My property manager deposits rent into his account before paying me, is this normal?

Question

Hi,

I'm seeking advice. I'm relatively new to buying and owning Properties in the Philadelphia area. I recently hired a property manager to handle almost everything, like the rental license, lead inspection, and repairs. However, is it normal for the property manager to deposit the rent payments into his account before depositing them into my account? He's been deducting money from the rent for repairs and other costs. I don't want to accuse him of stealing, but it seems fishy?

I'm looking for advice on this situation.

Nathan Gesner · Answer

This is completely normal. They collect the rent, deduct their fee and any other expenses they are allowed/required to pay on your behalf, then they distribute the remaining funds to you.

It's critical that you review the property management agreement and understand what you agreed to. It would also be wise to educate yourself on what a good PM does and doesn't do, how they do it, what they charge and why, etc.

My book, The DIY Landlord, will be out in December and can teach you how to select or supervise a property manager.

Adam Bartomeo · Answer

It is 100% the way the industry works. The PM collects the rents, pays the majority of the bills, and gives the owner what is left over. Absolutely, nothing fishy about it. I have seen it where the owner collect the rent and pays the PM but, in all honesty, these are not property managers. They are agents trying to make a side buck and know nothing about property management.

Nina V. · Answer

Hi Kevin,

I currently us 2 PM companies in different state and each time rent is paid, it goes to them. Then after they take their fees, and any repair costs for the month, I get direct deposits to my account of the remaining balance. Some PM will also pay the mortgage on your behalf or I set it up that I pay the mortgage after I get the remaining rent. You should also get monthly statements from them explaining all the costs. I would review your PM agreement you signed to see all the terms and conditions you agreed to and how the money flows and if you are required to have an account with them with a min dollar amount for emergency repairs (usually $500-1000).

Drew Sygit · Answer

@Kevin Lorick are you getting a monthly Owner Statement showing how much they collected and what was deducted?

If not, find a new PMC!

Scott Mac · Answer

Good luck on your book Nathan.

Kevin Epp · Answer

This is normal. Would be an extra step to bill you fees otherwise.

Melanie Thomas · Answer

Hi there, this is normal practice however you should not be in the dark. A monthly statement should be provided detailing what amounts were taken and for what reason. Good luck & happy investing.

Arvand Sabetian · Answer

It's common and as others have stated it will depend on the property manager. Review your agreement so you have an understanding. If there's nothing stated, call them and have a converastion.Some PMs will collect rent and transfer to you while others will have the rent sent to you directly and charge their fees separately.

Chris Grenzig · Answer

@Kevin Lorick this is called trust accounting and is very common for residential property management. I come from the world of 100-500 unit properties where this was not the case and every property had it's own separate accounts that we controlled as the owners, but now having been owning and managing 1-80 unit properties for 4+ years, trust accounting is the best way to do it.

I would love to keep all the properties completely separate, but I just don't see how it's feasible.

Just make sure your PM has excellent accounting practices in place as trust accounting can get out of control fast. We use a 3rd party company that specializes in only property management trust accounting (nothing else), and they reconcile the bank account every single day. The last thing I want to do is mess everything up by not having our accounting done correctly.

Sarah Rosko · Answer

Hi Kevin, I agree with the other feedback. We manage properties in Indianapolis, and at the end of each month, we collect rent, deduct our fees and any repair costs, and then pay the rental owners the remaining balance.

My property manager deposits rent into his account before paying me, is this normal?

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