Property manager pocketing late fees
Hi BP,
I have used my property manager for about 9 months now, so far i've been happy with what they have been doing. I signed a contract with them back then, and every property which I have acquired and managed has been added onto this first contract i signed back from 9 months ago.
Yesterday, out of blue, they have changed their policy and reverted to having contracts signed for each property. That in itself was not too surprising to me, because i thought that's how it should be in the first place. However, what DID really get to me is that they have actually increased fees, added new fees, extended period which you can cancel the contract them without paying fees. This was NOT COMMUNICATED in anyways to the investors, and they simply say I now need to sign contract for each one. Within the list of property which I got notice for was one property which they have been "managing" already from more than month ago (it's just that they haven't found a tenant for it yet), as well. There are many things wrong and unprofessional about this, but what caught my eyes the most is there was a line saying that any late fees collected from late payment of the rents will be kept by the property manager. This does not make any sense to me. As an investor, I am liable for all expenses. If the tenant does not pay on time, 1) I am still paying all the expenses so I am the one that's hurting, and 2) the reason we have a tenant that doesn't pay on time is the managers fault to begin with (although i do get no matter how much diligence you do you will always have few bad ones). I wanted to ask to the BP community if it is a common practice for PMs to keep late fees on rents? If there are increases in fees or changes in agreements, do your PM property communicate to you BEFORE you sign a new contract? Thank you for your feedback in advance!
@Ricardo R. @Timmi Ryerson pretty much summed up all my points. Yes you charge fees on rents collected. but i don't pay management fee to collect rents. if that's all then there's no hassle i can do that with free online tools anywhere any time. property MANAGEMENT is managing what's happening, including selecting tenants, making sure they pay the rents, and take care of the property. You placed the tenant, if they don't pay that's on you, not on me as an owner. why should i pay you extra for selecting a tenant that's not going to pay timely? If you screened well, you shouldn't have to deal with late fee that often. I still have bills to pay on my property whether or not the tenant you placed pays or not, so its your responsibility to make sure a good tenant is placed and that they pay timely. Why should i give a interest free loan to the tenant so you can collect the interest?
@Michinori Kaneko correct. It is your investment, we provide you with a service regardless. You are also correct if... we placed a Tenant we (us, don't know about anyone else) don't expect you to continue paying PM fees, which is why we collect it from the Tenant through late fees, which WE have imposed through OUR agreement with the Tenant. Again the alternative would be for us to stop all management services until your payment was received for the services we continue to provide. No one ever agreed to share the financial burden with you on your investment, again we're not a financial partner, we're a service provider. And you are also correct in mentioning that you can manage it yourself.. just like you can also mow the lawn yourself and clear the snow yourself... nothing wrong with that. Just keep in mind that your PM may have access to services that will make your life easier or that most owners just dont have access to.
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Property Manager
- G3 Management & Investments
- 810-844-1104
- http://www.G3Manage.com
Originally posted by @Ricardo R.:Again the alternative would be for us to stop all management services until your payment was received for the services we continue to provide. No one ever agreed to share the financial burden with you on your investment, again we're not a financial partner, we're a service provider.
that is not service provider or property management. If you did this all you are doing is collecting rent IF they pay, i hardly call that a management. Definition of management:
The organization and coordination of the activities of a business in order to achieve defined objectives.
from http://www.businessdictionary.com/definition/management.html
and for this i am paying "management fee".
Now i will say that the original PM that made me want to post this thread also charges 10% surcharge on maintenance (yeah they hire some contractor and make 10% of the service cost). Maintaining the property, and managing the tenants/income are the two thing i would look for in a property management. If i'm getting charged a surcharge for maintenance, and they are pocketing all late fee, what am i paying management fee for (rather what does "management" include?). needless to say they no longer manage my properties, maybe your situation is different, and maybe you have an OUTSTANDING service that would make me ok with you pocketing a late fee if it only happens once or twice a year (but even then, probably not 100% of it).
I may not have written this in the original thread either, but this manager let a tenant stay for 3 months with unpaid rent until i questioned about it. their lease clearly stated that if the balance is not paid by 5th of the month, they get a late fee, and if the total balance is not paid by the 15th they get evicted. They didn't follow their own lease (for 3 months!!!!), but hey when i finally pushed for it and the tenant finally paid off everything they kept all the late fees because they "worked so hard to collect it" while i paid 3 months of mortgage, insurance, and taxes out of pocket and giving the tenant a free loan for 3 months. This is why I am really sensitive about this topic right now.
@Michinori Kaneko I feel like you and I are getting closer to aligning our thoughts on this. I agree with you - there are SO MANY other factors regarding your management agreement that just giving out a blanket statement on whether the PM keeps the late fees or not is justified, is just not possible without knowing all the information in your management agreement. Truth be told... I DON'T know what you're paying for or how much. However, for instance if rent is missed our PM company will 'pull' the rent from the Tenant's account if needed and if that fails we assess late fees but have a cap of late fees at $140 (self-imposed) and we move to notice on the 4th of the month (not 3 months later), we also guarantee your tenant for months after we place them (and no we don't have to, not many PMs provide it) and not to mention we divulge our Tenant selection criteria to you before you sign on.... so.... at what point here are our interests not aligned? -- To go even further, no we don't up-charge on maintenance... So here we are... after doing everything we possibly can to 'guarantee' a Tenant for you... have provided you with certain capabilities
that you might not have access to yourself to ensure rent is paid and have backed and screened your tenant (to a degree the quality of tenant)... you're saying that, it doesn't matter and we should CONTINUE to provide management services i.e. fulfill work-orders, ensure scheduled mowings and etc. are conducted as scheduled, continue with inspections as scheduled, coordinate maintenance, etc. FOR FREE -- I'm sorry but it doesn't and has never worked that way and the market doesn't work that way either.
On that note... it's a fine line if it's okay or not for your PM to keep the late fees... for instance if your PM is going 3 months without doing anything else other than pocket lates fees... then yeah.... probably not okay - but then again are they trying to collect?, have they sent out a notice of non-payment?, are they trying to keep you from evicting? I don't know. If your PM is getting paid on rents due instead of rent collected, then probably no there again. Again no idea what you do and don't pay for in your management agreement. Just pointing out that for good PM's out there, there is a method to 'WHY' late fees are kept and it should be seen as an attempt by us to still service your property while shifting the burden of payment on the Tenant - again within reason, not 3 months!
Are we close now?
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Property Manager
- G3 Management & Investments
- 810-844-1104
- http://www.G3Manage.com
Grace days are a courtesy to the tenant. Late fees are an incentive for the tenant to pay on time... and they most often work to make tenants understand how important it is to pay on time. Our Property Manager is very good at screening tenants and teaching them the importance of paying on time. She is also very good at helping us to make money She is a professional who knows the laws, the proper rents, pays attention to tenants and owners needs and preferences. Her job is time consuming and she deserves her pay.
My PM takes a small % of the late fee. If your PM takes the whole thing you should shop around. Maybe that’s what your local market dictates, maybe your PM is just garbage.
@Ricardo R., totally agree that net cashflow is not the PMs responsibility. They cannot control the financing of the property.
A tenant guarantee encourages shared-risk between PMs and Landlords. I’m in favor for that. Most don’t offer it.
@Michinori Kaneko I totally agree with you!