Property manager upcharges?

Question

I'm going over the PM agreement with a new property manager and there are a few things raising a red flag to me that I'm wondering if they are standard (or becoming the standard):

-an additional 10% (on top of the 10% monthly) for each time they authorize a repair or maintenance. Seems redundant to me- isn't that a large part of what we are paying that 10% in the first place?

-$25 charge for quarterly property inspections. Interesting thank you for the insight.  I have mixed feelings about for the same reason.  While it seems redundant and feels like it's part of their job anyway, it helps to ensure it actually gets done.

- keeping late fees.  Seems to encourage putting in tenants who would be more likely to pay late/ discourage following up to make sure they pay on time.

Michael Ablan · Answer

@Thuy Pham-Satrappe -  Sounds like a company that stays in business by nickel and diming their customers.  I wouldn't be surprised to hear they grossly overcharge for repairs as well.  I'd keep interviewing

Kenny Dahill · Answer

@Thuy Pham-Satrappe, that's unfortunately the price to play the game.

10% maintenance markup:  Maintenance should be expected, therefore I would argue any maintenance items should be covered in their monthly fee.  Repairs are not expected, they could raise their monthly percentage to account for an average or add this 10% whenever needed.  I personally have an issue with a percentage rather than a flat rate.  Calling for a plumber to replace a water heater ($900) and a locksmith ($100) take the same amount of effort.  A $25-40 flat fee should be more than reasonable.  If they insist on the 10%, you better have the right to view all their proposals and invoices in full detail and on the vendors paperwork, not theirs!  It's not uncommon for PM's to pass on the invoice to you but on their own invoice with no cost breakout.  That's the danger of allowing a percentage instead of a flat rate.

Quarterly Inspection:  Eh, it's a decent way to spend $25.  But ask them what an inspection entails.  Drive-by or actually walking through the unit and making a list of all damages, checking filters, etc.  Every PM offers an annual inspection free, and most charge about $50 per additional.

Late Fee: Welcome to the landlord vs. PM battle!  As a landlord myself here's my thought: my risk, my income.  Unless the PM is willing to guarantee rent pay out of the tenant of PM's pocket, those late fees should belong to the landlord.  But the industry as a whole is more powerful than an individual landlord.

How can you counter the Late Fee?  Have them put into the contract their tenant replacement and eviction policy is.  For $25 late fees, are you going to represent you free of cost at court?  Make sure they give you a specific duration in months.  Meaning, if the tenant moves out or gets eviction within the first ## of months, the PM will place a new tenant without another leasing fee.  You don't want the tenant to get eviction in 4 months and then pay for another tenant placement.  Insult meet injury!  I say specific month because every response I always got was "oh well we never have eviction problems", or "it's not a problem but we find new tenants".  The devil is in the details.  This protects you.

Alex Smith · Answer

Peter T is right. A PM company will most likely not survive on just management fees alone. This is especially dependent on the types of house(s) that they are managing.

We keep 100% of the late fees and there is a substantial thread on here about whether PMs should keep the late fees. A PM doesn't want a tenant in the home that's not going to pay on time. At least I hope they wouldn't. Sure we get the late fee, but we also have to follow up with the tenant multiple times and communicate with the homeowner about what's going on for as long as the situation continues.

If you don't feel comfortable with what a PM charges, then keep interviewing other folks.

Peter Tverdov · Answer

That's very common for property management companies. Contrary to the belief of @Michael Ablan it's a very low margin business to run and that's how a lot of them survive. I'm not crazy about them keeping 100% of the late fees (we are exploring keeping up to 50%) but companies marking up on repairs and charging for quarterly inspections is not uncommon. I have a company in Central NJ and we just charge a flat fee without any markups, or additional fees, but that might change in the future as we grow and need to hire more staff.

Property manager upcharges?

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