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Could Your Property Manager Rob Rent Money From You?

Julie Broad
3 min read

When I walked out of the classroom after an intense 3 hour lecture I checked my cell phone. I had 23 missed calls and 18 voicemails. My stomach jumped. I figured someone must have died. Why else would someone be so intense about calling?

Property Management ScamsI scrolled through the missed calls and most of them were from my tenant at a Triplex we owned. Maybe there was a fire at the house? That would explain all the calls …

About four or five months before that day we’d purchased this property in the Little Italy area of Toronto. It was our fifth investment purchase (my husband Dave and I), but it was the first one we thought we would manage ourselves. Our rationale was simply that we lived close enough to this one to oversee it, it would cash flow better if I managed it and my schedule was fairly flexible given that I was doing my MBA full time.

I read up on what I should do to manage the property, met with the tenants, had new leases signed, made a repair list and got to work on making the tenants happy within our budget.

Things went ok for a few months but then one guy downstairs moved out and the guy remaining wanted to get a new roommate. The new guy checked out so we updated the paperwork and he moved in. But he was a smoker and the problems began. Our tenant claimed he was smoking in the house and it was bothering her son’s asthma. We asked the tenants to smoke outside, as per the lease, and they did. They also began harassing the son when he’d come home from school calling him a tattletale and other not so nice names.

I was getting a couple of calls a day from the tenants. It was stressful. I didn’t want to mediate their problems.

Over a month or so, as the weather got colder and the downstairs tenants tried new and creative ways to smoke outside while remaining mostly indoors, the tension between the tenants increased to where it was the day I received the 23 voicemails. Turns out the tenants had called the cops on each other! The fighting and threats had reached such a level that they were now involving the Toronto Police!

My final exams were a week away and the stress these tenants were putting on me was just too much.

I cracked. I absolutely totally cracked. I wasn’t sleeping. I was crying almost non-stop and I could barely eat. It was great for weight loss, not so good for studying or getting anything important done.

So Dave hurried out and hired a property manager to take over from me. He found options online, checked the better business bureau and a few references and then grabbed the best priced guy he could find. The property manager took over, the calls stopped, and life got quite a bit easier.

Uncovering the Scam

Fast forward about a year and a half. Two of the units in the triplex were about to be vacant. The property needed some serious upgrading. A friend of ours was looking for a place to live and said he’d move in to the top unit if we moved in to the middle one. We offered him  a very good rent rate in exchange for his support in the renovations (which at times meant we were actually cooking and using the bathroom in his unit and vice versa). He agreed and we all moved in and dismissed the property manager.

We started collecting rent from the other tenants directly. Imagine our surprise when the check was for for $100 more than we expected! The property manager had lied to us about the amount of rent we were getting, and he had been pocketing the difference. He was probably doing this for all three units since all three leases had turned over since he’d taken over. We figure he stole at least $2,000 from us in that one year. The worst part is that his scam was easily preventable.

Prevent Your Property Manager from Robbing Rent Money From You

Besides the fact that you should never hire a property manager just because their rate is the best you can find, you also should only hire from a referral from someone you trust (if possible). At the very least, no matter who you hire, make sure this doesn’t happen to you by asking for copies of every lease agreement. And ask for photocopies of the checks. If the tenant pays by cash or some other method (we use a lot of e-mail money transfers with our tenants), get a printout of the transfer or get copies of the receipts given to the tenants for cash payments. It’s good to have this documentation for tax purposes… and it will help prevent your property manager from taking an extra cut off the top.

Sounds simple now. Looking back it’s hard to believe we would ever let a property manager run our place without getting leases, receipts and other proof of the rent that was coming in. But, at the time, all I cared about was getting my life back and getting through my final exams without failing!!

Image Credit © Christos Georghiou | Dreamstime.com

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.