Property manager pocketing late fees

Michinori Kaneko · 2019-07-19T15:47:33-07:00

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!

Daniel Hennek

Lender · Lewis, CO · Member since 2017 · 218 posts · 159 votes

7y

"Industry Standards" usually amount to whatever people can get away with; that's a lot different than something we should all accept on it's face as good and ethical practice. Incentives get things done for better and for worse. I don't see why PMs can't manage their business structure well enough to have operating costs built into their standard fees. Having these add-ons for common property management tasks represents to me someone that could learn to sharpen their pencil better and offer their clients a more simplified fee structure that is also profitable.

It's your job to negotiate with these people business to business. If you're unhappy or you think something isn't right then find another PM; there are lots of them out there willing to compete for business and negotiate fees. If you are in a small market where there aren't other reputable PMs then you might be stuck with using who you've got or learning to manage things on your own. If that's the case maybe there is room in the market for another PM firm; start your own! If you are a fairly large client then you're going to get much more flexibility with a PM. You have to understand where you fit in the marketplace and make moves accordingly.

The bottom line is that it's a negotiation and you'll get what you can get out of them.

7 Reply

Terry Lowe

Member since 2019 · 7 posts · 3 votes

7y

My property manager is golden. She knows her business very well, she knows the market rental rates, she rents my units quickly, she has a 6th sense about which tenants are going to be best, She understands all the laws. She is very good at creative solutions to avoid conflict. How much is she worth? My answer is always “more than she earns”. Every time she re-rents a unit in a week, I am earning way more money than I would if I was self managing and rented it in a month, or more! That is where she is worth every dollar she earns. A late fee is nothing compared to a fast turn around and a great new tenant. If you can do it better than your PM and you have an ABUNDANCE of extra time, do it yourself, or find a new PM, if they are truly not doing a good job.

1 Reply

Matthew DennehyPro Member

Concord, NH · Member since 2016 · 86 posts · 82 votes

7y

There are more than a few investors who complain about property managers and how they structure their fees. After all, don’t tenant placement fees and late fees incentivize managers to do their jobs poorly so they can bill more?

The answer is not really. There is definitely a possibility that a bad property manager can take advantage of a fee structure, but your job as the investor is to make sure you hire the right property manager and review their actions to ensure they are reasonable.

The idea behind the fee structure is that it keeps costs low for investors as it is a pay for service system. The base fee of 8-11% covers the costs for day to day management. Beyond that, there are fees generated when your managers does a significant amount of additional work. Collecting late rent can be a challenge and often requires more than “just a phone call”. Tenant placement often requires multiple showings, screenings and etc. Why would you want a higher base fee to cover these costs when you aren’t necessarily going to use them? It’s much better to pay as you go.

The bottom line, property managers bill for the work that they perform. No investor likes unit turnover, late rent, or evictions. In a perfect investing world, none of those would come with an investment. Unfortunately, the negative comes with the territory, and at the end of the day it’s better to pay a property manager to deal with the issues so you can get back to sipping margaritas on the beach 😃

3 Reply

Daniel Kong

Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes

7y

Ive got to completely agree with @James Wise . While we can sit and debate all day whether the PM keeping the late fee is “ok” or “fair”, ultimately it is the market that decides whether it will continue. If you dont like paying the fee, there is nothing stopping you from leaving your PM and going with someone who doesnt keep the late fee. Of course if 80% of PMs can keep the fee, you have to ask yourself - Why do the other 20% not? Do they make it up in other fees? Are they desperate for business? Are they willing to get paid less out of the goodness of their heart? Good Luck with your decision either way!

4 Reply

Brit Hale

Real Estate Agent · Joplin, MO · Member since 2018 · 112 posts · 96 votes

7y

@Daniel Kong boom. Exactly. The market makes the rules and if you don’t like the company keeping $25-$50, why not just self manage and collect all the late fees and save the 10% yourself! Oh, you aren’t local? Well, uh... good luck!

2 Reply

Anthony Wick

Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes

7y

@Michinori Kaneko

Read half your post. Fire the PM.

2 Reply

Matt MacDonald

Jacksonville Florida · Member since 2019 · 56 posts · 37 votes

7y

I’ve worked in real estate & property management for the past 15 years & most of the companies I’ve worked at the management company keeps the late fee. I now own a real estate company & management company in Florida & my management agreement states we keep the late fees. I disclose this up front in the management agreement this way everyone is on the same page prior to us entering a business relationship. It may vary by company, state, City, etc.

0 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

7y

Originally posted by @Daniel Kong:

Ive got to completely agree with @James Wise . While we can sit and debate all day whether the PM keeping the late fee is “ok” or “fair”, ultimately it is the market that decides whether it will continue. If you dont like paying the fee, there is nothing stopping you from leaving your PM and going with someone who doesnt keep the late fee. Of course if 80% of PMs can keep the fee, you have to ask yourself - Why do the other 20% not? Do they make it up in other fees? Are they desperate for business? Are they willing to get paid less out of the goodness of their heart? Good Luck with your decision either way!

Great elaboration with the 20% who are charging less than the majority. Hiring the cheapest vendor in any industry always comes with a down side. All vendors are in this to make money after all. If their only way to obtain market share is to undercut on their own income there is a problem with their product, service, skill level or business acumen. Reminds me of those folks who hire their GC's off of Craigslist then wonder why it didn't work out lol.

2 Reply

Cindy Meyer

Investor · Bastrop, TX · Member since 2015 · 53 posts · 28 votes

7y

The man that manages my properties is also my boss. He charges flat 8% for all rent collected, so he makes nothing if my tenants don’t pay. He does get a fee for tenant placement, but he is a broker so the money he makes is not something that any other broker would not make in getting a place rented: Typical fee is one month’s rent, but the majority of that goes to the agents involved and he puts in quite a bit of time himself making sure the right people get in the unit.

He does keep any Late Fees charged (typical for the area), however he also often does what one poster suggested and covers the unpaid rent out of his pocket, reimbursing himself when the tenant pays. He does not count on the Late Fees as extra income and never cares one way or the amount of money late payments bring in. If he didn’t get that money any more he wouldn’t care one way or the other, BUT it would be a nightmare for me. Majority of my job is dealing with tenants to bring in the rent and Late Fees are one of my big bargaining chips. I work with the tenants to make sure the money comes in and being able to waive or lower the fees lets them know I am being fair. If that money had to go to the owners I would have no choice but to enforce them fully.

Not only that, you have to realize the tenants don’t always willingly or immediately pay the Late Fee. Out leases here normally state that any money they pay goes first outstanding fees or charges and then to rent; therefore, when they don’t give extra to cover the Late Fee it means they are not paying the full rent. We would be posting notices left and right for nominal amounts of money, which would really tick off the tenants!

This all said, the most important point is that he manages my properties because I trust him. If you question the actions or motives of the person in charge of your investment then you either have to have a sit down with them or you must move on to someone else.

1 Reply

David London

Rental Property Investor · Queen, NYC · Member since 2018 · 63 posts · 22 votes

7y

@Michinori Kaneko I got annoyed as well when I saw in the contract my management pocket late fee to themselves...but over all they seemed professional...are good with communication and their base fee were much more competitive then other PM in the area...I would be much more concerned about the inability to cancel contract quickly (mine is 30 days which sound reasonable)...I would start looking for another PM and in your case since you have multiple properties...would start moving them one by one as they go out of contract...informing the PM company in a letter very professionally for the clauses in their contract which make you move your business elsewhere...if they figure you represent a growing portfolio maybe they'll reconsider.

One of my most important criteria when I chose my target market was that it will be large enough metro to allow PM variety. IMO the PM is the one professional who influence the investment success the most...with all the others you interact for very short amount of time.

And for all those who suggest one should self manage...it's nice to have the option...but if you live in NYC you have to cross at least 1 state line if not more to get decent cash flow.

1 Reply

Ed Tamayo

Investor · Sugar Hill, GA · Member since 2014 · 168 posts · 97 votes

7y

@James Wise

Property managers keeping the late fees would be unacceptable to me as that would expose me to having unhappy renters being charged fees for the benefit of the management company.

I have seen this happening in a HOA. I had a house that I rented and it turned out that the management company for the HOA set the fees, imposed them and got to keep the monies and to top it all, they would not report that income to the HOA. I found out about this as I was selling that house but had I kept it I would have run for the board to restore some sense.

The business model of the management company should not include keeping the fees they impose because people tend to do what benefits them.

1 Reply

Irina Belkofer

Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes

7y

Originally posted by @Ed Tamayo:

@James Wise

Property managers keeping the late fees would be unacceptable to me as that would expose me to having unhappy renters being charged fees for the benefit of the management company.

The business model of the management company should not include keeping the fees they impose because people tend to do what benefits them.

Late fees are not paid freeely by Tenants - they are imposed by the PM in order to train Tenants to pay on time.

In the order to incur the fees and later collect them, it takes extra PM and bookeeper’s efforts: reconciliation, giving notice, sometimes meeting and talking to Tenants.

Nobody wants to place bad Tenant in the order collect extra few $$, it’s much more efficient to collect PM fees almost automatically rather than create that hassle.

If PM company keeping late fees is not acceptable for you, you’re free to find the one which is not. In some areas it’s not the case - you read your PM agreement and try to negotiate. If market is 99% onto something, why would any PM do this job for free?

ps would these tenants be happy if their late fees would be pocketed by the owner? Who did nothing to collect these fees? How that would make them happy Tenants?!?

1 Reply

Mike CumbieBusiness Member

REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes

7y

Before you sign the new contracts on all of the other properties I would shop around and see what you find. There is nothing wrong with that. Find a PM who aligns with you. I am not a property manager for anyone else's property.

That being said I would expect them to keep the late fees. If you have a $1000 a month property and they are at 8% they are making $80. Of that 1/3 goes to paying an employee to do it, 1/3 to taxes and expenses and 1/3 to profit (26.40 for each a month). If a tenant pays late then there are more steps that have to be taken, notices, calls etc. Being on the phone for 30 minutes hearing why rent can't be paid and explaining that a late fee is charged would sound fairly common to me. Someone driving to the property to post notice etc etc.

Property managers are in the business of providing a service for a cost. They are not "investing" in your property through good times and bad. It is no different than a landscaper. You can pay every week to cut the grass and all is well. But if someone drives across the lawn, the owner is paying more to have it fixed. The landscaper is not at fault for failing to have big enough bushes to prevent that. The service is above and beyond the standard service. In this case the PM is keeping the late fee which means payment did come (and they got it). So the cost is fixed and expected (service). Investments are not fixed or expected, they fluctuate. If you end up with a rockstar tenant pays early for 10 years, keeps the property immaculate, spends 3 weeks a month out of town. You will make out very well. The PM will get exactly what the contract said on day 1 because no additional services are required.

Just my 2 cents and good luck on however you decide to go with it.

4 Reply

Bob Hance

Highland, MI · Member since 2019 · 7 posts · 8 votes

7y

@michinori kaneko. Great info on PM’s. Think like a business owner! You know a great manager. Hire her for your business. Ask her if she is interested in going out on her own? One golden rule of business is to hire good people, help them succeed and they will work for you for life and be loyal. good luck.

2 Reply

Travis Lloyd

Real Estate Broker · Fairfield, CT · Member since 2015 · 312 posts · 231 votes

7y

There is a lot of talk about PM fees on this site, and I think its important to understand that most of the PMs that people here are dealing with are small to medium. And just as many of the investors here glean insights into practices from 'the big boys' (PE funds and REITs), so too do PMs from their 'big boy' equivalents.

So to understand a little better the PM business side, you should look to the billing practices of the large PM companies across the country. Their standard is not 10% flat fee - the standard is closer to 3% of gross collections, but that 3% covers only Normal Business of Administration (accounting of rents received, receiving and recording of bills, payment of bills and expenses for the property, ensuring taxes are current, and being the front line of contact for tenants). ANYTHING beyond that is billed hourly, and that rate ranges depending on exactly where you are, but we billed out at $100 in NYC, $65 in Kentucky, and I think $75-80 in Florida?

What gets billed hourly? Everything beyond Normal Business of Administration: attendance at court or municipal services, granting entry to contractors and subcontractors, visits to assess damages or respond in person to calls from tenants! Basically if we leave the office, we're getting paid. This will sound absurd to those of you paying a small company/person 10% to handle everything - but this is how its done among the largest PMs and anyone wielding portfolios over 1k units.

So to the point at hand: who gets the late fee? At a corporate PM, the late fee is deposited to the owner's account, not kept by the PM. HOWEVER, that late fee (and the rent collected) likely took at MINIMUM 1 billable hour to actually collect - and so the PM bills the property for that hour! So I can understand how some smaller PMs who charge a more simple rate structure of 10% flat are pining for that late fee - a collected late fee represents additional work. Because most tenants who pay late don't simply send it in late - they usually require a bit of prodding.

With all that said - to the OP - its a bit absurd of them to spring new contracts on you with no warning, that include so many changes. They will act like all of that is "the new boilerplate" - but everything's negotiable. Push back and get an agreement that suits you!

3 Reply

David Stumpf

Rental Property Investor · Baltimore, MD · Member since 2017 · 142 posts · 125 votes

7y

@Cindy Meyer Thanks for letting me know Fantasy Island exists! :p

@James Wise I was not implying that PMs are not worth paying. On Tenant turnover a PM can place a tenant faster and deal with the phone calls and headaches that a LL wants nothing to do with. There are 2 reasons why I would not allow the PM to keep late fees in @Michinori Kaneko's case.

1. The PM changed the terms of the contract without notifying him. They just sent him a new contract and, luckily being a prudent person, reads it and that's how he found out of the change. This is not comparable to the rent increase someone suggested because as a LL we give 30/60/90 day notices before an increase; not showing up with a new lease with changes to price and terms without notifying the tenant and hoping they blindly sign it without noticing. I believe it to be dishonest and poor business.

2. While PM do work hard and deserve recognition for the amount of work they do, I think that keeping the whole 5% late fee I charge is overpaying for the service preformed. Before anyone gets upset, here is how I got to that conclusion:

My system for self managing and late fees

-Rent is due on the 1st, If not paid an email is automatically sent at midnight (no time or effort on my part)
-If not received by the 5th, a 5% late fee is added, another automatic email sent, also a Payment Reminder letter sent. My all my letters are sent up as PDFs that auto fill by importing information from an excel rent roll spreadsheet. The total time to open the letter, auto fill, print, sign, place in a pre-addressed envelope, and stamp is less then 3 mins. I just timed it to make sure. A phone call and/or text to the tenant is made (5 mins to listen to their excuse and reply with "I'm sorry to hear that but the rent must be paid). Also note that the vast majority or late rents are collected after this step (total time as of the 5th, 8 mins.)
-If not received by the 10th, a pay or quit notice is sent 1st class and certified, 3 mins in the form, additional 2 mins to print addresses on a certified receipt and return receipt. Also another phone call (5 mins). (total time as of the 10th, 18 mins)
-Rarely if ever is rent paid if not paid by this step and usually goes to eviction which, if the PM handles, should charge additional for. Also I would be willing to pay additional for postings at the property if it goes that far.

I would expect a professional PM to be at least as efficient, but I will round up from 18 mins to 30 mins for costs like stamps, certified costs, time to walk to the mail box. My 5 % late fee is an average of $75. That would equate to paying someone $150/hour to send 3 letters and make 2 phone calls I also consider that it often takes less work and that additional work rarely produces results.

I'm constantly trying to learn so if there is something I am missing, please let me know. This is what BP is about, hearing arguments from all sides to learn and improve as an individual and as an industry.

3 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

7y

Originally posted by @David Stumpf:

@Cindy Meyer Thanks for letting me know Fantasy Island exists! :p

@James Wise I was not implying that PMs are not worth paying. On Tenant turnover a PM can place a tenant faster and deal with the phone calls and headaches that a LL wants nothing to do with. There are 2 reasons why I would not allow the PM to keep late fees in @Michinori Kaneko's case.

1. The PM changed the terms of the contract without notifying him. They just sent him a new contract and, luckily being a prudent person, reads it and that's how he found out of the change. This is not comparable to the rent increase someone suggested because as a LL we give 30/60/90 day notices before an increase; not showing up with a new lease with changes to price and terms without notifying the tenant and hoping they blindly sign it without noticing. I believe it to be dishonest and poor business.

2. While PM do work hard and deserve recognition for the amount of work they do, I think that keeping the whole 5% late fee I charge is overpaying for the service preformed. Before anyone gets upset, here is how I got to that conclusion:

My system for self managing and late fees

-Rent is due on the 1st, If not paid an email is automatically sent at midnight (no time or effort on my part)
-If not received by the 5th, a 5% late fee is added, another automatic email sent, also a Payment Reminder letter sent. My all my letters are sent up as PDFs that auto fill by importing information from an excel rent roll spreadsheet. The total time to open the letter, auto fill, print, sign, place in a pre-addressed envelope, and stamp is less then 3 mins. I just timed it to make sure. A phone call and/or text to the tenant is made (5 mins to listen to their excuse and reply with "I'm sorry to hear that but the rent must be paid). Also note that the vast majority or late rents are collected after this step (total time as of the 5th, 8 mins.)
-If not received by the 10th, a pay or quit notice is sent 1st class and certified, 3 mins in the form, additional 2 mins to print addresses on a certified receipt and return receipt. Also another phone call (5 mins). (total time as of the 10th, 18 mins)
-Rarely if ever is rent paid if not paid by this step and usually goes to eviction which, if the PM handles, should charge additional for. Also I would be willing to pay additional for postings at the property if it goes that far.

I would expect a professional PM to be at least as efficient, but I will round up from 18 mins to 30 mins for costs like stamps, certified costs, time to walk to the mail box. My 5 % late fee is an average of $75. That would equate to paying someone $150/hour to send 3 letters and make 2 phone calls I also consider that it often takes less work and that additional work rarely produces results.

I'm constantly trying to learn so if there is something I am missing, please let me know. This is what BP is about, hearing arguments from all sides to learn and improve as an individual and as an industry.

Why do you think your opinion of what is overpaying a Property Manager applicable to anyone? I am not arguing whether or not the Property Management Company keeping the late fee is a justifiable fee. My opinion on the matter is irrelevant, as is yours. The market has determined that it is an appropriate fee.

1 Reply

David Stumpf

Rental Property Investor · Baltimore, MD · Member since 2017 · 142 posts · 125 votes

7y

i forgot to mention I did not really expect a PM to actually pay rent from their pocket if they wanted to keep the late fee. It was more of A Modest Proposal solution meant to be satirical, but it is interesting that someone does have a PM that does that.

0 Reply

Timmi Ryerson

Property Manager · Ketchum, ID · Member since 2016 · 277 posts · 132 votes

7y

A contract that allows a Property Manager to keep late fees is an incentive not to collect rents on time. I am not sure why they would want a separate contract for each property as they could easlily list the individual properties in an overall contract. But if you agree to do this, if you decide you want to sell a property it would not affect any other contract. That is unless you cannot sell a property until the contract is over. I would not agree to the Manager getting the late fee unless they fronted the rent money. It sounds like they are having issues making their company successful and have someone helping the reorganize. What are they doing with fees and security deposits? If they are charging pet fees which are non refundable, you should be getting those. It goes the same for any kind of fees charged on your behalf.

1 Reply

Kenny Dahill

Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes

7y

While it is a free market, that doesn't imply contracts are mutually fair nor the current system in place is the best model. Regardless if we're talking about the industries of property management, insurance, planes, trains or automobiles.

The simple fact is property management as an industry has a lot more power than a single landlord with only a few properties. Property manager's have the leverage to create a 'take it or leave it' mentality; power of free market. Until the landlord party as a whole has enough leverage to challenge then one shouldn't expect anything to change.

Landlords also want champagne on a beer budget. I'm sure overtime the property management industry began lowering their monthly fees and subsidizing them through miscellaneous fees like late rent. How a management company structures their fees is a business decision. I've seen certain regions that majority of PM's don't receive the late rent fees but they're generally not associated as C/D rental markets either. I've also dealt with landlords in low income D areas that want their PM to manage for 5% and 50% leasing bonus on a $400 rental... mind numbing.

The fact that truly reflects the management industry is the percentage of rental properties that are self-managed. While it's hard to pinpoint exactly, numerous reports range from 65-85% are self-manage. In my opinion, that indicates an issue with property management whether it's cost or service.

3 Reply

Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

7y

@Michinori Kaneko

They are trying to renegotiate the contract. Not the end of the world. Redline what you don't like and send it back. This happens literally every day in business. If you can't arrive at a comprise, move on, but realize the grass isn't always greener on the other side.

You have said your PM is great. Awesome, you found one of the good ones, now pay them accordingly. You and @Caleb Heimsoth
have raised some interesting points about incentives, but I think you
are falling prey to a common fallacy on BP about all PMs being created equal and that they provide commodity-like services. That's false.

Good ones can command a higher price. That's a fact, but the terms are negotiable. If I was in your shoes, I'd try to get you and the PM pulling in the same direction by paying a flat fee of 12-18%. You can figure out the exact number based on your long term income and expenses, but we all know that turnover is what kills cashflow in this business and that structure incentives the PM to minimize turnover, within the constraints of the asset class. It smooths out your cashflows, keeps you from falling into the common BP PM trap of being penny-wise and pound foolish, and most likely will end up saving you time/headaches.

4 Reply

Ed Tamayo

Investor · Sugar Hill, GA · Member since 2014 · 168 posts · 97 votes

7y

Originally posted by @Irina Belkofer:

Originally posted by @Ed Tamayo:

@James Wise

If PM company keeping late fees is not acceptable for you, you’re free to find the one which is not. In some areas it’s not the case - you read your PM agreement and try to negotiate. If market is 99% onto something, why would any PM do this job for free?

Correct. If somebody were to propose something like that to me. I would move on or find a way to avoid an arrangement like that. As a landlord, I rather collect rent and not impose and collect fees from the renter. A PM that collect the fees will have an incentive to collect a fee and there will be an open door for a conflict of interest between me as a landlord and the PM.

3 Reply

Steve Maginnis

Property Manager · Charlotte, NC · Member since 2012 · 135 posts · 156 votes

7y

It's always amazing to me how so many property owners use the blanket term "managing my property" to encompass everything associated with their property. I've had owner ask if we cover the mortgage when the property is vacant or tenants don't pay. Or if we pay for any and all repairs, cover eviction costs, etc. As if their management fees would include all of this... I have to hold back my laughter.

The biggest issue causing strife between owners and managers is expectations. Both parties should work hard to be clear about what to expect when working together. Owners, don't be afraid to ask questions about how everything will be handled. Don't assume if you have used one company before that all companies release funds on the 10th each month. Ask. Managers, don't be afraid to fully disclose everything to your prospective clients. I would rather paint you a bleak picture of worst case scenarios, than to mislead you in to thinking we are perfect and you will have a brilliant experience. I plan for the worst, but expect the best. If you disclose everything and have it in writing, it may not keep an owner from getting upset when things go wrong, but at least they can't say you didn't warn them. The term "shady manager", in my opinion, is withholding pertinent information or being misleading in order to lock owners in to a contract and then take advantage of them. To what end? for a few bucks? And to jeopardize any reputation you may have and open yourself up to possible lawsuits? It's absolutely not worth it.

We keep late fees. I used to split them and there's nothing wrong with that. However, now we are running promotions of 5% management fees, and 30% leasing commission. There is a good bit more work involved to collect late pays. Yes, it would be nice financially if everyone paid on the 6th each month, LOL. However, I personally like to keep my owners happy. I would much rather keep a tenant in place rather than have it come vacant and have to go through all the marketing, showing, etc. again. My financial motivation hardly comes from hoping tenants will be late.

For the original poster, yes, I think your PM was being shady by not letting you know about those changes in advance. Maybe they hoped you would not read the agreements. I agree you may need to find a new company to work with. Trust is very important in these relationships. Bottom line, do your research and come up with a list of as many scenarios as you can think of and ask how your next PM would handle those scenarios. Find out exactly what you will be responsible to pay. Run some numbers and figure out what your overall management costs will run you and factor that in to your budget. Make sure everything is in writing. Best of luck.

2 Reply

Michinori Kaneko

OP

Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes

7y

@Steve Maginnis Yes I agree. i understand this is business, so i would not call them "Shady" for proposing a fee change. the reason i said it was shady was like you said they tried to change everything into by property contract (and there by sneaking in these changes without notifying the existing investors of these changes). If I were a new investor to the PM i would not have called them Shady (although that still doesn't mean i would agree with them pocketing the late fees).

@Bill F. yes I agree, but there are two things like i mentioned. first is that these fees didn't exist before and they tried to add it to "new" contracts without first disclosing these changes were made to the investors. Second is yes my manager is great, but she is not the one getting paid. she is not the one pocketing these additional fees (or so i am hearing). if i am seeing additional fees being charged to me, i would anticipate that there is somehow a better service that is provided to me than before. Perhaps i failed to mention i believe the sole purpose of them trying to increase these fees is they moved to bigger nicer office (they hired someone new, another broker/PM). that does not benefit me in any ways that they get more comfy chairs and nicer desks, or that they hired someone that doesn't really have anything to do with my properties. and if they are trying to increase the fees just because they want to pay off for that... that i have issues with. They need to have the new guy bring in the income to support those increase in the fees...

@Mike Cumbie thank you your comments were REALLY insightful and helpful.

@Bob Hance yes definitely! I am only at 9 properties, but i would definitely consider that as i grow!

@Irina Belkofer if you were to self manage, wouldn't you charge a late fee to your tenants for not paying rents on time? wouldn't that mean making sure you collect the rent (whether or not its collected late or on time) part of managing the property? In your mind, why would that extra work not fall into what we are paying for the property management fee? Not all tenants are easy to manage, not all properties are easy to manage. I don't pay just to manage just the easy ones. i pay a flat fee to manage for good and bad because there will be some that are easy and some that are bad. If they get to keep fees just for the bad ones, then i shouldn't be paying them flat management fee for tenants that don't ask much and always pay on time? Have you heard of PM giving a fee break because the tenant was so easy to manage? then why should they get to get compensated additional for the hard ones?

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Irina Belkofer

Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes

7y

@Michinori Kaneko we are not discussing my management style or particular prices, this is the question in general: why PM pocket the late fees.

That’s why:

1. To train Tenants to not be late

2. Because it involves extra work and somebody has to spend time - extra time in comparison to what it’s normally takes.

3. I sure do give discounts: if there are few properties, if properties are located in A-B areas. But we don’t discuss me here - all that discussion for YOU to understand WHY your PM pocket the late fees.

I think there are plenty of good answers but you feel like reading only these which you like.

Good luck with that: this is a free market and you’re free to find a PM which will be up to expectation. I’m just stating what the market dictates.

BTW, my friend in Cali has a rental and her PM charging $70/mo. In Cleveland it's 10% or $100 for SFR whichever more.

If you have multiple properties, you might negotiate better rates. I have my own agreement and never force anyone to sign, however, I don’t negotiate on PM fees on $800-900/mo rents - most tenants in that price range has family emergency every first of the month. I spend hours every month talking, driving etc - if not the fear of the late fees, they all would pay next month.

If I wouldn’t get paid for all that extra work, I’d rather go through eviction - it’s my lawyer job and the owner pays. If you don’t like the rules - I can’t help, DIY. There are plenty of PM in the world - choose whoever fit your bill

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Property manager pocketing late fees

Property manager pocketing late fees

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