Late Fees: does your property management get to keep it all?

Question

Hey guys!

According to an agreement with our PM, they get to keep all the late fees that incur if tenant doesn't pay rent on time. Would you have accepted that paragraph in the contract?

Thanks!

Bill Gulley · Answer

Good point Sam.

Who suffers the financial and economic loss incurred by a late payment? It's not the PM so much, doesn't cost anymore to receive a payment on the 9th than it does the 11th,  if it does, please explain how.

Now, if a PM takes on a financial responsibility to advance rents regardless of that period collection, then the PM suffers, but who does that? None I know of. Same if a PM pays rents even if uncollected, pays on the 15th and gets the rent on the 19th.

The collection efforts of a PM are in the charge to manage, part of management is to collect rents. What they are asking for is simply a gig fee with some twisted logic to justify reaching in an owner's pocket, so no, my PM didn't keep anything except the charge to manage. And, I don't have a PM to hold funds either, rents are payable as they clear, it's not their money, it's mine and it passes through their escrow account.

Paying for additional collection efforts is fine, when those efforts actually become "additional efforts" they usually have to give notices, go knock doors at some point, but some of those efforts are part of management. I don't pay someone to sit and stare at my property, there are usual and customary services required, one is accepting the payment and remitting funds to me. I'd just like to hear the justification as to why the date a payment is made creates some difference for the manager.

Now, another theory is when rents become an obligation of a servicer or escrow function. If I have an agreement where funds to be received become my obligation to another then I'm taking a financial risk and would be entitled to fees in receiving a late payment.

Same aspect to loan servicing or collection of hospital bills or car payments clearing some collection service, if the obligation exists then the collector is entitled to additional late fees.

But if there is no financial risk to a collector they are only passing funds through as received, that's simply management.

Seems PMs get creative trying to justify more money without any real economic justification out of simple greed. Someone here thought they were entitled to past pet deposits due when a tenant got a pet a couple months ago, as if the additional rents and deposit was somehow an amount they had a claim to. They didn't get it!

Larger complexes have on sight managers, employees, think they get late fees? No, they get paid for management duties including making deposits. Giving additional notices is part of the job.

It's pretty much the entrepreneurial PMs that simply look for ways to increase income by cutting duties and functions then charging again for a function that should be part of the management duties. If you have a buffet of service fees then the cost of getting into that line should be less than the full meal to begin with.

It is negotiable but I don't pay for things at a going rate and then pay again when service is actually performed, unless I'm compensating for something that is actually an additional service beyond what was initially expected. It's pretty much the principal of things rather than the money with all kinds of service providers. I don't mind telling some company employee that something isn't my policy after they tell me it's company policy and if it's significant, I don't bend, I'm not obligated to their company policy, I don't work for them.

Justify your price and I'll pay it, justify a fee and I'll pay it. Don't let folks take your money simply because it's their policy! LOL

JERMAINE LUCAS · Answer

Jermaine here, this really get me going!. I am still unable to get a good reason why I should let a property management company take my late fees when it is there job to find tenants that pay on times (good tenants) and I paid them to find that tenant them I paid them again to collect the rent, which they was unable to do, so they don't do what I paid them to do (collect the rent) and now they want a reward for not doing there job my late fees!  Please!! I am yet to receive a good reason.

Jesse Waters · Answer

That's how my contracts are set up.  I view it as compensation to the property manager for having to hassle the tenants to pay, which is usually the case.  Alot of property managers don't send checks to the owners until the end of the month anyways, so as long as the tenant pays before the checks are in the mail, then it really doesn't affect me.

I also view it as something that I could have negotiated with the manager on, but it might have cost me something that I might not want to give up, such as a lower management fee for having the number of units that I have with this manager, 8% vs 10%.

Joel Owens · Answer

I think many investors make a mistake about not researching how management is run in an area and how tenants pay BEFORE they purchase a property.

A larger apartments as a buyer you will interview current management and then 2 to 3 other companies.

You will see how it is ran and fees paid and then get ideas for how it could be better. You might stick with current management or make a change. You let current management not get to comfortable as they know you have options.

The larger commercial companies we use for retail have a 1 year agreement but you can cancel at any time month to month. The NOT LOCKED agreement keeps them performing month over month or they lose the business. Kind of like I go work out at YMCA. You pay monthly and if they do not keep the place up you cancel the membership and stop paying.

That versus the old ways of clubs where they lock you in a for a year and you have to pay so they do not do a good job as you are trapped.

Paul Ewing · Answer

Only if they agreed to pay me the rent on time regardless of what the tenant does.

Bryan H. · Answer

Depends on the rest of the contract really. I'd look at it as a whole, not just that part. It's a small part to give up in exchange for other items.

Account Closed · Answer

For us, it's 50/50.

Nik S. · Answer

The PM Company I hired lets ME keep the late fees HOWEVER they charge me time to deliver the 3 day notices. Generally it's either $18.50 or $37 when they deliver 3 day notices for me.

The company charges me the % of income and the late fees ARE included in that sum.

This works better for me as I don't have to put 3 day notices all the time and some people make arrangements pay the late fee as there schedule doesn't allow them to pay on time. I don't serve the tenants 3 day notices who make prior arrangements.

Dawn Brenengen · Answer

If l pay the owners as agreed by the 15th, they are not out anything if the rent comes in on the 10th. Actually, I take on the risk by paying my owners even if the check or ACH might not have cleared by the time I pay out.  It's written into my management agreement, and none of my owners seem to have a problem with the process. I don't upset tenants by collecting the fee. I'm happy to work with people on a case by case basis, and my management software automatically adds the fee to their account online, so I'm not calling and demanding late fees from tenants (although I will call tenants when they are late if they haven't called me first).

Late Fees: does your property management get to keep it all?

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