A question that we – as a property management firm – are constantly asked by prospective new clients is “How do you reconcile the trust account against all the checks and bills that come in and out of your office each month? How can we be sure that our money is being properly accounted for?”
To us, the answer seems very simple: each new client is set up with two new trust accounts once they sign a property management agreement: An Operating and a Reserve account. Security deposit monies that are collected from residents at move in are deposited into the Reserve account and not touched until that resident moves out again. Monies that are collected as rent are deposited into the Operating Account and used to pay bills, vendors, owner distributions, etc. At the end of each month, each account is examined and reconciled. True, this adds a bit more work for our book keepers, but the reconciliations at the end of each month end up being very precise.
In California it is legal keep every client’s rental and deposit monies in one single trust account – but to me that seems like an accounting nightmare. One account would save on bank fees and back end set up time, but that seem like a small price for being able to show our clients a bank statement at the end of the month with their specific account and accounting info. If we employed the single-trust fund method, our clients would never – in my understanding - be able to see such an account statement due to the fact that funds from 100 other properties would also be represented in this account.
I would like to know other landlords thoughts on this - Are we going to too much trouble with this approach? Does one massive real estate trust account work?
-Trevor
Trevor Henson is a managing partner of First Light Property Management, Inc located in Los Angeles, Ca.