ok to have prop mgr hold security deposit and leases?

[Jesse Danzig]

i'm interviewing property management companies and have run across some instances where:

1. the leases will be between the property manager and the tenant (rather than between the owner and the tenant), and
2. the property manager will hold the tenant's security deposit in an escrow account (rather than the landlord holding the security deposit)

are these common? are there pros/cons to doing either one way or the other? thanks for any input. 

[Chris Clothier]

Originally posted by @Jesse Danzig:

i'm interviewing property management companies and have run across some instances where:

1. the leases will be between the property manager and the tenant (rather than between the owner and the tenant), and
2. the property manager will hold the tenant's security deposit in an escrow account (rather than the landlord holding the security deposit)

are these common? are there pros/cons to doing either one way or the other? thanks for any input. 

 I am not sure about Indiana, but I am sure it is not too far off from other states.  First, you only want to work with a state licensed property management company.  Part of that process will ensure that they operate in an owners' best interest.  They will have to be properly insured and have standard accounting practices.

For those two reasons - if you hire a licensed property management company, their name will always be the name on the lease.  The tenant is not renting from you, they are renting from the management company and entering into a contract for service.  You, the owner, enter into a contract with the management company to provide that service.

So you are not going to find a scenario where a licensed management company is not on the contract.  They are properly insured and licensed to provide that service to you.  

As for security deposits, that is the property of the tenants.  It is not revenue and is not earned income for the management company nor the owner.  It is held in escrow for the tenant and is returned to a tenant if they return the property in proper condition with a fulfilled lease.  

State law prohibits the management company from disbursing that money to an owner and also dictates that the money must be kept in a separate escrow account.  Once the lease has been either fulfilled or voided and a determination of condition has been made for the property, then a management company can move that money into an operating account and either dispurse back to the tenant or over to the owner.  Not before ~

Unless you are interested in hiring just any person to manage your property and then they might be willing to do whatever you want them to do as long as you pay them! :)  I wouldn't recommend going that route.

What you list in your question are both standard operating procedure and are done to protect all parties involved from tenant to management company to owner.  I would say it is a good thing and it sounds at least that you are speaking with licensed companies who handle their service the way it is supposed to be handled.