Rental property owners and homeowner’s associations contract with property management companies to manage their rental properties. As part of their duties the property manager collects, deposits and disperses funds. Homeowners and associations contracting with property management companies should know all the types of funds handled by property management companies.
Types of Funds Handled by Property Management Companies
Property management companies are responsible for collecting rent from tenants. Managers representing individual owners should collect rent on a given date and arrange for the funds to be deposited into the individual’s property owner’s account. The renter can authorize payment directly to the owner or to an account set up by the property manager.
Property management companies may collect and hold security deposits from renters in a special fund or the homeowner may prefer to hold onto the funds. The money should be returned to the renters immediately when they leave as long as the unit has not been damaged as specified in the rental agreement.
Property managers are usually responsible for disputes over damages and security deposit refunds.
Homeowners renting condos or single family homes are often asked to provide an emergency reserve fund to cover minor repairs. This can include a new dishwasher or roof repairs after a storm. The reserve fund is usually a minimum of one month’s rent. The management company can use this fund to pay an agreed upon amount for repair or replacement services immediately without waiting for permission from the property owner.
The amount of the fund and the circumstances where the homeowner must be contacted first should be detailed in the contract between the parties. The companies used for repairs and replacements such as plumbers, electricians and roofer should also be specified in the contract along with possible estimates on service costs.
This prevents the property manager from subcontracting work to inferior companies who offer kickbacks, or to friends and relatives. The property owner may ask for bids on a larger repair project or on replacement appliances. The remainder of the fund is returned to the property owner when the management contract is terminated.
Homeowner Association fees
Management companies may collect homeowner association dues; the funds must be deposited into special accounts for each HOA.
The homeowner’s association may have a fund for future repairs, maintenance of grounds, a community clubhouse or a condominium building. Portions of the homeowner fees are deposited into that fund.
The property management company that collects HOA dues is responsible for deposits into the reserve fund. A report of the fund, including interest earned, should be made at every HOA board meeting. The HOA board usually decides how the funds are to be used. The HOA can call for an audit of the fund at any time if that provision is part of the bylaws and contract with the management company.
Reports and taxes
A property management company working for a single owner should provide the mandatory IRS-1099 tax form that is used to report the owner’s income from the property. The management company should provide a profit and loss statement showing all expenses with the management fees and itemized receipts included. This can be stipulated in the contract with the management company.
A management company representing an HOA or apartment community should also submit profit and loss statements to the owners or board as stated in the contract. All payments made on behalf of the HOA or an individual owner should be itemized. The contract should state when payments are to be made to vendors, including service companies.
Property owners and homeowner associations should conduct thorough interviews with potential property management companies to find the company that suits their needs.
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.