Property Manager Wants Bank Account Access

[Dave Jackson]

Hello Bigger Pockets Community,

I have some multi family properties (total of eight units) and the property management company has a shared bank account so they can deposit rents and then debit expenses with co-sign ability. They recently overdrafted my account because they claimed there weren't enough available funds for expenses (had over $2,000 in account at the time), so they're now saying they would like there to be one months rent or security deposits to be kept in the bank account at all times (roughly $5,000). I don't like the idea of leaving security deposits with them because they don't keep it in a separate account. They leave it in the same account and then draw funds out of it when they need to for expenses which seems to defeat the point of a security deposit, unless of course the expenses are related to move out. This is why I removed the security deposits and placed them in a separate account that only I have access to.

1. Does any of this seem normal? How much money would it be advised to leave in the account for this situation? I already don't like that they have co-sign ability. Having more than $1,000 in the account seems high to me. To me it seems to make sense to withdraw as much left over money as possible so it can be reinvested or sit in an interest-bearing account.

2. I have a $300 threshold for expenses per property and if that get's used I refund it, although they tend not to notify me of expenses in the first place that go over and also don't tell me when a unit is turning. But since there's two properties, I keep about $600-800 per month in the account for expenses at all times, sometimes more. Is this not enough? How much should I leave in the account for the management team?

3. Moving forward, what would be advised for an agreement with a property management company for paying bills?

It seems like there's a lot of red flags here but I'm trying to see if I'm overlooking something or if they way they are operating is normal in the property management space, although from what I've seen it seems most companies pay bills out of their own pocket first and then deduct that from rental income before sending payment to the owner.

Many thanks for your input!

[Nathan Gesner]

This is not normal. Deposits should be maintained separately from operating funds. The PM should not have access to your bank account except to deposit funds.

Time to search for a professional.

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!