Property Management Education

How the Banking Disruption Impacts Real Estate Investors

Key Points:

  • Several regional banks have recently faced financial disruptions

  • Two important questions to ask your property management company 

  • FDIC insurance covers $250,000 per beneficiary

Recently the regional banking sector has faced a sudden disruption in the financial system. This is due to many factors including a sudden loss of confidence in the banking sector. For real estate investors who work with property management companies, this banking disruption may have unforeseen results.  

Real estate investors who are considering working with us to manage their investment properties ask us many questions. However, two seemingly unimportant questions are suddenly very important:

  1. Which banking institution do we use?

  2. Are our bank accounts set up as legal and proper trust accounts?

Why should this matter to real estate investors?

Recently, Silicon Valley Bank, which was the 16th largest bank in America, failed. This was the 2nd largest bank failure in U.S. history. The reasons for the failure are many, but the final reason for the failure was that more depositors demanded the immediate return of their money than the bank had funds available. It was just like the old pictures from the 1920’s with people lined up in front of a bank - all wanting to close their accounts and pull their money out. Except today, depositors don’t need to go to the bank and wait in line, they can simply pull their money with a few swipes on the phone. 

The end result was basically that the bank went out of business and the federal government seized control of the bank. 

The next day First Republic Bank started to have the same problem. Then, the FDIC, or The Federal Deposit Insurance Corporation decided to put a stop by guaranteeing all depositors their funds.

Why does this matter to real estate investors:

  1. Property Management companies hold a lot of money on behalf of their owner-clients, and on behalf of their tenants.  This money should be held in what is called a “trust” account. A true and proper trust account protects the money of the owner-client and the tenant against not only bank failures, but also against improper operations by the property management company.

  1. FDIC insurance provides coverage up to  $250,000 per beneficiary. If the property management company has a proper trust account set up, then each owner-client is covered up to the $250,000 limit. If the property management company has NOT set up a trust account, then the entire account is only covered up to $250,000. This is a very important distinction that all real estate investors should ask their property management companies.

If you are an owner-client or a tenant-resident of Grace Property Management, you can rest assured that your funds are safe, as our bank accounts are structured and set up as a legally compliant trust account.

Property Management is not just our business - it is a relationship between us, our owner-clients, and our tenant-residents. If these are important to you, we may be a good fit to provide you, your property, and your tenant-resident with our award-winning property management service.

Serving real estate investors & residents since 1978


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