We have a Property Management business and it is growing by leaps. From reading the Florida Statutes, we are trying to make sure we are within the law. We work with a Realtor who is employeed by a broker. I understand we need an Escrow account for the tenants Security Deposits but how is this account to be set up and why?
Any classes you know of or information you can provide is appreciated. We deal mainly with Residential Single Family Homes.|||A properly designated Escrow account holds money that is designated for a specific purpose. The funds in the account are protected against loss in situations such as garnishment or bankruptcy of the holding party if they are handled according to certain rules.
By law (atleast in my state) a real estate broker collecting security deposits, must place them in a designated trust account that is registered with the state real estate commission. Esentially, a escrow account can only hold money that is classified as trust or escrow funds, it CANNOT have any other money in the account (such as business operating funds). The account should be balanced against a list of liabilities (i.e., security deposits) and contain that exact amount (except possibly a minimum balance which should be noted in the list of liabilities).|||Escrow is like a savings account to cover the costs of taxes and insurance on the property.
If you are buying a home, the real estate company will determine what they believe your taxes will be and calculate that as well as your annual insurance and split it into 12 even months.... it will be added to the mortgage payment, and then THEY will take the money out at the end of the cycle and pay your taxes and insurance for you.
That is provided they calculated it properly... if they short-change their account, you could still end up having to pay some of it when due.|||An escrow account is for 'monies being held'. Believe it or not...security deposits are not meant for you to spend and pay back later when needed. You have to ALWAYS have these monies available. It is a way of showing proof that the money is accounted for. This is important for you, your tenants, and for tax/accounting/auditing purposes as well.
Keep in mind that tenants can do the same thing. For example...if you break any of your promises in your contract (lease), break local landlord tenant laws, or do not make repairs in a timely fashion your tenants can open up an escrow account and deposit their rent money into it instead of giving it to you until things are straightened out in a court of law. Keep in mind, that if you do any of the above you most likely will never see any of that money in your tenants escrow account. :)
I'm sure since own a property management company you have a good lawyer at your side. Give them a ring and get all the details.|||My husband %26amp; I had a rental business (10 - 15 singles and 2-family houses) for 30 years in Indiana. The idea of the escrow account for tenant damage deposits is that the money is supposed to be put in an account until the tenants move out. Then, the deposits are supposed to be refunded with interest, if the tenant leaves the unit in good condition. We just set up an account at our credit union as a separate savings account.
In 30 years, we only had 3 tenants move out who did not do so much damage that we refunded their deposits plus interest.
I could tell you stories!
One guy cut a 3' hole in the wall between the living room and bedroom because it was too far to go through the dining room to the bedroom.
A Section 8 tenant claimed she was triplets and was renting 3 diffenent houses. ( We had to refund Section 8 over $4,000.00 for her!)
Another tenant left her 2 pitt bulls and her 10 year old son in the house and moved to Florida. We took them in. The dogs have died, but we are putting the boy through college.
Good luck in your endeavor!|||Call your local Realtor's Association and ask for a list of the pertinent classes - you do not have to be a Realtor to take most of them.
The Escrow account is simply a separate savings account that is used only for handling the monies specified, in your case your tenant's security deposits. This keeps the money separate and protects you in case of a rental dispute. You should talk with your tax professional about the types of accounts you need for your rents to go into as well.
As a rental property owner/manager, I have 3 accounts for the rentals - an escrow savings account for the security deposits, a savings account for the rents left over after bills, (for repairs, etc), and a checking account that the rents go into where all the money is disbursed for mortgage, insurance and repair payments.|||An escrow account is a separate bank account for a specific and limited use. Think about your mortgage. If you pay your taxes and insurance with your monthly payment, the lender puts it in a escrow account that only holds funds for taxes and insurance. There are other people's funds there, but only for the purpose of taxes and insurance. They can't deposit anything else in that account. When you give an earnest money check to a real estate agent or title company, it's deposited in an escrow account that holds only earnest money. You can't "co-mingle" funds, so you have to keep your accounts straight. You need to talk to the bank where you have your business accounts. They'll be able to help you with this.
Our local community college offers classes in small business management and classes that address specific businesses. Property management is one of those. Check you local community college and school district's adult education departments.
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