Every month, billions of dollars pass through real estate agents trust accounts. How is it tracked, managed, and controlled?
If there is one thing that is true about property management, is the importance of managing the money in a timely and easily understood manner. So here is how the money trail works from renter, to agent, to owner.
The rent money trail.
A renter pays their rent to the real estate agent each month. Usually by elecronic funds transfer. Real estate agents are required to hold and disburse all rent via a regulated trust account, which is audited annually.
An agent might manage thousands of properties and all the rent is paid into the one trust account. The trust accounting software used by the agent records how much rent is paid from who, and when, and maintains separate ledger accounts for each tenancy and owner.
Rent takes time to clear.
While bank transfers between friends on their phones happen instantly, payments of rent into a trust account can take 2-3 days to clear or fully transfer. Especially if it is paid on a Friday as banks don’t clear funds over a weekend. Once a rental payment has been cleared into the agent’s trust account and any bills are processed, it can then be paid to the owner.
Have the agent pay the bills.
A fantastic service provide by most agents is to use the rent to pay property bills on behalf of that specific owner and property. These may include owner’s corporation fees, council and water rates, agents fees plus any repair costs carried out.
Once the rent has cleared and all the bills are entered the funds can then be disbursed to the relevant parties. Each month an owner receives a payment of their rent less expenses and agents fees, and detailed in a statement attaching any bills that were paid. If there are more than one owner, the rent or proceeds can be disbursed to each separately.
End of Financial Year Statement.
At the end of the financial year, the owner receives a full statement of all the total income and expenses paid throughout the year. This statement can be provided to the owners accountant as a complete record of the income and expenses for that property.