Property manager asking to be an authorized signer

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Property manager asking to be an authorized signer

Alexi Schreier
Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes

Hi all,

I’m about to close on my first out of state rental and have been in contact with a property management company to manage it.

For accounting purposes, the PM is asking me to open a business account at a local bank and add the managing broker of the PM company as an authorized signer to the account.

This would mean that broker would have the authority to withdraw and deposit funds freely from the account. The account would hold the security deposits and rental income every month and the manager would withdraw from the account to pay for any expenses.

Is this common practice? I’ve never worked with this company before and am nervous letting a practically complete stranger have so much power over my funds.

Any advice is welcome. Thanks!

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Bob Okenwa
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
5y

Hard pass. I never give anyone control of my funds. Not even my wife lol. Trust your gut on this one.

The PM should have their own business or escrow account to hold security deposits and you should be billed for expenses, not have the PM withdraw your money and pay them for you. At least that's the way I'd handle it.

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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    Hard pass. I never give anyone control of my funds. Not even my wife lol. Trust your gut on this one.

    The PM should have their own business or escrow account to hold security deposits and you should be billed for expenses, not have the PM withdraw your money and pay them for you. At least that's the way I'd handle it.

    11Reply
  • Bill P.
    Investor | Syndicator | Instructor · Cincinnati, OH · Member since 2008 · 435 posts · 198 votes
    5y

    @Alexis Schreier I understand the reasoning but you need to control the property's funds for control purposes. If the PM needs funds, he can send a bill. Of course, he can always deposit funds into the account without being a signer.

    1Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Bob Okenwa @Bill P. thank you both for your answers, that all makes sense. I appreciate both of your inputs!

    0Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    5y

    @Alexi Schreier I can't see why even a PM would want that-too messy; imagine being a signer for 300-400 bank accounts! Craziness!! As an investor that would never work for me.

    3Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Bjorn Ahlblad I thought it was strange too... Thanks for your response.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Nothing I've ever heard of.  I have a PM for one property and they transfer the funds in electronically.  No reason for them to have their name on the account or access to my account.

    3Reply
  • Joshua Adlam
    Property Manager · Member since 2020 · 108 posts · 68 votes
    5y

    @Alexis Schreier

    I am a property manager and this is an absolute no.

    We always bill the owner we don’t need to take any money from his account. Do not do this !

    2Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Theresa Harris @Joshua Adlam Thanks for your responses. It’s good to see that everyone is on the same page so far. Your advice is appreciated!

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Alexi Schreier some property management companies operate this way. The advantage is that you see the rent hit your account immediately. The PM has signing rights because they pay themselves and any expenses (within established guidelines) directly from the account. If the PM collects rent in their account, it means you have to wait for your money. That could also be risky because the PM could collect rent and never even give you the money. That could be even worse, because you have no visibility to see if someone even paid rent.

    I think your perceived risk here is no greater with them signing on your account. Assuming you only hold the properties working capital in the account and withdraw excess regularly, it should be low risk. I personally like this arrangement better because some PM don't send rent until the middle or end of the month. I like seeing my money in my account.

    2Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    I'd guess it depends.  If it is ONLY funds from operations and you can audit activity, I think I'd be OK.

    Otherwise, you may end up writing a bunch of checks and, in the PMs defense, you may stiff them on stuff they've paid for.

    1Reply
  • Karl Schmidt
    Investor · UT · Member since 2020 · 35 posts · 16 votes
    5y

    @Alexis Schreier this sounds suspect to me. They can bill me for repair. It is not fraud till they bill you otherwise.

    1Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Joe Splitrock thanks for your input, it's good to see the other side of the story. It is true that the PM company could just never pay you the rents and keep the security deposits in their account and disappear.

    I guess the one thing I see differently is that with an authorized signer(s) you are clearly expressing consent to the bank that (a) particular individual(s) can withdraw all of your funds without your permission. There are no checks and balances with the bank. 

    When the accounting is done within the PM company's accounts the individuals handling funds related to your property probably have more checks and balances from their peers (assuming we're talking about an actual structured PM company and not a one-person operation).

    With regards to the PM company holding your funds and not sending the owner draw until mid-late month I agree that's not ideal. However, there are ways to mitigate that with your own accounting by using the previous months income to pay for the current month's expenses.

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  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Joe Splitrock I forgot to mention, even if you only hold working capital in the account with the PM as an authorized signer, what if you hold working capital for 10 or 20 properties in the same account? That's a lot of money the authorized signer has the authority to walk off with.

    I guess you could say the same thing for the PM holding the reserve amounts and security deposits in their accounts but again that goes back to my point about checks and balances.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Alexi Schreier:

    @Joe Splitrock I forgot to mention, even if you only hold working capital in the account with the PM as an authorized signer, what if you hold working capital for 10 or 20 properties in the same account? That's a lot of money the authorized signer has the authority to walk off with.

    I guess you could say the same thing for the PM holding the reserve amounts and security deposits in their accounts but again that goes back to my point about checks and balances.

     My point was just that either way, you are exposed. A PM holding security deposits and collecting rents for 10 or 20 properties could be using your money to cover payroll or other expenses. With your own account, you can monitor it regularly and catch a problem quickly. It is no different than hiring an employee who has check writing capabilities. Just because you have signing authority, you do not have authority to walk off with the money. If they write unauthorized checks, that is theft and I have seen employees get arrested for that. Checks can be cancelled up to 6 months after they are written. If you act quickly, you can get your money back in most cases. Only if the receiving account is closed or the money was sent overseas, can you have trouble. Consider the flip side if the tenants are paying your PM and they are paying you. If the PM fails to pay you or pays you late, it is a civil matter more than criminal. If they don't pay you, court is your only remedy. Using your account is probably safer financially from a risk standpoint - as long as you are not holding too much in the account.

    1Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Joe Splitrock true. I see what you mean. I guess it all comes down to trusting your PM regardless of how accounting is set up.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Alexi Schreier:

    @Joe Splitrock true. I see what you mean. I guess it all comes down to trusting your PM regardless of how accounting is set up.

     Right as the old saying goes, trust by verify. The second part is even more important. No matter what arrangement you have, it is important to keep close watch on your PM. Even if they have done a great job for years, things change. I have seen 20 year old PM companies spiral out of business in a matter of a few months, just due to management level mistakes.

    1Reply
  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 263 posts · 327 votes
    5y

    @Alexi Schreier.  Don't walk, run.  PM is a business that, by definition, requires the ability to operate at scale.  No PM is going to be a signer on accounts for all of their clients.  That is sketchy at a minimum.

    More likely, the PM is trying to evade statutory guidelines requiring PMs to have an escrow account for rent funds.  I wouldn't be surprised if he handled security deposits the same way - the owner's account where he's a signor.  If the rent goes directly to the client, the PM can avoid the hassle of reconciling that account monthly, as is a requirement in every state as far as I'm aware. 

    In terms of when you'll be paid: find that out on the front end, it should be in their Management Agreement or they should be able to easily articulate their process to you.  A good PM is a good communicator and will keep you in the loop on late rent, when you'll be paid, etc. etc. 

    A great question to ask a PM is if they've ever been audited by the state.  Most states have a real estate division tasked with random audits.  My company has been audited twice since 2008, and it has helped us ensure we are doing everything to the letter.  We're those sickos who actually enjoy an audit as a chance to show off.  :)  

    Check out your potential PMs license information online.  Is it in good standing?  Any complaints?  

    How are the google reviews? 

    I would generally steer clear of a 1-man-operation when it comes to PM.  Unless the guy is just starting out and seems very sharp and trustworthy, go to a company that has an established track-record and one that is easy to get ahold of. 

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    2Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Greg Weik sound advice, thank you. There are a few points in your response that I wasn't doing yet that I'll start doing going forward!

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    5y

    @Alexi Schreier hell no !! You must be not understanding. NO PM CO would ask an owner  to open a " joint " bank account. All PM cos do is simply to EFT to your acct monthly , but never would ask to be a signer with the ability to withdraw money from it . If this is really what they meant RUN !

    1Reply
  • Mike L.
    Rental Property Investor · Madison, WI · Member since 2019 · 32 posts · 28 votes
    5y

    @Joe Splitrock

    I agree with Joe - if you use a reputable PM company I don’t think you increase your risk and can save yourself the time of writing checks each month. In my case I own the bank account but have granted check authority to the head of accounting at the PM company who reviews all checks before they go out. This does not negate the need for due diligence in terms of auditing monthly financial statements to make sure cash ties out and you understand what any checks written on your behalf were for. In the end, there’s risk regardless how you do it and if your legitimately worried about your PM trying to scam you I’d recommend finding another PM company that you feel you can trust. I’d focus more on which PM company you feel you can trust over the mechanics of how the money moves around.

    3Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    5y

    This is actually done on larger apartment complexes and HOA's. While we agree with most that something doesn't seem right here, it may be the PMC came from the more corporate world of managing larger portfolios and set their business up the same way.

    [email protected]248-209-6824
    Logical Property Management4.9458 Reviews
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    1Reply
  • Robert Schimming
    Rental Property Investor · San Clemente, CA · Member since 2017 · 10 posts · 14 votes
    5y

    @Alexis Schreier

    It sounds unusual. Unless I am missing something, the two options break down as follows:

    1. The traditional option:

    - The PM collects the rent on the 1st

    - Puts it into the PM’s account

    - Pays the expenses they are in charge of WITHOUT your oversight

    - Leave enough money in the PM account (to which you have no access) to cover immediate expenses and security deposits

    - Distribute the remaining funds to you

    2. Proposed option:

    - The PM collects the rent on the 1st

    - Puts it into your account (used solely for that specific managed property)

    - Pays the expenses they are in charge of WITH your oversight

    - Leave enough money in the account (to which you have access) to cover immediate expenses and security deposits

    - Distribute the remaining funds to you

    The only difference that I see would be that you have more control over Option 2.

    It sounds like more of a headache to manage that way as the property manager.

    The downside I see is if they overdraft your account. Other than that, it’s just an added step that shouldn’t affect anything.

    1Reply
  • Alexi Schreier
    OP
    Real Estate Agent · St Petersburg, FL · Member since 2014 · 116 posts · 38 votes
    5y

    @Bob Stevens unfortunately that really is what they wanted to do: have me open a business checking account and bring them on as an authorized signer having full access to all funds in the account...

    0Reply
  • Matt Oberski
    Real Estate Agent · Fort Myers, FL · Member since 2020 · 32 posts · 9 votes
    5y

    @Alexis Schreier as a property manager, I’ll tell you I’m only the signer on one of our fortyish accounts. It DOES speed many things up and can help the LL if you need to wire funds or for many other accessibilities... but if it’s not your idea, I wouldn’t recommend it.

    1Reply
  • Ed Tamayo
    Investor · Sugar Hill, GA · Member since 2014 · 168 posts · 97 votes
    5y

    @Alexis Schreier

    No. Vendors can wait a couple of days for you to mail a check.

    I don’t sign a contract with an open amount, nor give anybody an open check, much less a whole checkbook.

    1Reply
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