. I will contact them, and the worst case, I switch PM company.

Aaron,

I would recommend opening some dialogue with your PM regarding this, if you haven't already.

That being said, I wouldn't be too concerned, given that you have a solid relationship with your PM. I'm also with a large PM and while I haven't run into this specific issue, I assume they would handle it in similar fashion.

Your PM pays you after all expenses are deducted. Thus, as the next couple of months roll on, they will deduct their fee + any expenses/maintenance that comes up and will then deposit the remaining funds to you based on that month's performance.

If they were to deposit the gross amount now and expenses arose in the next couple of months, how would they recoup that? You'd be cutting them a check after the fact, possibly causing delay.

As you mentioned, I understand this to be industry standard.

Aaron,

I see both sides of the argument as I own rentals in Indy and I'm a PM myself. What's the name of the company? I just wonder.

Originally posted by @Yang Xiao :
Aaron,

I see both sides of the argument as I own rentals in Indy and I'm a PM myself. What's the name of the company? I just wonder.

Hi, Yang. It is RPM. Does anyone have similar experience with them?

An update here. Just finished a talk with the PM.

Just as Matt Devincenzo and Sam Jones said, the money is now in a non-interest bearing "escrow" account. The money will be deposited into my account at the time when all corresponding cost is realized.

This sounds like a reasonable answer, and given that they are not the only one doing it, and they are not just doing this to me, so will go with it.

I agree both with @Matt Devincenzo and @Yang Xiao . I can see both sides & realize they have their reasons.

I have used RPM for years and have absolutely no issues - ever. I'm sure they will do the right thing.

I agree it's worth a conversation with them but I wouldn't replace them [unless there is other issues] at this point since it's so hard to find a good PM.