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
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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
- Flipper/Rehabber · East Brunswick, NJ · Member since 2018 · 64 posts · 152 votes7yChill out bro 25 bucks? Probably not even worth the time for them to change the price on the papers. And look I’m just speculating here but if you do something like that you probably bother them with all kinds of little ********. No offense but I would’ve ignored you too and used my time a lot more wisely.
- Austin, TX · Member since 2016 · 160 posts · 39 votes7y
@Scott Houin The answer is yes you should fire the property manager in your situation. A property manager should behave like someone who provides you the service and respect your decision as he is hired by you.
This is not to say whether this decision is right or wrong. He may have the best intention for trying to keep tenants for you. But you are ultimately the final decision maker, and your decision should override his decision at any time even if he is 100% right. If he refuses to work with you, he needs to go.
- Real Estate Agent · Marietta, GA · Member since 2018 · 25 posts · 8 votes7y
There's almost always at least a little room to grow SFR rents over the previous term, even in a declining market. Most tenants will not move over a reasonable increase. MF rentals CAN be a little different, but SFR is assumed in this post.
Any property manager worth their salt understands this. Firing your PM should depend solely on whether or not you can identify a better PM option in your area. Start by finding out their procedure around renewals, along with renewal fee, before making the move.
A GOOD PM should:
- Not only look to renew, but ALWAYS renew with an increase (even if it's small)
- Manage lease term expirations (Ex. Offer 14 or 15 month leases if expiring Dec-Feb)
- KNOW the local market, PLUS prepare current rental analysis at least 90 days prior to expiration to optimize rent growth potential
- Contact property owners with proposed increase PLUS lease term recommendation to gain agreement before sending out notices (some owners are actually afraid to raise rents and choose to play it safe so tenants won't move)
- Send out renewal around 75 days prior to lease expiration; assumes 60 day notice
- ALWAYS have a Hold Over clause in the lease agreement of at least 20% daily penalty to encourage tenants to sign before end of term
- Should NEVER tempt an owner with an increase so large it pushes out tenants. PM tenant procurement fees and turnkey costs will far outweigh the alternative. Savvy landlords know this without even mentioning it. New landlords BEWARE.
Make sure this procedure is baked-into the PM agreement to outline responsibilities. If it's not there, ask them to add as a Special Stipulation.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Wise:
Originally posted by @Nik Moushon:
Originally posted by @Jay Hinrichs:
Originally posted by @Nik Moushon:
Originally posted by @Jay Hinrichs:
Originally posted by @Nik Moushon:
I couldn't agree more with @Jay Hinrichs and @James Wise. The cost isnt nearly worth the effort. Just the phone call to the lawyer is going to cost you what you lost in rents. But lets take the potential loss in rent from turnovers out of the equation for a sec and consider just the fact that the management company purposefully did not follow the owners written request. How do you handle this? Is this something that you go in a have a serious one-on-one with the owner/manager of the company and try and find out why? Because at the end of the day, whether the rent raise is justified or not, whether the owner or the PM end up being right, is irrelevant and the owner gets to decide what should be done with the property not the PM. The PM should be giving advice and suggestions for the owners best interests but regardless of what the owner decides to do they need to follow the owners decision. It might be only $25/m now but what happens when its $100/m or a request for a repair or something else? Is the PM going to do what THEY think should be done or do what the owners says to do?
I'm not trying to argue one way or another here. Its an honest question.
the issue is a busy PM with thousands of units is not going to have the time to have a discussion over 25 dollar rent increase with one owner that has 2 or 4 units with them.. Jims point is if you want that kind of one on one you need a small shop..
I get the busy PM side. This being a small change and not really worth the effort. But that doesnt excuse that a professional company who, as one of their task that they get paid for, is to follow through on the requests made by the owner. It shouldnt matter how small or large of a request it is or if its a waste of time or not. Its their obligation to do what the owner has requested. Now if they want to make contact with the owner and try to show them that its a waste of time, both for the PM and the owner, then by all means they should do that. But if the owner insists that they do that rent increase do they not have a contractual obligation to do so? This is what I can't understand is why they would flat out not do what was asked of them and is in the contract to do so (unless there something in the contract that say otherwise of course). Its just bad business to refuse to do what the owner has request and not follow through with any type of response as to why they shouldn't or wont.
Nick not sure if you own rentals that are managed by 3rd party manager or not.. but keep in mind virtually anyone of them with any kind of business at all are free to make any decisions on the properties up to a dollar amount ( talking repairs and such) that's usually 300 to 500.. too many little things happen with these houses you can realistically talk to owners about all the little day to day.. you have to just trust they are doing the best for you.. just like getting 3 bids who has the time to marshal 3 bids for a 700 dollar job.. the top PMs that I know make the owner keep 2k in their escrow account.. and allow for 500.00 in unilateral decisions.. once 2k gets lower they have to fill the tank back up.. the PM's that don't require any kind of slush money end up in bad positions when owners refuse to reimburse and they they go down the tubes.. seen it happen a lot of times many times in fact.
I dont do use and have never used a PM service and dont plan to anytime in the near future, but never say never. So I was trying to get a more clear picture as to why exactly they did what they did. I wasn't trying to argue against them or support everyone screaming FIRE THEM! Sorry if it came across that way. I knew most PM were allowed to make decisions on small dollar amount repairs and such but not that the same thing applied to the rents. Thanks for taking to to explain.
It's all about learning dawg. All good. I think we've got some pretty educational content out on the web with this conversation.
I wounder if the general Anti PM, Anti Landlord, Anti this or that rhetoric that we see is why we don't have more seasoned Professionals posting on the forums more often.........Thoughts on this Jay?
right now Oregon is all in a tither over statewide rent control.. now that's something to talk about..
however rents in this state have gone up 50% or more in 10 years after a run of about 10 years of completely flat rents. Mainly because the second a renter can buy a home they do..
- 7yNed J.Pro MemberInvestor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
I can agree with the opinion that doing the rental increase may not be a great idea, but if I'm paying a PM company, what 10% of the rent EVERY month (plus fees for placement, turnover etc etc)....and 98% of the time they aren't doing ANYTHING but collecting the rent month after month after month...then when I do have some issue or concern come up, I expect you to respond to my inquiries......I don't expect to be completely ignored. I'm paying you EVERY month so that when I do have some issues I get the service I'm paying you for and that includes communication about MY investment
I'm paying you EVERY month whether they do anything or not to MANAGE my property and that includes communicating with me if I have questions or concerns. So if your PM company just wants to keep collecting their fee and do whatever they want with zero response to a customer inquiry.....since they just don't have time for your small time BS.....then yeah I have an issue with that company's service.
PM disagree with my desire to want to raise rent....ok....fine..... its not too much to expect a brief email or phone call to explain why ....that's it. That's all I expect for the monthly % I am paying you...don't think that's too much to ask
- Rental Property Investor · Long Island, NY · Member since 2015 · 490 posts · 301 votes7y
@Scott Houin I think it’s a business decision that the PM took out of your hands. Maybe the tenants threatened to leave over the increase and he figured you would be better off not having the vacancies. And maybe he was right about that. That being said that’s your call not his. Now you have another business to decision to make as to wether or not to fire him. Weigh the pros and cons of having to find a new PM against just giving this guy a stern warning and making sure he’s more transparent going forward. Don’t make an emotional decision about this because you’re upset. This is just another business decision and you need to decide if this is the PM that’s right for you moving forward.
- Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes7y
@Scott Houin I would fire them immediately. Remind them that you instructed them in writing to raise the rent and since they did not comply or discuss their own plan with you beforehand that you are using a new PM. Then when you get the new PM make sure you have it in writing that you must approve all rent renewal papers before they are mailed to the tenant. I would police the new PM to avoid this problem in the future.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes7y
I just read some of this.
I know owners with hundreds of units. They do raise rent each year BUT their rent is in the middle to lower 50% of market rents. So if a 2 bed rents for 600 to 800 then when they bought at XX cap rate the rents were 700. When they raise to keep up with inflation they want the tenants thought to be ( rent is going up slightly but this is still one of the lower rents in town). Their mind then thinks it's not worth the hassle for them to move over such a small amount.
When rent is at the top of the market any new product comes available (if locations are equal) will likely move to cheaper property or move to the newest facility paying for all the bells and whistles. They usually won't just stay there and pay rental increases for a place getting older and more tired looking compared to a new build. Landlords often to want to say HOT MARKET let's keep raising those rents up,up,up.
You really have to think very carefully about the decision,how much you raise by, and when. If the market has limited inventory and tenants have nowhere cheaper to go then it becomes supply and demand. It's all about inventory levels, quality of the location, tenant base, and new projects coming online.
I know nothing of the original posters portfolio quality so I am talking in generalities.
- Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes7y
This thread seems to have gone off track - so many posting about whether or not to raise rents.
The OP already made that decision... The PM was informed. The PM agreed. And then the PM did something very different without communicating.
I too would be upset.
- Englewood, NJ · Member since 2016 · 47 posts · 4 votes7y
I think talking about lawyers is a bit too much. Just get rid of them if your not happy.
- Los Angeles, CA · Member since 2019 · 512 posts · 301 votes7y
@Scott Houin
Either your PM has no tact or they simply thought they new better.
There is ups and downs to all this
I would simply move on from this and if you don’t like what they did now, chances are you won’t like what they will do on the future. PM can have hiccups like any business so decide who you want or do business with
#America #capitalism.
Don’t chase or sweat this imo
- Los Angeles, CA · Member since 2019 · 512 posts · 301 votes7y
@Scott Houin by don’t sweat this I don’t mean keep the same PM
- Real Estate Agent · Commerce CIty, CO · Member since 2018 · 127 posts · 78 votes7y
Fire the manager, they don't get to make decisions like that without consulting you. This wont be last time he or she defies you. Unless you have a contract with them that states its at their discretion to raise rents or to not. Don't bother getting a lawyer. Just let them go. Why do you even have to ask BP? Are you having a moral dilemma. Your the boss, if this isn't easy, rethink what you're doing.
- Rental Property Investor · Pflugerville, TX · Member since 2017 · 37 posts · 20 votes7y
@Thomas S. Agreed. Managing my parents portfolio I've learned it's best to maintain the investment, make incremental and proactive preventive maintenance every year. Be sure to keep an inventory and projection of major maintenance and save for it. That allows incremental rent increases to be easier for tenants to accept. Generally, this approach keeps tenants and owners happy.
- Rental Property Investor · Pflugerville, TX · Member since 2017 · 37 posts · 20 votes7y
@Jay Hinrichs In our Texas market, property tax increases due to valuation increases every year. No real choice but to share that increase with tenants or pretty quick your cash flow evaporates.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Kim Wendland:
@Jay Hinrichs In our Texas market, property tax increases due to valuation increases every year. No real choice but to share that increase with tenants or pretty quick your cash flow evaporates.
gotcha I would never own rentals in that market personally because of the tax situation the soil situation and hail and wind.
but that's just me. :) Many landlords that buy at the peak end up doing pretty poorly on a lot of Texas rentals.
and you can raise rent but people can move then your subject to a vacancy.
- Las Vegas, NV · Member since 2016 · 133 posts · 53 votes7y
@Eric C. I agree as well. I had a tenant turn over and my bank account is sitting lower than i would like due to the renovation. If you have quality tenants keep them as long as you can.
- Flipper/Rehabber · Columbia, MO · Member since 2016 · 27 posts · 31 votes7y
When I wrote this post I really was just looking for advice on the PM, but it kinda went off topic on to raising rents or not raising rents. I'm glad it went this way because I didn't think that raising rents $25 was really that big of deal and kinda just though that's what landlords did. LOL I agree with many of you that I don't think it's a good idea to raise rents if increasing the rents my cause more vacancy, but In this situation I'm not sure it would as I believe I am under priced by at least 50 maybe 100. The only way for me to know is to try. I really don't understand why you wouldn't maximize your ROI when you can. You can always go back to the lower rate if it doesn't rent for a couple of months and this is assuming your tenant doesn't just accept the increase. My daycare has raised my rates by more than this every year for the last two years, was I pissed yes, could i have found a different day care-yes, did I? No because in the end that would have been a hassle and overall i was pleased with the company. I guess my point here is why not try? I also think my perspective on this might be different this now because I only own a handful of properties and i'm trying to hustle to maximize my returns. I could see having a different perspective if i owned 300 units and was rolling in 30k a month in CF.
To get back on topic, I think the main issue with my PM is lack of communication. At this point I think it would be best to treat them like I would any other employee. I will reach out to the discuss my concerns, listen to their concerns(they could have a reasonable explanation or maybe I am micro managing) and see if we can set new expectations going forward. If we can't come to a solution then it's probably best we part ways mutually and professionally. No reason to burn bridges. i might need them later.
I'm sure it will work out in the end! Thanks again
@Account Closed
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes7y
Your property manager should listen to you. And your logic for raising the rents might be sound. You take the risk of getting a vacancy. A full service property manager probably makes more money anyway when the place goes vacant again. He'll get the releasing fees. And maybe he manages the turnover.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes7y
@Scott Houin if the question becomes “is it harder to replace a tenant or a pm”, I’m gonna go with pm every time. Some pm’s are incompetent, some are crooks, and a few of them are ok. Hold on to the ok ones. It’s a hard job, and unfortunately, ok PMs are hard to find.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes7y
Property manager is one of the lowest paying, most demanding, typically crappiest jobs out there in real estate. To be good at it you really have to love it and want to do it.
I will say this. The top 100 left to squeeze out in rents tends to be the hardest.
Alot depends on the age of your properties.
There is more loss than asking a higher rent and if it doesn't rent lowering it back down. The issue is an existing tenant might have been living in the property for years. To them the dents,dings, scuffed paint, worn carpet etc. looks normal. They move out and another tenant wants to move in and with a fresh set of eyes they notice everything. So now you might be spending thousands to get rent ready again at an acceptable level a new tenant would take the unit in versus an existing tenant.
If you get another 25 a month in rent but spend thousands to get a new tenant in per unit then value might be increased on the back end but will take a long time to get the money back in years.
The property manager maybe the communication system could be improved or maybe there was a misunderstanding it's hard to know. Inflation average is generally about 3% a year. I would maybe tell the property manager you respect their opinion and expertise and for them to prepare a detailed report outlining their postion why a 25 dollar annual rental increase is not sustainable. It would be telling if they have hard data to back up their position or were just lazy and did not want to deal with a tenant leaving, having to manage a rent ready rehab with the owner usually complaining how expensive it is costing, and landing a new tenant.
We usually look at a LOYALTY factor with tenants meaning - How long have they been there? Have they always paid on time? Have they taken good care of the property? etc.
My clients on the commercial side are on another level generally. These are people already millionaires to some worth tens of millions or more and their business or job throws off close to seven figures a year to them personally. So they care more about tax shelter, high quality property and location, cash flow is usually 3rd or more down on the list instead of 1st.
When net worth grows the mindset tends to change for many on accepting less headache for less yield. Someone with 200k at 10% return is only 20,000 annually. Someone with 2,000,000 at 10% is 200,000 a year for themselves before taxes. Huge difference in being able to be comfortable off of the cash flow coming in.
- Rental Property Investor · Member since 2019 · 48 posts · 38 votes7y
@Aaron Hunt I'm disturbed by the perspective held by many PM's in this thread. As in any line of business, there is no excuse for poor communication or failing to follow through with commitments. I've dealt with a lot of vendors in my line of work. If a vendor commits something and does not do it - worse if they have the attitude that they think they know better than me so their behavior is justified - that's how an amateur behaves and the vendor will be replaced then ushered to the door and they can take their attitude with them. There's indeed a difference between calling at all hours and being unreasonable versus expecting a PM to be available and having the integrity to do what they say they will do. And I'm not hearing a single PM defending that level of integrity.
- none · Member since 2017 · 49 posts · 24 votes7y
Originally posted by @Scott Houin:
About 6 months ago I reached out to my property manager in writing and ask them to raise rents on all my properties by $25. I reminded them to do this about a month before each lease renewed. When I got my lease renewals I was told by the PM rates were not raised due to market conditions. Three out of four of my tenants renewed there leases and I was never notified that they weren't going to renew if we raised rents. I feel they didn't attempt to raise rents and just simply asked them to renew. I also have done a market analysis on the rents in the area via MLS, craigs list and zillow and found that the rents we requested were well within the market.
Should i fire this management team and find a new one?
Scott, There are a lot of opinions and good arguments in the thread. Really at the end of the day 900 dollars over the course of the year isn't worth a lawyer. I would ask the PM to reduce their compensation for the year to offset their failure to execute your documented instructions. At the end of the day the PM could feel they were trying to do the right thing but they failed to communicate with you their concern or their intent to not follow-through with your instruction. This is a business of trust and unless they choose to make it right I would begin my search for a new PM. It's not the tenants fault and it's likely they didn't even know of the intent to raise rents. Frankly I've never known a tenant to leave over 25 dollars a month raise when in market range. It costs more than 300 dollars to move but it does make a difference with multiple properties over a year to an owner. Your PM is to represent your interest and even if they felt they were they did not. If they won't reduce their fee by 25 a month to offset the loss then I would provide them notice and hire a new property manager that will act in your interest (even if that means communicating they disagree with a request you make... at the end of the day they are managing your business and you are the owner) or take over management myself for a few months while I searched from another PM and recoup some of my loss. Just my 2 cents.
- Rental Property Investor · Member since 2018 · 6 posts · 3 votes7y
@Scott Houin in my opinion most of the management companies try to fill the units by keeping the rent low. This is mostly because they don’t want to market the units again. Checkout RentOMeter and see how much the rents are in 1 mile radius. If the average rents are way higher your property manager is lazy, he is not essentially working for your interest. It’s sometime good to have same tenants for long time, it doesn’t mean that $25 is going to make people move. There are lots of bad property managers. So look for one before firing this company.
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