When a property owner leaves the management of their property to a residential property management company, they should have a clear understanding of what and how the property manager will handle each important part of the job. Since the purpose of rental property is to generate rental income, one of the most important things to understand is how a residential property manager will handle tenant and owner funds. A clear policy should be provided in writing before a contract is signed.
Property owners should ask these questions about tenant and owner funds before hiring a residential property management company
1. How are payments to a property owner handled?
As a rental property owner, you should know how and when you will receive payments from your rental property manager. On what specific day of every month will you receive their payment and how will the payment be made. By check, direct deposit or other means? This commitment should be made in writing.
2. How will taxes be handled?
Property owners should know how a residential property management company will handle taxes. At a minimum the management company should provide an IRS-1099 as well as a profit and loss statement. If the company will be handling taxes on behalf of the property owner, it should be in the management contract that they are responsible and will be held liable in case of audits finding problems. If the owner is responsible for taxes, this should be written in the contract as well.
3. How will accounts be handled?
Ideally, a property management company will use accounting software to handle bookkeeping for its clients. Accounting software makes it easier for property owners to access accounts information in real time. They should be able to see as money comes in and goes out with each transaction and which tenants have paid and which ones haven’t. Access to account in real time should be in addition to monthly reports. Ask for a sample report to see how detailed you can expect them to be.
4. How are security deposits handled?
Security deposits are a sensitive matter with tenants. It is therefore important that a property owner establishes how a residential property management company handles them. It’s important that they are fair for both the property owner and tenant. For example, the funds should be high enough that they are likely to cover damage caused by tenants but not withheld for maintenance that should be covered by the landlord. Security deposit refunds should be handled in a timely manner.
There are laws that govern the handling of rental security deposits and the amount that can be charged for a deposit. It’s important that security deposits are handled in accordance to local laws. Ensuring that you hire a company who is operating lawfully will prevent trips to small claims court.
The management contract should also be specific about where security deposits are held. It could be in the owner’s account where it is deposited along with the rent when a new tenant takes up a unit. In some cases, security deposits are held by the property manager.
A residential property management company is the bridge between a property owner and tenants. The way security deposits are handled should protect a property owner from losses and legal disputes and tenants from exploitation.
Son-Rise Property Management has been serving the property management needs of Bellingham and Whatcom County since 1996. Contact us today to see how we can help you find a rental property for your family or manage your rental properties.