Many of you involved in Park City property management have probably heard the phrase "trust account" used before. You may think if it in terms of a trust fund which is essentially a bank account administered by a trustee for the benefit of another party. This is not dissimilar to how a trust account is utilized in property management. But why is it necessary for a property manager to have a trust account? Let me share with you a personal story about trust accounts and their implications.
The Wrong Way
I previously worked for a Park City property management company that I came to find out was grossly mismanaging its accounting. First they did not have a trust account established. All money paid to the company for the rental of a property went into one giant account. And from this account they would pay the property owner's portion of money collected but also the bills, expenses, and commissions due to the company. There is a fun little term for this type of thing, it's called comingling. And it is bad! Unfortunately for all the employees of this company, including myself, these funds that had to be paid to owners were also being utilized while they were being held in an account. The company was directly funds to business ventures outside of the state and then relying on lines of credit from banks to pay the owner's portion of rental income when it was due. And when the economy took a dump in 2008 and banks tightened their lending restrictions there was no money to pay the owners, the company went bankrupt and a lot of people lost their jobs.
The Right Way
For Park City property management a trust account is a necessity. All money received from a tenant by a property management company should be placed directly into a trust account. There should then only be two types of payments made from that trust account: the commission and fees due to the management company per their agreement and rental income due to the property owner. Trust accounts should also be reconciled frequently. This should be a standard part of the bookkeeping practices for any property management company. Any bills a property manager receives should be paid from their own operating account and never comingled with trust account money. If you are looking at hiring a Park City property management company ask them detailed questions about how monies received from a tenant for rent payment are handled. If that money isn't put directly into a trust account then you should look elsewhere.
If you would like more information on trust accounts, or further information about Park City property management in general click the link below for a free consultation. You will receive valuable information specific to your property that will help you make an informed decision. You will also receive a free, no-obligation quote on our property management services. At CC Realty we specialize in making investment property ownership a trouble free experience. Please contact us today for your free consultation.
