Question about how property managers collect rent - who's bank account?

Question

I'm hiring a property manager for two properties I own.  I assumed that we'd set him up as a co-signer on my business bank account, the business that owns the property.  This way we could run all transactions through that account.

However, he suggested setting up a new bank account in my company's name but using his tax ID.  Rent would be paid to that account, and he'd use the account to pay for any repairs/maintenance, mortgage, etc.   When cash is available or upon request, my business (that holds the property) would take a check.  I'd then take an owner's draw or salary from my own business.

He does maintain full financial reports on that account, and I can be the sole signer of any checks written from that account if desired.

Do managers typically set up new accounts under their own tax ID for each property, or do they typically use the property/business existing account and act as a co-signer?    I'm new to using a property manager so I'm not suggesting that one is better than the other - just looking for opinions!

Sharon Tzib · Answer

In my experience, typically property managers collect the rent, deposit it in a designated bank account they have for client monies, pay all expenses you have authorized them to, and then issue you the balance by a certain date every month (on or about the 10th is customary). If rents do not cover expenses in a certain month for some reason, then the owner is required to submit more funds, or some PM's require reserve levels to be maintained.

Personally, I would never open a special bank account for my PM, nor would I give them signing power on said account. A professional PM with many clients would probably not ask you to do it this way either. Is this person a full-time PM, or is this just a one-man show and something he/she does on the side? I'm only asking because in all my years of using PM, I've never been asked to do something like this.

Brie Schmidt · Answer

Aaron K. - I should note I have an in house PM - So he only works for me

Brie Schmidt · Answer

Aaron K. I think it depends on how you want to set it up.  That way sounds appropriate if they do all the accounting and issue the 1099's for the business.  I do it opposite with my PM but I am still involved with the accounting and legal docs.  I wanted more control of the finances and chose this way so that if we ever leave our PM I just remove him from the account.

Simon W. · Answer

@Troy Fisher - from my experience working as a property accountant I think a good approach is to not have the PM to pay for all the expenses out of their account.

They should run a check run report and have you approve which checks are to be sent out. They should have a schedule of when the debt services are pull so this way your account have enough money to cover.

Aaron K. · Answer

Thanks everyone, appreciate the input.

Troy Fisher · Answer

So I've had a PM who has an expense account.  When I signed up with them I deposited xx amount of money for reserves, and they handled all the accounting, deposited rents and did a monthly owners draw, paid for the approved repairs out of it and it was simple.  Mostly.

Now I have a PM who doesn't do that, they pay for everything out of their operating budget and bill me, and ACH all of my receivables to me.

I'm torn on which way is best.  I hate having to pay the bills every time they come in, but then the other way, sometimes we weren't getting the Owners Draw in time to make the mortgage payments....

Aaron K. · Answer

That's exactly the scenario - he will be acting a bookkeeper as well as manager and  issuing 1099's as necessary.  The point about potentially leaving the manager in the future is a good one - separating him from the ability to conduct business on my behalf through the bank account is important, if I need to down the road.

That sounds similar to what I was describing - he collects rent into his own account, pays expenses as authorized (or as signed for by myself), and then sends my business a check.

My post may have been confusing - he didn't ask me to open an account for him and give him signing power, but the opposite.  He would open an account using his Tax ID, and I'd be the sole signer for that account.  Not sure what the practical difference would be between the two, other than the ability to remove him from his access to rental income and bills if it comes to that down the road.

Thanks for the input - he's been in the business for about 8 years, while this would be my first experience with a manager after managing my own properties for some time.   By "suggested" I mean he told me that's how he does it with his other clients and he wanted to do the same thing with my properties.  He clearly has it figured out but I wasn't clear that it's the best way to do it, which is why I made this thread.  I believe he sets up a separate account for each client, not for each property.

Karen Rittenhouse · Answer

First of all "he suggested". To me, this indicates he is not a professional property manager and you are both trying to figure this out on your own. What he "suggested", I would never do.

Contact local professionals and know what to do before you do anything, don't guess. And these laws can vary by state so you need local guidance. Contact a real estate attorney and a real estate CPA for guidance on how to set up your business. You can also contact professional local property management companies.

We have a 3 person chain that all payments go through in our office to make sure there is no fraud. Checks and balances protect the owner as well as the employee.

And, no, there is not an account for each property. You need to get local guidance on proper business and entity structuring before you do anything else.

Question about how property managers collect rent - who's bank account?

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