Handling tenant and owner funds is one of the biggest responsibilities that owners entrust with their property manager. The relationship between an owner and a property manager requires trust, transparency, and accountability and there is a list of issues that must be reviewed.
Payment To Owner
• What day of the month will check be mailed?
• Will the check be for the current month?
• Keep your rental revenue in your bank account collecting interest as soon as possible.
• Do they provide direct deposit?
• Will the management company provides you with an IRS-1099 and a summary profit and loss statement for tax purposes?
• Are they able to advise you on tax deductions?
• Do they keep detailed records and documentation?
• How often and when are reports sent out?
• Will the reports be able to be viewed online?
• Request to see a sample report.
• How do they handle security deposits?
Understand the law and abide by it. It is a property manager’s responsibility to keep you safe from legal liability and no property manager should be using legal short-cuts. if your state allows landlords to hold and use the funds at their discretion, consider that using the funds early will add the refund to the other expenses you experience after a vacancy (repairs, cleaning, advertising, etc.).
• How much is collected?
The security deposit is important because it is all you have if something goes wrong and a larger amount means a larger cushion. States that regulate security deposits have a max that varies between one and three months rent. Half to a full months rent is typical. Tenants with a questionable financial record may be required to pay more (low credit score, foreclosure or bankruptcy on record).
• Do they accept cash, money order, or a cashier’s check for the security deposit?
• How quickly do they send out refunds?
• What is their list of conditions and deductions for refunding security deposits? How often do they go to small claims court over security deposits?
The refund and deduction process is designed to motivate good tenant behavior, not to make extra profit. A good property manager should provide good itemized documentation of damage and repair costs.
• 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?
Keeping vendors waiting strains the relationship and forces vendors to raise their prices to compensate for the delay.
• Do they prevent the co-mingling of funds among the properties they manage?