I am by no means a rookie in commercial real estate, but this is the second time this has happened to me and it really hurts my ego! I own 10 parks, 900 total units, have my bookkeeping down, use Rent Manager, send notices, call my tenants when they don’t pay but I just found out a bad manager was taking 3 to 4 rent checks (money orders) every month and depositing them in her personal account thru the ATM and they were getting cashed! We are out just over $10k after finding out about the problem and letting her go.
What do the experts do to prevent this from happening? We keep a very detailed aging account on all of our tenants, but with so many to look after, and only a few missing every month from different tenants it was very hard to detect.
This really scolds my confidence in the MHP business, and I am by no means going to stop purchasing parks but any words of advice would be greatly appreciated.
The first is the manager. He/she is responsible for keeping track of who has paid and who has not. For everyone who has not paid, the managers must file an eviction as fast as the law allows in each state (generally around the 12th of each month).
The second set of eyes is our bookkeeper. He lives in India ($7/hour) and has read-only access to our bank accounts. He can see all the deposit slips and he communicates with the managers about who has and has not paid. If there is ever a discrepancy, it gets flagged up to me.
All this happens in real-time on/about the 12th of every month when the evictions must be filed. I think doing it in real time would help you catch a manager who is stealing from you. Our managers know that they can’t get away with pocketing money, because we file evictions so quickly. A manager could not get away with stealing for more than a few weeks because when we go to court we’d hear tenants saying ‘I paid - here is my cancelled check or money order receipt!’
Just make sure you are doing two things by the 12th of every month with each lot - depositing money, or filing an eviction.
Have the manager send a list of tenants who have paid each time he makes a deposit (give a standard form to fill out and either fax or email with the deposit slip.
On day six email to manager five day notices for missing rent.
I would also call a lawyer and the police if you have clear proof and then fire him ASAP.
I am not perfect - in fact, we often pull our hair out for many reasons throughout the year, but I am amazed at how many people allow a park manager to handle the money.
We have ALL checks and MOs come to our PO Box ---- and yes, you can train even the lowest socio-economic level of people to do this. I have a park of totally uneducated field workers and THEY can do it.
Have that money come to one person - in our case, our CFO. My wife checks on things periodically, our CFO is militant about payments and filings, she goes to eviction court for us, etc.
That all said - I would like to know what our Wal Mart ($450M/yr volume) allows for “shrinkage” each month!
Sweat some things, tighten up, but don’t beat yourself up - 10k is not anything to lose sleep over - just tighten up and be glad she didn’t embezzle real money.
Our managers never touch the rent, and we don’t have to check a PO Box or process the checks.
Our tenants have the choice of depositing the cash directly into our account at a local bank, or of mailing a check or money order to the bank. Nearly all the tenants deposit the cash directly, and receive a receipt from the bank.
This works because their rent is tagged with their lot number in the pennies. For example, the rent for the tenant in lot #23 is $230.23 per month. We have had almost no problem getting the tenants to do this, it seems logical to them.
We mail out monthly invoices which we print using Quickbooks. We mail the invoices using double window envelopes, so the top 1/3 of the invoice includes the tenant’s name and address, and our return address. The middle 1/3 of the invoice shows the charges. The bottom 1/3 of the invoice is a tear-off deposit slip.
We chose a local bank that had a good system of online banking. Nearly all banks have this, but you should check it out.
So, no-one touches the money except the tenant and the bank, and we can see the day’s deposts immediately using online banking.
You cannot ever stop embezzlement 100%. You build your systems as good as you can, and you monitor them tightly – but there’s still some way for someone to embezzle a little. The good news is that you can hold it down to a very small amount. If you use a no pay/no stay policy – and file evictions every month like clockwork – they won’t be able to steal more than 1 month of a couple rents. The other good news is that mobile home parks are not a cash business (as long as you only take payment in checks or money orders). I was talking to the owner of a chain of truck stops, and he told me that their goal was to hold down manager embezzlement to no more than $100 per day ($3,000 per month per manager). They pay them about $20,000 less to help compensate for this fact. If you take the $10,000 that was stolen – and average that over how long you’ve owned all your parks – it’s a really small amount compared to the average American business. Just look at Tiffany & Co recently, where a senior executive is going to prison for stealing over $1 million. Just trying to put it in perspective.
Also, I guess you do not bill-through for utilities? Because utility bills would end in pennies and adding those pennies to your tenants lot-specific number of pennies would mess everything up…?
Are you rigorous about enforcing late fees? How do you deal with the ‘check is in the mail’ excuse?
Bob, I love this idea and was about to use it back in my apartment landlording days, but someone warned me about a problem – if you are evicting someone for nonpayment and you except a partial payment from them it voids the eviction. In other words all someone has to do is put ten bucks into your account and you have to start the whole process over from scratch.
I hope someone can tell me otherwise or how you can protect yourself from this, because I would love to use it.
We have our tenants deposit in our account. Which is great. We did have an eviction though and the person deposited after we filed on her. My attorney advised me to write her a check and mail it back certified refusing payment. Ask your attorney about this?
I like the idea of having tenants deposit their rent directly into our bank, but like others have said, we bill for utilities and our tenants don’t always pay the amount on their bill.
Are there other ideas of keeping tracking of rent deposits if made directly by the tenant to a local bank?
Not only liberal states – in Texas I believe that after partial payment you need to provide another 10-day notice, 3-day notice, and set a new eviction. You can still evict, but your time frame is delayed. Sending the payment back (or writing a new check back to the tenant with “payment refused” or such) would probably work to cover you, though.
I print the rent bill on a deposit slip via Quickbooks. Looks like a mortgage bill. Tenant tears off the bottom and deposits at the bank rent in cents as a backup. Deposit slip has tenant name, lot, month, is scanned by the bank, image appears online.
Anybody use rent books? They tear off the month and enclose with payment? Just give them a booklet begining of the year.
So far, I like the monthly mailing. Gives them a jog to pay, opportunity to make notes.
I agree with most of what is said here except the paying 20000 a year less.
Maybe pay less to start and fallow the manager close, like you would any employee. With pay raises as you move on. However, I think that if you continue to pay a manager less than they are really worth they would find employment elsewhere. It is hard to think that every manager is like this and those who are I expect had it in them in the first place.
I for one am a firm believer in background checks and references. Not just job related references but personal ones that can speak to a persons character and ethics. You should definitely screen your managers more than you do your tenants. But that may be my law enforcement background speaking.