Handling Tenant & Owner Funds

[Heath Sizick]

If you are doing your homework and deciding if a professional property management company is right for you this post will help (as well as my previous posts). 

Owners entrust property managers with more than just assets; they handle rental income, security deposits, reserve funds, and write checks on the owner’s behalf. This relationship requires trust, transparency, and accountability. 

Here’s a list of key issues and questions to ask when interviewing property management companies:

Payment to owner

• What day of the month do they mail checks to owners?
• Will the check be for that month, or will the management company hold back a month?
• Do they provide direct deposit?

Taxes

• Will the management company provide you with an IRS-1099 and a summary profit and loss statement for tax purposes?
• Are they able to advise you on tax deductions?

Accounting

• Do they keep detailed records and documentation?

Reporting

• How often do they send out reports? When are they sent out?
• Will you be able to view reports online?
• * Request to see a sample report

Security deposits

Security deposits motivate tenant care and help recover damages, but mishandling them could result in losing the deposit or owing the tenant more. Ask prospective property management companies these questions:

• How do they handle security deposits?
• How much is collected?
• Do they accept personal checks? What if a check bounces? (Deposits should be cash, money orders, or cashier’s checks.)
• How quickly are refunds sent?
• What are their conditions and deductions for refunds?
• How often do they go to small claims court over security deposits?

Miscellaneous

• Do they make payments for owners (mortgage, insurance, property taxes, HOA dues, etc.)?
• Will the manager be authorized to sign checks on the owners account? If so, what types of controls are put in place to prevent misuse of funds or outright embezzlement?
• How quickly do they pay vendors?
• Do they prevent the co-mingling of funds among the properties they manage?

Given the fiscal responsibility that a property management company has, it is a good idea to raise these questions during the interview process and make sure you understand their approach.

PM's - Comment anything I may have missed!