Property Management Fees

Property Management Fees

Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes

Hi Bigger Pockets! I have been a member of this awesome community for several years now (at least a year before I embarked upon my first real estate deal ~4 years ago) & have learned so much! This is my first time posting or replying to a post though. I am hoping to get a little guidance with my property management company. Specifically with their fees.

So a little history with me, I have 3 residential homes that they manage. I live in a different state than these homes, so I am definitely needing/wanting a management company. 

I am hoping you all can give me some advice on if I am getting angry for no reason or justified in my thinking. 

The issue at hand is regarding a tenant who is behind on her rent, quite a bit behind on her rent. After having to get after them several months ago, they placed the tenant on a payment plan to get caught up... I don't think they would have proactively done this had I not put the pressure on them. Well fast forward to now and the tenant is still pretty far behind on their rent. So after reaching out and asking what is being done they ask if I want to put her on a new payment plan (they didn't answer my question on what was being done and what communication they had already had with her. I asked 3 times. It makes me think there is none and they are taking action only because I am putting them on the spot once again). I got a copy of their entire history with this tenant which also shows their fees they charge the tenant. This is something I don't normally see, I usually just see my statement of rents in, disbursements to me, and any expenses for my mgmt fees or repairs.

When viewing their statement I was a little bit shocked. Since January of this year, they have assessed the following fees:
NSF Fee (for a payment returned by tenants bank): $30*2=$60
Notice Posted Fee (them making a notice to tenant of late rent): $65*2=$130
Late Fee" $70*5=$350 
Missed appointment fee: $78*1

TOTAL: $618

Now I don't mind necessarily even mind that the PM takes the fees. I also understand that some of the fees, like the NSF fees, aren't even necessarily even going to them because they pay a charge for a returned payment. I also understand that they operate on slim margins. They are only making 8% of my gross rents (So for this property, they would make $672 for the year based off the 8% alone. Granted this is by far my lowest rent property). I don't even mind they charge 10% of any repairs that need to be done to cover their cost and time of setting up the repair and overseeing it. But in mind that this has created a culture where my tenant is $1200 behind in rent and they are making an additional $618 in fees. Fees that they take when the tenant does make a payment before giving me the difference of the rent minus this fee... Why would the be inclined to keep the tenant paying on time when they can make an extra $70 per late fee.

Thank you all in advance, I am definitely needing to get out of my own head with this and get some advice from you all. 

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y

As the landlord YOU should not be paying late fees to the PM.  I know some PM keep the late fees they collect FROM the tenant.  As soon as the tenant was late, they should have moved to start the eviction process.  I'd start interviewing new managers.

They should NOT be charging you a 10% fee to do repairs.  You pay for the cost of the repairs, that's it.  They oversee the repairs and call the repairman as part of their 8% fee that you pay every month. That is what you are paying them for.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    As the landlord YOU should not be paying late fees to the PM.  I know some PM keep the late fees they collect FROM the tenant.  As soon as the tenant was late, they should have moved to start the eviction process.  I'd start interviewing new managers.

    They should NOT be charging you a 10% fee to do repairs.  You pay for the cost of the repairs, that's it.  They oversee the repairs and call the repairman as part of their 8% fee that you pay every month. That is what you are paying them for.

  • Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
    7y

    @James Devereaux, there's a lot in here.  Warning, this might be a long reply! Haha.

    Let's start with the Tenant issues:

    • Cut Ties:  The only person winning in this situation is the property manager.  You're losing rent, stress and sleep.  The tenant is unable to save money and struggling.  Tell the PM that you would like to make a 'cash for keys' offer.  The tenant can go find a more affordable rental and you can get a new renter who pays on time.
    • NSF Fee:  PM's don't pocket that money. If they do, it's $5-15 at most.
    • Notice Fee:  This always saddens me.  It's a terrible under-communicated fee to both the tenants and landlords.  Somebody pays and is never happy.
    • Late Fees:  Unfortunately this is the penalty for paying late, and I'm assuming the PM earns 100%.  Which is pretty standard.
    • Missed Appointment:  Was this due to the PM sending out a handyman to their home and not getting access?  If so, it's unfortunate but they have to bill hours.

    Here are my thoughts on your current situation between you and the PM:

    • 10% Maintenance Fee:  Don't allow!  First, that's a high percentage.  Second, it doesn't encourage them to find the lowest or value vendor.  Especially if they have an internal handyman, never allow maintenance fees.  They already tack on additional time to bill.  I would seriously avoid allowing them to earn a fee for this.
    • PM Fees:  Do they earn a fee based on 'Rent Collected' or 'Rent Expected'?  If Collected, make sure they don't get paid unless you get paid.  And if you are underpaid, their percentage is off the amount paid and not the full amount.
    • Misaligned Incentives:  As you alluded to, a lot of the fees and incentives for managers are counter intuitive to your financial interests.  Sadly, it's the name of the game.
    • Out-of-State:  You mentioned you're out-of-state and have/want to hire a property manager. I can't help you with the want, but you don't have to hire a PM just because you're out-of-state. A lot of successful landlords are able to manage from afar.
    • Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes
      7y

      @Theresa Harris

      It looks like I will be on the hunt for another property management company. The 10% was something that I thought was unusual as well originally, but understood the extra time and effort they took into getting quotes. I do agree with Kenny below that it doesn't encourage them to find the best deal for me. Possibly just the most expensive one. 

      Thank you so much for your reply!

    • Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes
      7y

      @Kenny Dahill

      Kenny, thank you for such a detailed reply. Although I didn't mention it, I feel the same way about creating a bad experience not only for myself but for my tenant. 
      The missed appointment was for a handyman showing up (a second time. They didn't bill the first) when they had set appointments with her. 

      I am on their "investor pricing" since I have multiple properties, so they are only taking a % of what is actually collected. Their other packages are a flat fee no matter what. 

      You have confirmed some of my worries & made me feel a little less unreasonable. You have also given me a few things to think about that hadn't come through my mind.

      Thank you so much for your thoughts!

    • Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
      7y

      @James Devereaux, absolutely. That’s what we’re all here for: help.

      I’ll give PMs benefit of the doubt and not say they go for the most expensive repairs. I’d like to think they’re not scamming their clients because they do have a legal fiduciary responsibility to their client. 

      I think it’s common for PMs to have a pool of vendors.  They might only have 1 plumber on their team, so they simply call their guy. Maybe they’re the cheapest or most expensive.  In my opinion, they’d be better off charging an extra 2-5% monthly and stating they will always get you 3 quotes for major repairs, no maintenance mark-ups and no fees for notifying the tenants of late rent.

      Over time to be competitive they’ve started to sell discounted monthly rates, but find other ways to reallocate their earnings through miscellaneous fees.  It was their business decision to appear competitor but also their choice to under-communicate their full fee structures and lose the trust of majority of landlords.

    • Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes
      7y

      @Kenny Dahill

      I couldn't agree more. I have given them the benefit of the doubt... With that said, they have shaken my faith a little bit lately.

      I recently had a large repair that needed to be done. Regardless of the cost being covered by insurance, I asked them for a second quote as the first seemed super high. You would have thought I was asking for them to move a mountain. So I got a little hesitant at that time. Unfortunately, I haven't (and this is a wake up call that I should) put a list together on my own with two or three names of companies for each type of major repair. 

      Historically, they have been great in general. I have been with them coming on 3 years now after a terrible experience with a previous company. But lately, I am having to bring things to their attention as far as corrections on my statements, or push them to provide me with what is being done to handle certain situations. Like the late rent for example, why are they only reacting to me asking for answers. They should be proactively giving me options or at minimum bringing something to my attention. 

      You are right & I take some of the blame as well for not finding out what those additional costs may incur outside of what makes them appear competitive.

      Thank you!

    • Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
      7y

      @James Devereaux, what type of corrections on your statement are you talking about?  Have they been paying out the correct amount?

    • Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes
      7y

      @Kenny Dahill

      So recently for example, I inquired as to why a recent statement (I don't have access to live statement, just sent mid month and end of month) was missing part of a customers rental income. It was weird because the rent that was missing was section 8 rent, not the tenants portion of the rent. I have never had any issues with section 8 paying... So they had to track it down and apply it to my statement.

      Things like that don't happen often, but when they do, I am alerting them. Sometimes multiple times.

    • Peter TverdovBusiness Member
      Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
      7y

      Seems expensive. As a PM, I really dislike the amount of fees other PMs try to tack on. Just make on simple flat fee and be done with it. Keeps things simple. That's what we do. 7-10% flat fee (based on number of properties) and a $100 Leasing Fee per door. The sign on fees, maintenance call fees, inspection fees, etc etc...too much

    • Investor · Bountiful, UT · Member since 2016 · 7 posts · 0 votes
      7y

      @Peter Tverdov

      I like simple :)

      I understand the value of doing business with a PM company. Just like I understand the value on anything I buy or service I continue to pay for. I just feel like that value is diminishing by how expensive this is becoming. 

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