Property Manager "gotcha"
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votesI think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property. It's the PM's job to pick tenants that are going to pay on time and in full each month. If they have a turnover within the first year then there should be no tenant placement fee until at least after a year. There has to be accountability with this.
72 Replies
- Laurel, MD · Member since 2015 · 101 posts · 30 votes11y
Originally posted by @Roy N.:
Originally posted by @Account Closed:
Originally posted by @Account Closed:
Maybe your UK argument would work in a US court, and maybe not. I live to see the day, though.US law is based on the old UK common law, so I don't think these B.S. tactics would fly in the UK or the US.
From the legal standpoint. I don't think contract law helps you because the typical late fee exceeds what you need to be made whole from the breach. The debt you service with the rent payments isn't your tenants problem, nor is it his responsibility to keep your bank account from going into the red.
The thing you are referring to as BS is part of a document published by the UK Office of Fair Trading entitled Guidance on Unfair Terms in Tenancy Agreements. If you were to read all 127 pages (...hmmm... I wonder why it has to be that long)
https://www.gov.uk/government/uploads/system/uploa...
...... you might notice quite a few commonalities. This shouldn't be surprise, I would imagine the same sort of consumer protections are deemed necessary either side of the Atlantic.
Of course it is not binding in any US jurisdiction but it is probably more persuasive than anything you can muster to the contrary. It would not be an outrageous result if a savvy enough tenant prevailed, which is why it would not be something I would ever enforce or want tested in court.
Ihe:
That really depends on where you are. Here locally landlords may charge a late fee that, under the Residential Tenancy Act, is not to exceed the amount a bank charges for a dishonoured payment. Bank NSF charges vary from $45 to $55.0 CAD at the Big-5 Banks at the moment. Ironically, for us, this works out to between 3% and 5% of rent depending upon the unit. The purpose of the late fee is indeed to make the landlord whole for a dishonoured payment on the part of the tenant.
That's $35 - $45 USD.
If you set your late fee as a % you will have difficulty persuading a court that it costs double for you to be made whole on late rent of Unit A than it would Unit B because Unit A's rent is twice as much.
If your late fee is a flat amount below bank charges as you mentioned then even in a jurisdiction where no such provision is on the local statute books contract law is on your side. The legality of such bank charges has been tested at supreme court levels and found to be consonant with the doctrine of making the bank whole for the contractual breach.
Note that dishonoured payment fees are not pro-rated to the amount in default.
AFAIAC we are on the same page.
- Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes11y
@Phil Mays First off you need to find a new PM. When I had property managers, I found that I had to manage the PM's. I called my PM on the 6th of the month to see who was late because I had the PM start eviction notices. If tenants know eviction process is enforced it cuts down tenants being late which means less work in the long run for the PM.
Wishing you the Best,
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Marcia Maynard this is standard procedures in the mid west deep south ... the areas were rentals are the norm.. late rent is a fact not an aberration.
I will take the contrarian view here having owned 300 to 400 of these homes.
the OP obviously simply did not read the contract before they signed it.. had they read it and had an issue they could have negotiated it at that time
PM in many of these markets SUCKS as a job... its low pay hard work you have jerk owners and hard to manage tenants.. 10% is a poultry sum to work for I for one have no clue why they even do it. Once you get to 600 to 1000 doors you can start to make a living wage.. I for one think they are under payed for what they do... and they definitely should be able to keep late payments as a reward for chasing down these tenants.
For any owner to think that its their PM's fault the rent is late and the PM should do a better job or work harder that is the opinion of someone who has no clue as to reality of collecting rent in most of the quote un quote cash flow markets.. or D,C, and many B class areas.
You have these expectations of rental performance like you bought a nice A class property in San Francisco or New York city or north side chicago .... Or for that matter Portlandia were rents are rock solid in the better areas , the owner is at fault here they have unrealistic expectations of the property and how the PM should work. If a property owner got on me because of this I would fire the owner straight away.
- Laurel, MD · Member since 2015 · 101 posts · 30 votes11y
Originally posted by @Karen Schimpf:
@Phil Mays First off you need to find a new PM. When I had property managers, I found that I had to manage the PM's. I called my PM on the 6th of the month to see who was late because I had the PM start eviction notices. If tenants know eviction process is enforced it cuts down tenants being late which means less work in the long run for the PM.
My wife PM's all our properties and she used to believe that.
I prefer to align myself with the prosperity of my tenants. If they are prospering my rent is more likely to get paid. Threatening evictions is not consonant with that philosophy.
We had a major disagreement about a tenant who was late in the first few months of their tenancy. She wanted to issue an eviction notice, I told her not to. My will prevailed, we went round to the house and worked with the tenant. In the 9 months since he hasn't been late.
So there is another way.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Roy N. I don't see how a PM could base their renumeration on performance metrics when the collection of rent is out of their direct control if a tenant has a bad day .. be it they lost a job... or what have you.. they simply can't pay.. and a PM that would sign up to subject themselves to cash calls because of tenant foibles is really not very bright in my mind. :)...
And again it really depends on the asset class.. like here in Portlandia our b to a multis are pretty easy to manage.... 4% is the going rate, plus you pay for the on site managers salary. however we have a 1% vacancy rate... and no section 8 to speak of etc etc.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Steve Vaughan:
I am just sitting here wondering how NC property can cashflow better than in Dayton, OH? If I lived in Dayton, I would buy in my backyard and self-manage! Wait until there is a repair issue with these guys. I sense a $100+ over-ride breaker flip on the horizon!
Too funny. I had the same thought. My MIL is in Dayton and I feel like I know the return possibilities there. I just had to know where in NC rentals made more sense than Dayton. In fact, I was so curious I researched the NC communities I believe he owns it. Not sure if the numbers are better. But the housing stock and the income/opportunities for the tenant pool might be better. It might be a taste thing. Or he's got some screaming deals.
- 11yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
I disagree. We fully acknowledge that bad things happening to good tenants and build an allowance for such events - which are distinguishable from bad things happening due to bad tenants.
Our experience has been that when bad things happen to good tenants - job loss, medical emergency - something that impacts their ability to meet their obligations under the lease, the good tenant typically comes to us before an adverse event occurs. Juxtaposed to this model, the bad tenant just doesn't pay - either intentionally, or through an inability to manage personal finances - and, avoids taking accountability.
Outside of our student rentals - which require their own style of management - our properties are all 'B' or 'A'. Our screening process also seems to be working well as any problem tenants we have had were inherited with a property. Our portfolio is not high-maintenance and should be pretty easy for a PM - with more experience in this business than my partner and I - to step in and, at least, keep the ship on course.
What we are trying to accomplish is align the PMs interests with our own ... boring, same old, take the cheques to the bank each month and occasionally go fix something or fill a vacancy ... and avoid an endless parade of turnover every 12-18 months and the costs and lease-up fees which go with it. We have even offered bonuses if the average tenancy across the portfolio goes over 24 months, 30 months, etc (it is presently at 22 months) or a building has no turn -due to bad tenant issues - during a year.
It's not that we are adverse to paying a PM, we are adverse to paying a PM to lower the performance of our portfolio.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Roy N. Ah different asset class than the majority of posters on BP.
its typical in our portlandia market for b to a apartment complex's that management fee is 4% .. and you pay for your on site manager to handle the day to day etc.. the PM company manages the on site manager and makes sure they are not abusing the owner.
And your absolutely correct turn over kills cash flow absolutely kills it ... when folks use a 5% of gross for vacancy many times that numbers of off buy 100 to 400 % of actual .
a long with maintenance.. if your having turn over every 12 to 18 months ( very common in many areas) your cash flow is probably neutral if you actually figured it out.
for me personally and I am retiring from land lording the last of my 11 or so A class SFR's I never raise the rent and when they move out I sell it. when I was running them my rents were always below market... this allowed me to only pay a RE broker a placement fee and my secretary could do the day to day. no need for PM, these were all new construction when I bought them.. I have 4 of the 12 that the original tenant is still there 7 to 8 years later... But with BCD this won't work for the absentee one would get financially crippled
- Oklahoma City, OK · Member since 2015 · 96 posts · 55 votes11y
Originally posted by @James DeRoest:
Originally posted by @Dawn Anastasi:
I think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property. It's the PM's job to pick tenants that are going to pay on time and in full each month. If they have a turnover within the first year then there should be no tenant placement fee until at least after a year. There has to be accountability with this.
Don't think it makes any sense whatsoever. What is the job of the property manager?
They are managing the property because you can't or won't. The key word here is managing.
What they are not doing is providing any sort of guarantee, they are not an insurance company, they are a management company. The clue is in their title "property manager".
Tenants who are late require the property manager (your agent) to do more work. Does your company do things for free?
I disagree. Property Managers get 10% for managing the property. They are not incurring the risk associated with the late fee... No matter what happens ... If the tenants pay, they make 10%. If they don't pay, they get 10%. The late fee is due the owner who is out the $ when it is late.
- 11yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Account Closed:
Ihe:
That really depends on where you are. Here locally landlords may charge a late fee that, under the Residential Tenancy Act, is not to exceed the amount a bank charges for a dishonoured payment. Bank NSF charges vary from $45 to $55.0 CAD at the Big-5 Banks at the moment. Ironically, for us, this works out to between 3% and 5% of rent depending upon the unit. The purpose of the late fee is indeed to make the landlord whole for a dishonoured payment on the part of the tenant.
That's $35 - $45 USD.
Ihe:
That is immaterial. The fees were still $45 - $55 CAD three years ago when the CAD was 1.02 USD. The point made is the amount is roughly 4-5% of our median rent.
If Unit A and Unit B are managed via isolated bank accounts, then despite the service charges associated with a dishonoured payment, it is conceivable there will be additional fees and interest associated with overdraft. In such a case, the costs incurred by the landlord would be greater (perhaps even twice) if the tenants of Unit A defaulted as opposed to those in Unit B. If that were to happen here, the landlord would get to eat all incurred costs over and above the late payment fee.
Save that banks are made whole even if an account is put into negative balance via overdraft and interest charges. In the case of the landlord, like any other business, when a client (tenant) does not perform on their fiscal obligations, (i.e pay their rent on-time or kite a cheque) the landlord is injured by the lost opportunity over an above recovery of a dishonoured payment fee.
With our commercial tenants - which are not governed by the Residential Tenancies Act, we assess a late fee ($50) and charge interest on overdue accounts at the rate of 1.75%/month.
- Investor · Century, FL · Member since 2015 · 950 posts · 603 votes11y
Originally posted by @Theresa Nicoletto:
Originally posted by @James DeRoest:
Originally posted by @Dawn Anastasi:
I think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property. It's the PM's job to pick tenants that are going to pay on time and in full each month. If they have a turnover within the first year then there should be no tenant placement fee until at least after a year. There has to be accountability with this.
Don't think it makes any sense whatsoever. What is the job of the property manager?
They are managing the property because you can't or won't. The key word here is managing.
What they are not doing is providing any sort of guarantee, they are not an insurance company, they are a management company. The clue is in their title "property manager".
Tenants who are late require the property manager (your agent) to do more work. Does your company do things for free?
I disagree. Property Managers get 10% for managing the property. They are not incurring the risk associated with the late fee... No matter what happens ... If the tenants pay, they make 10%. If they don't pay, they get 10%. The late fee is due the owner who is out the $ when it is late.
And who does the tenant call at 10pm when the toilet is blocked? You, the owner, or the property manager?
I do not understand why you and everyone else is bitching about a $50 late fee? Are you all so broke that $50 is that important?
I'm guessing that many people see past the dollars and are counting pennies over sums which are so insignificant.
If you feel that $50 is a lot of money, then owning investment properties is not a good use of your energy.
In another thread, I'm incredulous that people are willing to stump up $4k for a sewer line repair, when I paid $2.5k in January for the same thing - yet you lot are bitching about $50?
- Oklahoma City, OK · Member since 2015 · 96 posts · 55 votes11y
Originally posted by @James DeRoest:
Originally posted by @Theresa Nicoletto:
Originally posted by @James DeRoest:
Originally posted by @Dawn Anastasi:
I think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property. It's the PM's job to pick tenants that are going to pay on time and in full each month. If they have a turnover within the first year then there should be no tenant placement fee until at least after a year. There has to be accountability with this.
Don't think it makes any sense whatsoever. What is the job of the property manager?
They are managing the property because you can't or won't. The key word here is managing.
What they are not doing is providing any sort of guarantee, they are not an insurance company, they are a management company. The clue is in their title "property manager".
Tenants who are late require the property manager (your agent) to do more work. Does your company do things for free?
I disagree. Property Managers get 10% for managing the property. They are not incurring the risk associated with the late fee... No matter what happens ... If the tenants pay, they make 10%. If they don't pay, they get 10%. The late fee is due the owner who is out the $ when it is late.
And who does the tenant call at 10pm when the toilet is blocked? You, the owner, or the property manager?
I do not understand why you and everyone else is bitching about a $50 late fee? Are you all so broke that $50 is that important?
I'm guessing that many people see past the dollars and are counting pennies over sums which are so insignificant.
If you feel that $50 is a lot of money, then owning investment properties is not a good use of your energy.
In another thread, I'm incredulous that people are willing to stump up $4k for a sewer line repair, when I paid $2.5k in January for the same thing - yet you lot are bitching about $50?
Hey, sorry if I hit a nerve. I'm sure you are a great property manager. Tenants calling you for the broken toilet? That's why you get 10%, right? :-) Anyway, I'll structure my contracts with the late fee going to me... You can structure them so they go to you. Let's agree to disagree. And don't worry about the use if my energy... I've got plenty. :::: Big Hug::::
- Investor · Dayton, OH · Member since 2014 · 20 posts · 2 votes11y
It's all good, people. Sure didn't think that my novice blunder would cause such a fuss, lol. Anyway, I do agree to disagree and next time, as I mentioned before, I will be on guard for my next PM contract. Thanks all for chipping in on a topic that apparently hits a nerve with a lot of people.
- Laurel, MD · Member since 2015 · 101 posts · 30 votes11y
Originally posted by @Roy N.:
Originally posted by @Account Closed:
Ihe:
That really depends on where you are. Here locally landlords may charge a late fee that, under the Residential Tenancy Act, is not to exceed the amount a bank charges for a dishonoured payment. Bank NSF charges vary from $45 to $55.0 CAD at the Big-5 Banks at the moment. Ironically, for us, this works out to between 3% and 5% of rent depending upon the unit. The purpose of the late fee is indeed to make the landlord whole for a dishonoured payment on the part of the tenant.
That's $35 - $45 USD.
Ihe:
That is immaterial. The fees were still $45 - $55 CAD three years ago when the CAD was 1.02 USD. The point made is the amount is roughly 4-5% of our median rent.
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Roy:
The point you are making about the % is coincidental but irrelevant . The fact that it is a flat amount as opposed to a percentage is what makes the argument that the landlord is being made whole in the contract tenable. The provisions in your Residential Tenancy Act for late fees are consonant with contract law and it was probably carefully drafted to be so.
The post you responded to and the OFT guidance did not state that late fees are unlawful as a matter of course. Rather it asserted that the typical late fee clause in most leases (mine included) probably is.
The upvote was made in error but no mind. - Investor · Century, FL · Member since 2015 · 950 posts · 603 votes11y
I self manage. Only person I can trust is me (and the wife).
But I don't worry about $50. The day I worry about $50 is the day I have much bigger problems than a tenant being late to pay their rent.
And for what it's worth, I don't charge tenants $50 late fees because by and large - my tenants don't pay late. And when they do (unless they have a really good reason and record), I evict them. I don't play games and nickel and dime people.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Phil Mays:
It's all good, people. Sure didn't think that my novice blunder would cause such a fuss, lol. Anyway, I do agree to disagree and next time, as I mentioned before, I will be on guard for my next PM contract. Thanks all for chipping in on a topic that apparently hits a nerve with a lot of people.
The take away from the the responses IMO isn't really about the late fee. That can go either way. Everyone is free to disagree about how and when PMs are compensated. The issue is that you don't appear to know what your agreement says. That's kind of significant. Have you read the lease agreement the PM signs with tenant? Make sure you know what's going on at your house and with your tenant,
- 11yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
@Account Closed
The point I was trying to illustrate is that a late fee base on percentage of rent - as others have indicated in this thread - is not materially different than then our flat fee capped by bank NSF/dishonoured payment charges. Here, you would be fine to charge a percentage of the rent as a late fee, provided you did not exceed the amount of a bank dishonoured payment charge (the CAP).
Yes it is coincidental, but, at least in this market, consistent. At the core of both are the same economic pressures.
- Real Estate Investor · Maryborough, Queensland · Member since 2015 · 8 posts · 0 votes11y
Hi Phill, it seems PMs and real estate agents share similar traits on both sides of the Pacific, I have experienced similar disappointing dealings. You mentioned it would be a hastle changing PM and I was looking for some advice please. We are in the process of purchaseing a couple of SFH with tenants in place and with a PM.
Can anybody advise if the contract with the previous owners and PM continues to bind us as new owners in any way. Obviously we wish the tennant to continue enjoying the property and paying rent but would like to negotiate terms upfront with the PM or move on.
Thanks Lance
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Theresa Nicoletto just to clarify your post... PM's get a % of what they collect.. if they collect no rent they get no money.
For many of the lower end assets I see people buy if I was PM... I would charge a monthly flat fee equal to 15 to 20% of rent and I would insist on it being paid whether there was rent or not.. More like an Asset management company.. not a property management company.. as many of these assets are that tough to manage.. and this is why there is so many mixed results... If a manager does not get rent.. he does not get paid and that home can kind of fall through the crack.. next thing you know it gets broken into its stripped and the owner is in a world of hurt.. sitting in LA wonder what the heck did I do :) But again depends on the asset class totally..
- Oklahoma City, OK · Member since 2015 · 96 posts · 55 votes11y
Originally posted by @Jay Hinrichs:
@Theresa Nicoletto just to clarify your post... PM's get a % of what they collect.. if they collect no rent they get no money.
For many of the lower end assets I see people buy if I was PM... I would charge a monthly flat fee equal to 15 to 20% of rent and I would insist on it being paid whether there was rent or not.. More like an Asset management company.. not a property management company.. as many of these assets are that tough to manage.. and this is why there is so many mixed results... If a manager does not get rent.. he does not get paid and that home can kind of fall through the crack.. next thing you know it gets broken into its stripped and the owner is in a world of hurt.. sitting in LA wonder what the heck did I do :) But again depends on the asset class totally..
You are right. I misspoke.
- Fort Worth, TX · Member since 2011 · 70 posts · 28 votes11y
I want to make a distinction on how property managers get paid; Most are compensated based on COLLECTED rents, while some are paid based on SCHEDULED rents. Ensure your PM contract denotes compensation based on COLLECTED RENTS so they only get paid if you get paid.
I am a property manager and investor and I see the merits of both sides of the argument, but I find it pretty crass to go straight to the "unethical" argument when it is in clear print in your contract. As mentioned earlier Texas automatically sends the late fee to PMs based on its standard promulgated forms used by the Texas Association of Realtors. You don't have to like it (in which case our particular type of capitalism in the US is perfect for you because you have the right to choose) but to claim it is outright unethical is a little extreme.
Lastly, it is no easy job serving two masters as a PM - owner and tenant. You are serving two parties whose interests are often at odds with each other and to pull it off well takes a special person. It takes a lot of managed properties to get to the point of making any sort of real money and I think that could be part of the reason why some feel the need to take advantage of owners, which is a shame but also the truth.
The take away definitely seems to be knowing your contract and how your PM makes money; don't be afraid to ask that. Remember, when you interview a PM that will mostly be the very best you will ever see them, so if they are rude, short or impatient then it will only get worst once they have your money.
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