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Property Management: High Risk & High Reward

Not long ago I wrote a series of articles about the HOT HOT HOT residential rental market.  Of course with a large number of residential rentals, there is a growing need for property managers.  As an attorney practicing before the Ohio Real Estate Commission, I routinely see cases against agents that involve property management services.  Although there is volume of work in this practice area, it comes with an equally high volume of risk.

Property management is a highly detailed segment of the profession. It involves more than just finding a tenant.  Depending on your arrangement with the owner, you may be taxed with selecting the tenant, collecting the monthly rent, paying any expenses, repairing the property and evicting the tenant.  You will be navigating not only Ohio’s Landlord Tenant Act but also Ohio License Law.  It is not easy work and it is that much harder for the inexperienced agent.

Below I’ve compiled some best practices tips to help you keep your client’s happy and your feet out hot water.

  1. Brokerage Licensure Required. Property Management is activity that requires a broker’s license. This means that salespeople cannot run a property management business outside the brokerage, but must run the practice under the brokerage’s name with the broker’s knowledge and consent.  For example, let’s say you’re licensed with Bargain Brokerage and your broker has said you can do property management if you want but he want’s nothing to do with it.  You decide to name your property management practice Ready Rentals.  Ready Rentals has its own bank accounts and is listed as the property manager on the property management agreement.  Problem??  Of course.  Here only Bargain Brokerage may enter into a property management agreement and any accounts must be set up under Bargain Brokerage.
  2. Unlicensed Assistants. Unlicensed assistants may not negotiate leases, approve rental applications or advertise the property for lease. Unlicensed assistants may only facilitate paperwork, maintenance and provide secretarial and clerical support services.
  3. Trust Accounts. Brokerages are required to maintain a property management trust account that is separate from the Brokerage trust account. This account is used for the deposit of security deposits, rent and any other money the Brokerage receives in its fiduciary capacity for the owner. If the Brokerage does not hold any money in its property management practice, it is not required to have a separate property management trust account.
  4. Owner’s accounts. Brokerages may, with written authority from the owner, serve as a signatory on an Owner’s account. The law requires the Brokerage and Owner enter into a written contract and that the contract must specify the purposes for which the Brokerage may withdraw from the Owner’s account and any associated dollar limits.  Even in this scenario, the Brokerage is still obligated to maintain a columnar ledger with the following: (1) Name and/or address of the property; (2) Parties to the transaction; (3) Amount, date, and purpose of deposit(s); (4) Party from whom deposits are received; (5) Amount, date, check number, and purpose of disbursements; (6) Party to whom disbursements are made; (7) Running balance of funds on deposit for the particular owner of property; (8) Amount of interest earned on behalf of the owner(s) of the property(ies) if any.  Last, the Brokerage must provide at a minimum a quarterly report to the owner of all receipts and disbursements for the account.  See OAC 1301:5-5-11 and 1301:5-5-23.
  5. Maintenance. Be vigilant to keep the property in good repair, documenting all expenses approved and incurred on the owner’s behalf. It is not uncommon for owners to complain that a manager allowed a property to fall into disrepair, is responsible for code violations, loss of tenants or high turnover or eviction rates.

The property management practice has become so specialized, in recent years the industry has started discussing a separate type of license solely for property managers.  If considering this practice, avail yourself of additional educational opportunities to learn the ins and outs of the industry.  Last find a colleague or mentor that will help you navigate any issues that may arise.  If you take steps to minimize the risk, there is great reward in this HOT HOT HOT rental market!

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