Prop. Man. request we pay his fees even if tenants don't pay rent

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Prop. Man. request we pay his fees even if tenants don't pay rent

David Jay
Investor · Reno, NV · Member since 2015 · 69 posts · 48 votes

I just got a letter from my property manager who manages eight single family properties that I own.  He is requesting that all owners pay the full fee they would normally pay even if the tenants don't pay rent.  Our state (NV) like many have a ban on evictions and late fees due to the Covid pandemic.  I think he is afraid that so many tenants will not pay that he is at risk of his business going under.  He is the only property manager I have used and he has been managing my properties for nine years.  I have been very happy with the job he has done.  But I don't think this request is fair.  What it is trying to achieve is that he will go on with his income stream intact while the rest of us take a hit. Additionally, since I own single family and many of his tenants own apartments and the fees are a percent of rent, my fees per unit are already double what many pay and I suspect my tenants are a lot less work (always pay on time and turnover is low.)  Obviously now is not a good time to shop for a new property manager.  What are your thoughts and how would you respond?

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Christine Mulkins
Rental Property Investor · Medford, OR · Member since 2017 · 94 posts · 115 votes
6y

Definitely look at the agreement you signed with the prop mgmt company. It should definitely specify when and how the management company gets paid. 

I was the sole owner and property manager of a small management company and I received a percent of “rent paid” and that was my incentive to ensure tenants paid and units were filled. I aligned my incentives with those of the owner. Personally, I think that’s the only way to do it.

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  • Joseph CacciapagliaBusiness Member
    Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
    6y

    Did you check to see if your property management agreement requires this. Some of the other property management companies in my market set up their contracts to require payment, even when they're not collecting. If your contract doesn't require it, I would not pay it. Also, if he's doing a good job, he should be collecting a decent portion of the rents, at least in April. We've already had a large number of tenants pay April rent, and only a small number respond to our letter regarding hardship. It's not yet at the doomsday scenario that a lot of people are expecting. Maybe that will change, but hopefully not.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y

    I would respond with a big laughing face. Like this:  😂  Or maybe this: 😅 . 

    A big part of the property manager's job is collecting rent. They typically take some percent of the rent (8-12% is common around here). No rent, no fees. Why else would they work on a commission type basis? It is *their* job to work something out with the tenant. That might result in less rent for you for the time being but it's their vested interest as well.

    I suspect some PMs may chime in here against this view, but if not being responsible for making sure rent is paid, collected, and distributed, why even bother with a PM? I can call my own handyman. 

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  • Christine Mulkins
    Rental Property Investor · Medford, OR · Member since 2017 · 94 posts · 115 votes
    6y

    Definitely look at the agreement you signed with the prop mgmt company. It should definitely specify when and how the management company gets paid. 

    I was the sole owner and property manager of a small management company and I received a percent of “rent paid” and that was my incentive to ensure tenants paid and units were filled. I aligned my incentives with those of the owner. Personally, I think that’s the only way to do it.

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  • Michael Peters
    Member since 2019 · 215 posts · 122 votes
    6y

    Agreed as a PM we structure our contracts so we only get paid when the owner does.  You'll have to look at the agreement.  We've set up a plan to limit as many nonpayments as possible.  I understand his concern, tenants share the same, but he should be focusing on mitigating that fear instead of asking for a handout.

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    Heh, The rent does't get paid.  The handyman doesn't get paid, the landscaper doesn't get paid, the insurance lady doesn't get paid, The local school taxes don't get paid, the county highway taxes don't get paid... ETC. Tell the property manager to get in line with the rest of us. I'll try and keep my tenants above water as long as I can, if not I assume NYS has them covered. I wouldn't sign anything like that right now. 

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  • David Jay
    OP
    Investor · Reno, NV · Member since 2015 · 69 posts · 48 votes
    6y

    I signed the management agreement several years ago but I am sure it does not allow this. No doubt I could just refuse to do so. I also know it allows a thirty day out for either party. Frankly, I think the PM is freaking out and did not think it through before He sent it. I have an interest in keeping his business running since this would be a bad time to switch PMs. And if I have tenants not paying it could be hard to find a new PM that would want to take over this type of problem. I reached out to speak with him but he asked I put it in an email. So I think I’ll just wait a bit and see how much rent comes in. 

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  • Joe M.
    Erie, PA · Member since 2018 · 413 posts · 348 votes
    6y

    Like others said..check the contract

    If for some reason there is nothing in there, ask him what he does then

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  • Joseph SchommerPro Member
    Handyman · Brattleboro, VT · Member since 2019 · 83 posts · 46 votes
    6y

    @David Jay. This may be an unpopular point of view but I'd pay it if you can. These are tough times for everyone, the system is breaking down all over the place and people need grace right now. We as investors are probably more set up to help others (esp small business) than anyone else AND they won't soon forget it. I'm sure this PM is dealing with people doing the things other posters have suggested. And maybe they're right.

    Stand out from the crowd. Be the one that can afford it, even in weird circumstances. Be the landlord who can weather a storm and keep your systems afloat while you do!

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @David Jay:

    I signed the management agreement several years ago but I am sure it does not allow this. No doubt I could just refuse to do so. I also know it allows a thirty day out for either party. Frankly, I think the PM is freaking out and did not think it through before He sent it. I have an interest in keeping his business running since this would be a bad time to switch PMs. And if I have tenants not paying it could be hard to find a new PM that would want to take over this type of problem. I reached out to speak with him but he asked I put it in an email. So I think I’ll just wait a bit and see how much rent comes in. 

     If your PM is not collecting rent, and considering there's really no evictions process anywhere right now, they are doing nothing you couldn't do with 5 minutes worth of time. In essence, what the PM has told you is "I am unable or unwilling to do my job, and be paid by the people that pay me, so I expect you to take up my slack." 

    I would call that a worthless service. 

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    The property managers job is to collect rents, take care of maintenance issues and fill vacancies.  No rental income, no percentage of rents to pay them.  It stinks for everyone.  April is not the month to worry about.  By prolonging the social distancing and certain employers being forced to shut down.  I would worry about the month of May more than April.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y

    If it's not in the contract, your PM can't just arbitrarily change the terms without your consent. You could push back and demand he stick to the letter of the agreement.

    Look at it from his perspective. The PM is still managing your property. In fact, their workload is increasing as they attempt to collect the unpaid rent during these difficult times. 

    I manage 360 rentals and can assure you the COVID-19 pandemic has increased my workload, not slowed it down. If 25% of the tenants don't pay rent, that's a 25% cut in pay even though I'm working harder and still have all the expenses. That's why property managers charge a minimum fee even when the tenant fails to pay or the property is empty.

    Now, let me put on my Landlord / fiscally conservative / personal responsibility hat. I do not charge a minimum management fee. I charge a percent of rent income collected. If the rental is vacant, I don't get paid. If the tenant fails to pay rent, I don't get paid. This is my motivation to keep units filled and keep tenants paying. It demonstrates to the Landlord that I am in this with them, good times and bad. When the market is strong and easy, I work hard but I also make really good money. When the market is bad, I suffer along with my Landlords.

    Unlike most property managers, business owners, Landlords, and Tenants, I use the good economy to save up and prepare for the bad economy. If my business didn't earn a single dollar this year, I could probably operate at full capacity with the same qaulity of life and keep all my employees. I hope it doesn't come to that! 

    Long story short, there's a legitimate reason to charge a minimum management fee but I personally disagree with the practice. I certainly don't agree with a Landlord change their fee structure during a disaster so they can continue keeping their wallet fat while their client suffers.

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  • David Jay
    OP
    Investor · Reno, NV · Member since 2015 · 69 posts · 48 votes
    6y

    I'm going to sit back and wait and see how he does.  I have 13 rentals, I manage 5 and he manages 8.  I've already collected 100% of my April rents from the ones I self manage.  I was proactive with my tenants and gave him my playbook to do the same with the one's he manages.  So if he can match my record he will earn his fees, and if not he can explain why.

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  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    6y

    Everybody is taking a haircut in this event . 

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Matthew Paul:

    Everybody is taking a haircut in this event . 

     I am happy to report 100% of rent was paid for April my way :)  . I had 2 people on the bubble but they made it. Here's to looking ahead to May!

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