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Property Management Banking Tips

By Carla Toebe, New Century Realty, Kennewick, WA

If you have decided to delve into the world of property management then the banking procedures will be a bit more involved than simply having a bank account, making your deposits and payments, and balancing the register at the end of the month. I want to stress that every state’s laws are different. Much of what I talk about in this article relates to the best practices specific to the state of Washington.

The first rule of business is to establish a trust account with your commercial bank. Oddly enough, once you have sat through the session to get this going, do some telephone banking and ask the representative what kind of account you have set up to make sure it was actually set up as a trust account. Just because they tell you that it is a trust account doesn't mean it is. You have to follow up to make sure that the personal banker did their job correctly. You could find out the hard way that this account was never in fact a trust even if you were told it was. If it isn’t a trust then it will not be protected from potential seizure in the event of bankruptcy or other issues with separate personal or business accounts. Do your due diligence and don't rely on the initial set up.

Additionally, you should not have any business operating funds coming into or out of this trust account. The account should only have tenant money or client money. All this money should be attached to a property. You must pay out a monthly commission as stipulated by all management agreements at least once monthly. The checks should also state that it is a property management trust account and the leases should state where and what bank the security deposits are held. If the owner of the property is holding the security deposit then you should hold back rental income in order to keep the security deposit in your trust because you are responsible for that deposit while you are managing the property.

The security deposits may be kept in the same account as the rental income but if you have many units with the same owner then it is advisable to get a separate interest bearing trust account and another trust account for the rental income. If you are dealing with multiple owners that do not have a large number of properties then it is better to get a combined account for both rental income and security deposits. If you have an interest bearing account you should be transferring the interest each month into the regular trust account as interest income to the owner. You will need to transfer the security deposit into the regular trust account before you can pay the owner any money from the refund due to charges as well.

If you keep a combined account, all the security deposits held on account as stated on the balance sheet and the rent roll must match the security deposit liability and the cash in the register must match the accumulation of all the owner balances plus the security deposits. You must balance the rent roll with the balance sheet and the register with the bank statement each month. Failure to do so could put you out of compliance with the state and if you are not in balance each month it could be a serious problem.

There should be two places for receipts, the computerized accounting system and the handwritten deposit ticket for all the payments. Copies of all checks should be kept, whether carbon or photocopied. Copies of duplicate deposit receipts should also be kept once the funds are deposited.

It is always a good idea to write a detailed process and policy for your property management banking to show that you are practicing due diligence with other people's money held in trust. This way anyone who handles the trust account is fully knowledgeable and accountable about the importance of practicing all the state law requirements.

The rules, regulations, and customary practices vary wildly across the country. As I mentioned above, these are some of the best practices for Washington. For example, in Washington it is O.K. to comingle rent and security deposits in the same bank account, however it’s a big no-no in Massachusetts, and in California it’s customary for rental owners to hang onto the security deposit. Also remember that rules about reporting vary from state to state, i.e. if it’s not customary to get a full month’s rent as security, then your rent roll won’t tie to security deposit liability.

Clients put their trust in property managers and believe that they are doing the right thing. The way you handle your banking will solidify this trust with both clients and tenants, thus keeping you out of trouble!

Editor Note: If you’d like to contribute an article about your state’s best banking practices, please send an email to This email address is being protected from spambots. You need JavaScript enabled to view it.

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