The Importance of Trust Account Management | Insights from Los Angeles Property Managers
Trust accounting is an important part of managing your real estate assets in a way that’s legally compliant and financially sound. You should expect your Los Angeles property management team to offer trust account management that’s accurate, transparent, and well-documented.
Smart investors will be sure you understand what this type of account management and reporting means for you and your real estate portfolio.
Understanding Trust Account Management
Property managers collect rent from tenants and pay that rent to you. The money that moves between parties are considered trust funds. The rental amount is received from the tenant, deposited into the property manager’s trust account, and then paid to the property owner. This creates a fiduciary responsibility for your property manager, ensuring that as the owner of the funds, you are protected by a reputable and transparent trust account management system. You should not wait weeks for your money. You should not have to guess whether it’s been collected or where it’s located.
Trust Accounting Protects Your Money
Your property manager needs to provide a trust account because allowing your funds to mingle with their own leaves you at risk. For example, if a tenant has paid a security deposit of $4,000 to your property manager, and the property manager simply deposits that money in their own account and then overdraws the account before the end of the lease term - that money may have been spent by the property manager. The property manager won’t be able to return the security deposit to the tenant or pay for necessary repairs on your behalf after the tenant moves out.
A trust account ensures you won’t lose that money, and neither will your tenants. Strict financial regulations are in place to ensure your funds are handled this way since your management company is handling funds that don’t belong to them.
Benefits of a Sound Trust Account Management System
When you’re searching for Los Angeles property management, make trust accounting part of your interview process. Most owners and investors will ask about financial reports and income and expense statements, but dig a little deeper and find out how the funds are kept and tracked while in trust.
Some of the benefits to you will include:
Accessing your rents faster. A trust account will collect deposited rents. The property manager will deduct their own fee and then deposit the remaining rent into your account.
Legal compliance. You should expect your property manager to follow all regulatory accounting requirements. A reputable trust account management system will hold property managers accountable, which provides owners and investors with peace of mind.
Identifying Trust Account Violations
State and local laws will establish the management of your funds while your property management company is working on your behalf. Failure to comply with these standards can cause big problems for your property manager and ultimately, for you. You’ll want to know your management company has the checks and balances in place to avoid the most common violations, which tend to be:
Allowing a property’s cash balance to become negative.
Not preparing bank reconciliation and accounting statements in a timely fashion.
Not depositing owner funds into the owner’s account in a timely fashion.
If any of these things happen, address the issue with your property manager right away and consider looking for a better Los Angeles property management partner.
These are some of the things to look for when you’re thinking about how your funds will be handled by your professional property manager. If you’d like to talk more about our system, we’d be happy to meet with you. Contact us at MGMT Group, Inc.