“How do we maintain a contingency fund for our owners, if the Trust Account has to be zeroed out every month?”
It seems there may be some misinformation floating around out there. Let’s clear it up!
First things first… the “operating” Trust Account – the account where you hold the property management owners’ money – does not have to be “zeroed out” at all – ever. At least, not until the broker closes the account, permanently. In fact, to carry a zero balance in this account would be very dangerous. What happens if a tenant’s rent check is returned by the bank? What about bank fees? Not only should this account never be swiped down to zero, but we are permitted to carry a maximum of $100 of the broker’s money in that account, to cover bank fees not chargeable to the owners.
Typically, a Property Management Agreement will call for a certain amount of money to be held in reserve for each owner’s property. This amount is intended to cover incidental expenses of the property that might arise between the time the owner is paid his periodic draw, and the next rent payment comes in. For purposes of this writing, let’s just call that amount $200.
If you have 20 single-family properties operating out of one trust account, all with a minimum balance of $200, you’ll be carrying at least $4,000 in the operating Trust Account at all times. This is perfectly acceptable, as long as all funds are properly accounted for and attributed to their various owners.
Just as a side note to this conversation, the Nevada Broker whose office provides Property Management services is usually going to be running at least 2 Trust Accounts – one for the owners’ money, and one containing tenant security deposits. (I never advise giving the deposit to the property owner to hold, but that’s fodder for another post, entirely…)
Stay tuned – the Nevada Real Estate Division is sponsoring courses, soon to be offered all over the state, on the operation and maintenance of Trust Accounts. These classes will be free of charge to Brokers and Broker-Salesmen. A schedule will be posted on this site, as soon as it’s available. In the meantime, you might want to take a look at the latest edition of NRED’s publication “Trust Fund Accounting and Record Keeping for Nevada Brokers.”
Does this help? If you have unanswered questions on this issue, please post a comment on this blog. You’re probably not the only one with questions, and it’s important that we get accurate information out there to all Nevada Property Managers on this oft-violated area of law and regulation.