Managing Tenant And Owner Funds The Right Way

Managing tenant and owner funds usually falls under the scope of responsibility for property managers. But, it is easy to make mistakes and become a victim of poor fund management.


Property Manager Responsibility: Handling Tenant and Owner Funds

Being a landlord is often a challenging position. There is so much more to it than simply buying a rental property. Landlords must list their property online, attend property showings, interview possible tenants, collect rent, respond to tenant concerns, and oversee maintenance, among many others. With so much on a landlord’s plate, it does not come as a surprise that property managers are in high demand.

Property managers basically make life easier for landlords. They assume all the responsibilities that a landlord normally would. This includes the above tasks and many more, including keeping up-to-date with landlord-tenant laws, preparing taxes, and coordinating with vendors. For a landlord with only one rental property, doing all of that may come easy. But, for those who own multiple properties, hiring a property manager is definitely the best option.

Managing tenant and owner funds is one of the major responsibilities of property managers or management companies. Landlords or owners typically entrust everything to their property manager, including their money. But, when money is involved, there is always room for mismanagement. Property managers would do well to use good standards and practices when it comes to funds management.


How to Manage Tenant Funds

While it is the owners who hire property managers, their money is not the only thing on the line. Tenants basically entrust their landlords and, by extension, their property managers, to take care of their security deposit. They also make rental payments, trusting that property managers will pass it on to the owner in good faith.

Here is how property managers should correctly handle tenant funds:


Security Deposits

The security deposit tenants pay to the property manager will be returned at the end of their lease. Property managers can also use the security deposit to cover any damages to the property after the lease expires. But, the way a property manager must handle the security deposit can vary depending on the state.

For instance, in Pennsylvania, the law on security deposits is pretty exhaustive. According to Pennsylvania law, the maximum security deposit for the first year must not go over two months’ worth of rent. The tenant is also entitled to any interest earned on the deposit after the second anniversary of paying it. Property managers must hold the security deposit in a separate bank account. Any security deposit amount over $100 must go into an escrow account in an institution regulated by the state or federal government.

In contrast, the law is not as strict in Texas. The only law that applies to tenants’ security deposits in the Lone Star State is that property managers must return the amount within 30 days. Here, there is no maximum amount permissible for either a security deposit or a pet deposit. There is also nothing in Texas law that requires a property manager to return any interest earned to the tenant.

When managing security deposits, it is wise to check state laws to avoid liability. Even if the law is silent on the matter, it is still a good idea to keep the security deposit in a separate, interest-bearing bank account. This way, property managers will not lose track of the money. At the same time, it can earn interest while it sits there throughout the duration of the lease.


Rent Payments

Similar to security deposits, there are also state laws that can apply to the management of rent payments. Again, such laws can vary from one state to another, so it is important for property managers to check their own state laws.

An example of a state law governing rent payments exists in Minnesota. According to Minnesota law, for any rent increases, a landlord must provide their tenant with a written notice for one rental period plus one day before the change is expected to take effect. In Arizona, on the other hand, no such requirement exists.

There are also laws that apply to late fees. In Maine, for instance, landlords cannot impose a late fee above 4% of the rent amount. Landlords must also notify their tenants of the late fee upon signing the rental agreement. In contrast, Tennessee law states that landlords can charge a late fee as high as 10% of the rent amount.

It should go without saying, of course, that the laws above also apply to property managers. After all, property managers are essentially doing the work of landlords.


How to Manage Owner Funds

Technically speaking, most of the money property managers handle belongs to the owner. While the security deposit will eventually make its way back to the tenant (within reason), rent payments are transferred to the owner. But, handling rent payments is not the only fund management property managers do for owners.

Here is how property managers can manage owner funds the right way.


Mailing Checks

Property managers receive rent payments from tenants, whether electronically or physically. They should then forward these payments to the owner or landlord. Property managers must follow the requirements stipulated in the management contract, including but not limited to:

  • On what day of each month will property managers mail checks to the owner?
  • Will the payments be made through physical checks, direct deposit, or some other method?


Providing Statements and Reports

Rental property owners have a right to know how their business is doing. The only way to quantify the success of a business is through financial reports. Thus, property managers should provide owners with monthly reports detailing the financial situation of the property. At the very least, owners must receive an income and expense report on a monthly basis.

Property managers should also consider sending these reports electronically. This adds a layer of convenience on the side of the owners.


Payments to Third Parties

Managing a rental property does not come free. Landlords will likely need third-party vendors, from maintenance companies to insurance providers. And then there are payments to other institutions such as homeowners associations and mortgage lenders. It is part of a property manager’s job to prepare and make these payments in a timely manner. Such expenses should also appear in the monthly financial statements.



Not all property managers offer this service, but those who do should do so carefully. A property manager must provide owners with an IRS-1099 as well as a summary profit and loss statement. As an added bonus, they can also give advice on tax deductions. In doing so, owners will have an easier time preparing their taxes.


Tips for Handling Tenant and Owner Funds

All the strategies mentioned above will greatly help property managers with financial management. But, here are a couple of additional tips that will surely come in handy.


1. Maintain Accurate Records

The art of accounting is something that not all property managers have mastered. But, it is a necessary component for the success of the owner and tenant fund management.

Property managers must keep careful and accurate records of all their financial transactions. This includes invoices, receipts, and the like. The idea is to keep an audit trail that promotes transparency in the business relationship. This way, property managers can earn the trust of owners. In addition, keeping accurate records may also help when legal problems come up.


2. Use Software

Property managers are humans, too. And humans are nowhere near perfect. To help ease the burden of financial management while simultaneously allowing for accuracy, property managers should consider using software. There are many types of property management software, and they come at varying costs. There are also programs that solely focus on financial management.


The Key to Successful Fund Management

Handling tenant and owner funds is no easy feat, but property managers must do it anyway. To prevent mismanagement, property managers should keep these valuable insights in mind. As for landlords or owners, they should look for a property manager with experience in fund management.

But, finding the right property manager or management company can be a challenge without the right resources. Start your search today using Rental Choice’s online directory.



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