Property Manager Not raising rents as requested
Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes
Property Manager Not raising rents as requested
Most Popular Reply
Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
7y@Scott Houin, this can be a tricky situation, especially not knowing the condition and details of your property and tenants.
I am curious, are management fees based on rent collected or expected?
- If collected, then they would have an invested interest to raise rents which makes their decision more validated.
- If expected, there is no invested interested and your frustrations are definitely more validated.
Make sure you understand your management agreement. Here are some considerations:
- Termination Clause: Is there a fee for termination? They just signed a 12-month lease and some terms state you owe the management firm all their fees even if terminated. So you're forking up that 8-10% of AGI to end the relationship. Plus the additional 8-10% you will pay another firm for the rest of this year
- Lease Renewals: Confirm if there is language stating the owner's request for rental increases and the responsibilities the management company must take. If it specifically calls out this situation, they could be in breach of contract.
- Breach of Contract: What notifications must you give the management firm if they breach or are in breach of their contract? This might be your exit without paying fees. However, you'll need to follow contractual terms which might require written notifications and an opportunity to recuperate.
I think the most important suggestion and considers are :
- Besides this, how happy have you been?: Finding a property manager can be difficult, especially if your property is not highly desirable class. If everything has been great up until this, can you get over this mishaps?
- Can you negotiate?: Consider a conversation with the broker and state that you have been happy with their service, if true, but this really bothers you. If you've been happy, give them the chance to correct it. While not ideal it ever occurred, perhaps they waive their renewal fees so you recuperate some of the lost revenue.
- What will it cost to get a new management firm?: This is not just monetarily, but time and stress. If this is the first hiccup, be reasonable and realistic that you might strike out on another 2-3 PM's before you find another great firm. Plus the time it takes to find a new property manager. Trust me, we work with landlords and finding the perfect property manager can take time! Interviews, comparing rates, reviewing their agreements, etc. That time adds up.
- How much it'll cost for new management?: I indicated earlier in this post that you might be on the hook for termination fees. Plus potential legal fees if that gets messy! Or legal fees for reviewing the new PM management agreements.
If their service has not been bad and this is their first mishaps, be reasonable and give them the opportunity to correct it. Plus it might show their true colors; good or bad. Even if you do decide to get a new property management company, it might make more financial sense to wait for the current management agreement to end so you avoid the termination fees.
If the frustration is so severe that you don't mind paying all the extra fees and costs associated with it, then find a new one and move on. Make sure this 'situation' is addressed in your interviews and, more importantly, called out clearly in the new management agreement to better protect yourself.
96 Replies
- Real Estate Investor · Springfield, MO · Member since 2012 · 39 posts · 14 votes7y
Yes, the fact that they didn't contact you in advance to discuss the increase and simply did what they wanted to is enough reason to fire them. I would even discuss with my lawyer about holding them accountable for the lost revenue. May depend a bit on what is in your contract with the property manager.
- Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes7y
@Scott Houin, this can be a tricky situation, especially not knowing the condition and details of your property and tenants.
I am curious, are management fees based on rent collected or expected?
- If collected, then they would have an invested interest to raise rents which makes their decision more validated.
- If expected, there is no invested interested and your frustrations are definitely more validated.
Make sure you understand your management agreement. Here are some considerations:
- Termination Clause: Is there a fee for termination? They just signed a 12-month lease and some terms state you owe the management firm all their fees even if terminated. So you're forking up that 8-10% of AGI to end the relationship. Plus the additional 8-10% you will pay another firm for the rest of this year
- Lease Renewals: Confirm if there is language stating the owner's request for rental increases and the responsibilities the management company must take. If it specifically calls out this situation, they could be in breach of contract.
- Breach of Contract: What notifications must you give the management firm if they breach or are in breach of their contract? This might be your exit without paying fees. However, you'll need to follow contractual terms which might require written notifications and an opportunity to recuperate.
I think the most important suggestion and considers are :
- Besides this, how happy have you been?: Finding a property manager can be difficult, especially if your property is not highly desirable class. If everything has been great up until this, can you get over this mishaps?
- Can you negotiate?: Consider a conversation with the broker and state that you have been happy with their service, if true, but this really bothers you. If you've been happy, give them the chance to correct it. While not ideal it ever occurred, perhaps they waive their renewal fees so you recuperate some of the lost revenue.
- What will it cost to get a new management firm?: This is not just monetarily, but time and stress. If this is the first hiccup, be reasonable and realistic that you might strike out on another 2-3 PM's before you find another great firm. Plus the time it takes to find a new property manager. Trust me, we work with landlords and finding the perfect property manager can take time! Interviews, comparing rates, reviewing their agreements, etc. That time adds up.
- How much it'll cost for new management?: I indicated earlier in this post that you might be on the hook for termination fees. Plus potential legal fees if that gets messy! Or legal fees for reviewing the new PM management agreements.
If their service has not been bad and this is their first mishaps, be reasonable and give them the opportunity to correct it. Plus it might show their true colors; good or bad. Even if you do decide to get a new property management company, it might make more financial sense to wait for the current management agreement to end so you avoid the termination fees.
If the frustration is so severe that you don't mind paying all the extra fees and costs associated with it, then find a new one and move on. Make sure this 'situation' is addressed in your interviews and, more importantly, called out clearly in the new management agreement to better protect yourself.
- 7yNed J.Pro MemberInvestor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
Bottom line for me is that THEY don't get to make that call...... if they disagree with my opinion, then we can discuss it and then I will decide which way to go, Its not their decision....it mine. If they feel like its a bad idea and I do it anyway, then that's on me....
I would be pissed....they either make it up in some way or I walk.
- Rental Property Investor · Wilmington, DE · Member since 2018 · 36 posts · 23 votes7y
It's very interesting that they decided to disregard your request on YOUR property. I would look into a new PM company and possibly legal action based on the lost income. Best of luck!
- Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes7y
Thanks for all your responses. I did check the PM agreement and it does state in there they have discretion to establish rates subject to me notifying them in writing. They were notified multiple times via email and they responded confirming the request. No mention of not being able to raise the rates or bad market conditions during those request.
I'm not sure I can take much legal action as a lawyer would eat up a lot of the fees, but I have reached out to them asking what evidence they have that wouldn't support the increase and why I was never informed. As @kenny Dahill suggested I will attempt to be reasonable and give them a chance to correct their error. If they respond inappropriately we will be giving them notice and finding a new company, which we might do anyway. I don't want to burn any bridges in town as Columbia, MO is a small town.
Thanks again this was helpful.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@James Wise Jim any comment on this.. ??? boy I never raise rents .. to raise rent and have a vacancy over 25 a month is very foolish in my book. you lose so much doing a turn over and release fee etc etc.. Unless they are substantially under market by 100 to 200 or something like that.. to me this is climbing over dollars to pick up pennies.
And to hire a lawyer over this is totally foolish.. cant even suggest anyone would say that.. I mean come on man.
lets let some reality and logic come into the discussion other than sue the bastards.. LOL
- Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes7y
@Jay Hinrichs You don't ever raise rents? This is interesting. I always thought a slow and steady increase would be better then an abrupt increase 2-4 years down the road. Eventually won't your properties be under priced with inflation? Or do you just wait till they turnover and then raise rates. I curious to hear your thoughts on this because I have a mentor that told me they raise rents every year no matter what and i should do the same.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Scott Houin:
@Jay Hinrichs You don't ever raise rents? This is interesting. I always thought a slow and steady increase would be better then an abrupt increase 2-4 years down the road. Eventually won't your properties be under priced with inflation? Or do you just wait till they turnover and then raise rates. I curious to hear your thoughts on this because I have a mentor that told me they raise rents every year no matter what and i should do the same.
I no longer have rentals.. but when I did and I had over 350 sfr's we never raised rent.. until vacant. turn over KILLS you in this business at least with C class assets which 90% of BP folks own.
if your talking high end A class that can be different.. but with C class they just move.. you know just lost thousands.. all over maybe 250 bucks for the year.
but do what you want.. I suspect your manager was looking out for your bottom line even if your not or you don't realize when you have a vacancy how much its going to cost you to As I stated do the turn over.. re lease it.. vacancy and in many areas target for vandals and thieves. that's my perspective.. but then again I let people stay for free if I like them.. and I give homes away for free to charity LOL.
So just the other side of the coin your mentor is probably much better at this than I am.. But bottom line turn over KILLS returns.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
Originally posted by @Thomas S.:
Not only would I fire his a** I would have my lawyer send a demand letter for them to compensate you for lost income for a year.
lol This is a nonsensical.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Scott Houin and this knee jerk reaction to get a lawyer is stupid to the 10th power.. no one does that over a few hundred bucks.. if they STOLE all your rent money that's one thing.. but this is a simple matter if you don't like what they did fire them.. but get a lawyer lets get real the people that would say that have Zero experience in litigation or legal matters.. its just a default saying.. if your really that upset .. maybe you take them to small claims court and see what judge judy has to say about it.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Wise:
Originally posted by @Thomas S.:
Not only would I fire his a** I would have my lawyer send a demand letter for them to compensate you for lost income for a year.
lol This is a nonsensical.
yup pounding in a nail with a 20 pound sledge hammer LOL.. it cracks me up what people even think a lawyer can or will do.
if I got a letter from a lawyer over this I would read it and just throw it away.. I would not even respond.. LOL but then again 40 years and lots of lawyer letters later I may be a little more thick skinned than many.. and for sure I know liablity as opposed to just pure emotion and in this business some of the folks always say you have to take emotion out of it.. getting a lawyer over this is simply an emotional response.
- Member since 2016 · 13k+ posts · 12k+ votes7y
There are two types of income investment property owners. Those that base their investment on maximising income and will automatically increase rents annually, knowing that expenses rise constantly, and are pro active in management.
The second type place the value of their investment completely on owning the property not on the income. For them the goal is primarily to cover the costs and keep management to the bare minimum. The very idea of a tenant turn over is paralyzing and for that reason will avoid anything they think might trigger a move.
Cost of turn over is the excuse, the reason is to avoid having to manage their investment.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
Originally posted by @Jay Hinrichs:
@James Wise Jim any comment on this.. ??? boy I never raise rents .. to raise rent and have a vacancy over 25 a month is very foolish in my book. you lose so much doing a turn over and release fee etc etc.. Unless they are substantially under market by 100 to 200 or something like that.. to me this is climbing over dollars to pick up pennies.
And to hire a lawyer over this is totally foolish.. cant even suggest anyone would say that.. I mean come on man.
lets let some reality and logic come into the discussion other than sue the bastards.. LOL
The Property Manager gave a reasonable response to why they didn't raise the rents. The comments about suing them is just obnoxious & nonsensical. Anyone suggesting that is talking out of their rear.
As for what the poster or any other owner should do going forward I've got two thoughts.
1. If you want to hire a Property Management firm you need to take stock of the type of person you are. Do you want to be hands on or passive? If you are the type that wants to be hands on you need to hire yourself a small time firm, like a one man shop. Doing this puts you in the driver seat as they are more or less an employee. So you can dictate pretty much everything they do, which you can't do with a big Management Firm. Thing is employees make mistakes ya'll. Part of the business. You want control you're going to get all the pros & cons with having that control. Dealing with employees mistakes is a big part of this.
2. Just shooting from the hip I'd imagine the Property Manager has a better handle on the market then the owner. There also isn't some big incentive for the Property Manager not to raise those rents other than working in good faith to make the owner the most money. Again goes back to #1 do you want control or do you want to be hands off? If you want the control you need a one man shop but I find that the difficulties of the Management business burn a lot of these folks out & your churning through a ton of low quality individuals & you may end up at the doorstep of a bigger firm after a year or two of the merry go round.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
@Scott Houin See above response....It wasn't letting me tag your for whatever reason.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@James Wise the one man shops are were you risk losing all your RENT :) when they walk off with all the rent proceeds and don't think it does not happen.
Also in the past 10 years with small time SFR rentals being Soup De Jur have to be mindful of competition.. Jay just bought a home on your street and did a 20k remodel on it its spotless and fresh.. and your rental has been lived in for a few years and well you see pictures JIm puts up about how tenants treat their places.. you simply run the risk of your tenants moving into a brand new remodel.. and now you have to do a turn over to compete. I don't know the competition there but its real in many markets.. and tenants at those dollar amounts think of nothing to move they don't have a lot of possessions generally and can move in a matter of hours.. you have to take that all into consideration.
- Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes7y
Originally posted by @Scott Houin:
@Jay Hinrichs You don't ever raise rents? This is interesting. I always thought a slow and steady increase would be better then an abrupt increase 2-4 years down the road. Eventually won't your properties be under priced with inflation? Or do you just wait till they turnover and then raise rates. I curious to hear your thoughts on this because I have a mentor that told me they raise rents every year no matter what and i should do the same.
I’m super new to this however I slightly agree with Jay in his logic. I’ve had some turnover and that’s where I lost tons of my annual revenue because it cost so much to turn over a unit.
Because I was planning on the slight increase to slowly keep increasing my annual revenue. But if that 25 dollars is going to cause a month vacancy it will take me a year to recover that. If that happens every year mathematically I’d be better suited to just let the tenants stay at the current rate until they decide to leave and then turn over the unit and move the rent to market rate and repeat the process it’s the same amount of revenue (or more) with zero annual turnover headaches
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Account Closed:
Originally posted by @Scott Houin:
@Jay Hinrichs You don't ever raise rents? This is interesting. I always thought a slow and steady increase would be better then an abrupt increase 2-4 years down the road. Eventually won't your properties be under priced with inflation? Or do you just wait till they turnover and then raise rates. I curious to hear your thoughts on this because I have a mentor that told me they raise rents every year no matter what and i should do the same.
I’m super new to this however I slightly agree with Jay in his logic. I’ve had some turnover and that’s where I lost tons of my annual revenue because it cost so much to turn over a unit.
Because I was planning on the slight increase to slowly keep increasing my annual revenue. But if that 25 dollars is going to cause a month vacancy it will take me a year to recover that. If that happens every year mathematically I’d be better suited to just let the tenants stay at the current rate until they decide to leave and then turn over the unit and move the rent to market rate and repeat the process it’s the same amount of revenue (or more) with zero annual turnover headaches
YOu got it... TURN OVER KILLS returns … so I never want to be the cause of a turnover.. they are going to move on their own anyway. and if 200 or 300 a year makes a big difference in your life.. then you should not be in the rental game at all. this is about your tenants paying off your asset for you and then when they are free and clear your truly wealthy..
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@James Wise one last thing on the comment that you raise rent EVERY YEAR.. maybe you do by 5 bucks or something but you raise it 25 to 50 year in year out your will soon be WAY over market and will then have them sit on the market vacant.
espeically in the mid west rents are HIGHLY to VERY stable... alot of that is based on what hud will pay..
so if you think your buying an 800 dollar rental and it will go up year in year out.. I suspect your going to be dissappointed
alot of markets i work rents have been the same well over a decade. maybe moved 10 to 20% in 10 to 20 years. thats it.
- Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes7y
I'm don't want to manage the properties myself that I know for sure. I also agree that they probably have a better grasp on the market overall. However, just because I want to be passive doesn't mean I don't want to be communicated with. This is not a situation where i called them up once and asked them to raise rates. I actually reached out to them initially asking their thoughts on us raising rates.(over 6 months ago) They didn't mention any concern about vacancy or market rates. At that point i confirmed with them that we will be raising rates. They responded with "Sure no problem we will do that" I also sent them a reminder email 1 month before each lease renewal.
MORE INFO: This isn't the only issue we have had with them. We have had several issue with accounting and there numbers not adding up. They have made some unauthorized repairs which have cost me more then what was needed. They also have my property marketed incorrectly online. They have even paid me as much as 2 weeks late then per contract.
I would prefer my investments to be mostly passive, but i also don't want to be taken advantage of. I don't own a lot of properties so maybe that's why. Is it totally unreasonable of me to expect communication on these issues? Is this normal behavior from PM's and something I will just have to deal with or should I expect more from them?
- Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes7y
@Scott Houin the communication is the issue here, not the failure to increase rents. Every unit is different and there are a lot of factors that influence the decision to increase rents. Your PM has to respect your wants and needs, and if they feel you're being too much/acting against the best interest of the property they need to reset those expectations instead of handling business without you.
Remember, that one vacancy has a cost as well. Let's call it one month of rent losses, half of first month's rent for the new tenant, plus any repairs and administrative fees you incur in order to complete the unit turn. Could end up costing you a total of 2-3 months rent total. The best way to raise rents is to have conversations with the individual tenants in advance so that you understand their situations and how able/willing they will be to absorb a rent increase.
- Member since 2017 · 143 posts · 76 votes7y
@Scott Houin
I would request them to make the difference of lost revenue. If it is a large apartment complex I would consider a lawyer too, That is if they aren’t reasonable with coming up with a solution.
- All Over, USA · Member since 2017 · 689 posts · 756 votes7y
@Jay Hinrichs
That’s because all people talk about or think about is cash flow...that $25 is somehow supposed to make people financially free or wealthy.
The one or two months of vacancy across 1-4 properties to get that extra $275/year x 4 in this case, is never mentioned. Yet that vacancy cost is likely the equivalent of 2-3 years in cash flow (depending on rent rate).
Cash flow is King! Multi-family is King! *double facepalm*
- All Over, USA · Member since 2017 · 689 posts · 756 votes7y
@Jay Hinrichs
I don’t even really raise on my Class As, except in case of vacancy.
The appreciation and zero headache tenant is key for me. I have a rockstar PM team, and they are always confused when I say I’ll take care of minor stuff. Yet, they love working with me. They make my life incredibly easier being a very remote landlord, and I make their life easier by not being Scrooge to our tenants.
An extra $1200/yr in my pocket isn’t gonna do squat, when that same person is paying down my mortgages at $4k/yr and the property is appreciating at 6-10%/year.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Aaron Hunt:
@Jay Hinrichs
That’s because all people talk about or think about is cash flow...that $25 is somehow supposed to make people financially free or wealthy.
The one or two months of vacancy across 1-4 properties to get that extra $275/year x 4 in this case, is never mentioned. Yet that vacancy cost is likely the equivalent of 2-3 years in cash flow (depending on rent rate).
Cash flow is King! Multi-family is King! *double facepalm*
there was a post on BP that went on for like 1000 posts. it was title tenants say the dumbest things.
well there should be one for landlords.. IE landlords make some of the simplest dumbest mistakes with out knowing it..
I have seen this play so many times with landlords.. IE tenant does 50 dollar worth of damage.. landlord gets their back bowed up.. and next thing you know over 50 bucks they have a 2k vacancy.. LOL.. keep them there.. they will move on their own.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.