Property Management Arrangements Are All Over The Place...?
Thought there was a central tendency, but I have heard now many variations - during the time I am outsourcing property mgt and bookkeeping...what control do folks recommend I give the property mgt firm?.
I know I've read in the past some say it's a personal decision, but now it's not...a few of the companies I feel more comfortable with want full control - signing access on the bank account that takes in the rent to pay mortgage, repair, utility, etc expenses directly, though I've narturally asked for pre-approval and multiple bids before expenses are run up. Others would invoice me for expenses. I think mortgage should be on auto withdraw anyway - commercial acceleration clauses can be quite nasty, right?.
Also, while I'm here, what experiences have folks had with mgt companies with signing control...what particular to be on the lookout for beyond the usual they can empty the account and run? I suppose I could open a second account under the LLC that they don't have access to and diligently sweep funds to that monthly or quarterly and sweep back to the extent funds were needed...?
Wow! I mean wow! Thanks again Dave, very, very helpful. To clarify on two points - 1. the operating budget would have been for them to develop one for you (sounds like they do not need to do that), not for you to have seen theirs and 2. for you to have purchased a copy of the software package they use (assuming off the shelf) so your file could be sent to you and you could review in all detail what is going on (again sounds like not a need for you)
Thanks again
I give my property management company authorization to spend up to $300 for repairs or maintenance before approval is needed. Of course, I have an exception for emergency repairs where the health, safety, welfare of the tenant is at risk (e.g., furnace fails in the winter during sub-zero temperatures). I ask the property management company to give me a contractor's written estimate for all repairs exceeding $300. In some cases, I have requested bids on my own and have directed the management company to work with the contractors I have picked to do the work.
I reserve the right to approve all tenant applications that have passed the property management company's screening.
I reserve the right to renew a lease and to set the amount of the rent for each lease.
I do not give the property management company responsibility for making my mortgage payments (I do that myself), but I do ask them to pay HOA dues, and utilities out of the rental proceeds.
I believe in being an active participant in property management even though I have a professional management company dealing with day-to-day operations.
Does this help? Is this the sort of response you were hoping for?
EXACTLY what I was looking for, thank you very much; a very helpful and specific response. I will put bunch of questions below (apologies in advance) as I have heard literally everything. I had assumed it had to do with how large a property owner one was (the bigger, the longer and more specific the contract), but I can't find a central tendency to all the options I've heard.
1. Who Pays. Why dont you let them make mortgage payments? I was thinking of doing automatic debit/it's too important an item to have them do (if they miss and trigger a nasty acceleration clause, everyone loses). Are all other bills sent to your LLC name but at their address or do they get the mortgage mailed to them too? Property taxes? Do you have an excess funds sweep where amounts above opex, debt and budgeted reserves are swept to your personal account monthly. Do you grant them authority to enter you into all contracts on your behalf like utilities or do you set it up and they pay?
2. Reports. What kind of reports do you expect of them - monthly flows of rev and expenses, annual or quarterly operating budget, etc? Do you want a statement of activity, or do you want to see a copy of every receipt? Do you make sure to get a copy of the prop mgt software they use so they can send you the latest files?
3. Kind of Bank Account. Do you have a separate account under the LLC name just for security deposits? Is it a business checking account where they have signing authority up to pre-defined limits? Or instead is it a property trust account for benefit of you? Is the mortgage paid out of that account? For a new LLC that won't get a corp card, do you just have a dedicated personal card that is used just for business expenses?
Some things do seem standard like arbitration clauses and 30 day notice to term...again, sorry for the questions, but I'm just hearing so many things from so many people....would rather hear from people who are actually doing this and what their experience has been
Thank you again in advance!
Quote:1. Who Pays. Why dont you let them make mortgage payments? Are all other bills sent to your LLC name but at their address or do they get the mortgage mailed to them too? Property taxes? Do you have an excess funds sweep where amounts above opex, debt and budgeted reserves are swept to your personal account monthly. Do you grant them authority to enter you into all contracts on your behalf like utilities or do you set it up and they pay?If the property management company is late with my mortgage payment, the lender reports a late pay to the credit bureaus. I don't want to put the health of my credit report in someone else's charge. I have all my mortgages set up as automatic drafts from my business checking account, usually on the tenth of the month. This way, I have a chance to get the bulk of my net rental income deposited before the mortgage payments are drafted.
I do not maintain a personal sweep account. Instead, I have a business account where my net rental income is deposited and my monthly mortgage payments are drafted. Net cash flow stays in my business account as a reserve fund for unplanned repairs or scheduled replacements. When the property management company has EFT capability, I ask that they directly deposit my net rental income to my business account. When the management company does not have EFT capability, I tell them to mail me a check each month.
The property management company pays HOA dues, utility bills, and deducts their management fee from the rental collections.
Property taxes and hazard insurance premiums are escrowed with my monthly mortgage payments. For the properties I own free and clear, or for which there is no escrow account, I pay the property taxes and insurance premiums directly when billed each year. Just like my monthly loan payments, the property management company has no hand in this matter.
In most all instances, I have the tenants reimburse me for the utilities. The utility company bills me c/o of the property management company. The management company pays the utility bill, then sends a copy of the invoice to the tenant for reimbursement. This avoids late fees on the utility bills.
For other contracts, where the cost will exceed $300, I must approve and accept the contractor's written estimate. The property management company coordinates the work schedules with the tenants, supervises the work if necessary, approves and accepts completed work, and pays the contractor's invoices either from rental proceeds or from a maintenance reserve account I maintain with the property management company. The property management company does not draft my personal account.
Quote:2. Reports. What kind of reports do you expect of them - monthly flows of rev and expenses, annual or quarterly operating budget, etc? Do you want a statement of activity, or do you want to see a copy of every receipt? Do you make sure to get a copy of the prop mgt software they use so they can send you the latest files?Each month I want an income and expense report with copies of each invoice paid from my rent collections. At year end, I get an annual income and expense report along with 1099-MISC showing my gross rental income.
I have no interest in the property management software used by the property management company. They will surely be unwilling to share files with me and compromise the privacy of all their other clients.
Annual or quarterly operating budgets for the property management company are of no concern to me either. My contract with the management company is to manage my property for a set fee. I don't see that I am entitled to the management company's operating budget. That's their business.
Quote:3. Kind of Bank Account. Do you have a separate account under the LLC name just for security deposits? Is it a business checking account where they have signing authority up to pre-defined limits? Or instead is it a property trust account for benefit of you? Is the mortgage paid out of that account? For a new LLC that won't get a corp card, do you just have a dedicated personal card that is used just for business expenses?Security deposits are maintained in a separate escrow account under the control of the management company. I do not receive security deposits when I have a management company to do that for me. Your other questions about the mortgage payments and outside access to my business account have been answered above.
For business expenses, I have adequate cash reserves to deal with most anything that comes up. I do not bother with a business credit card. A new landlord without adequate cash reserves yet, may choose to just use a personal credit card then reimburse himself from the cash flow.
DaveT's reply on this was very useful to read. Thanks.
Once I selected the management company that I was to use I actually totally rewrote their prewritten agreement so that it suited what I wanted to see including a clause that provides me with the final say in selecting new tenants. . They accepted the rewritten version without question.
I too wanted to limit the repairs to authorised or emergency only. They call me with all problems and as in Dave's case they provide written quotes. Without some of these contols there may be problems with taxes in some areas (I have property in other countries as well).
I recommend that you keep control of the mortgage, property tax and insurance payments yourself. Failure to do so may cost you big time. I have the tenants pay utilities themselves although I understand that in the US the util companies will chase the owner on default. It will depend on the circumstances and whether you can rely on the tenant to pay on time or at all!
Rich