Property Manager Fees Questions???

Question

We are under contract with our first property and will be using a management company.  We are out of state with the property being in Georgia and will be getting an 8% fee. I have a few questions on other portion of the contract.

1. Is it standard for them to hold the renters deposit and collect the interest gained from that?

2. Is it standard for them to keep the late fee that is charged to the renter or should that go to me?

Thanks for any advice or feedback.

Charles Carillo · Answer

@Terry A. Kemp II

When comparing management companies you really need to compare all of their fees because they can differ greatly. Yes the percentage is what people first look at but also what are they charging for new leases and renewals? What is the hourly rate for the handyman that will be working on your units? This will give you a more apples to apples comparison. In regards to late fees and security deposits; I have seen companies keep it in their accounts or they will leave it in your account. It is great that you are getting these questions answered before making a decision. Most people would not dig this deep.

Steve Maginnis · Answer

Hello @Terry A. Kemp II.  Congratulations on your first deal!  That is exciting.  I am a property manager and can provide some insight.  If I had easy access to a bank that offered interest on trust accounts, I would absolutely sign up for it.  We would need to disclose it to both the owner and the tenant.  Deposits are the tenant's money.  If we can offset some of our expense to have the accounts reconciled monthly, and the time it takes to do so, then the little bit of interest would certainly help.  Bottom line is that it does not affect you or the tenant negatively, so why not allow them to take the interest?

Late fees are a big issue between managers and Landlords.  We choose to retain late fees to help offset the extra work and expense it takes to try and track down the delinquent tenants.  Mailing, emailing, texting, calling, etc.  Driving by to knock on doors, etc. can be demanding.  One argument is that managers may advocate for tenants to pay late, but that is not the case with us at all.  We prefer tenants to pay on time. It makes our work much easier.  Responsible tenants will do their very best to pay on time regardless, and those not as responsible are willing to pay the fee.  One aspect I like is having control over whether we charge the late fee.  If we have a very good tenant who normally pays on time, I like having the ability to credit the late fee without having to negotiate this with the owner.  It gives us a little extra flexibility to promote good relations with our residents.  We know the tenant better than the owner, and are better suited to make those calls.

We can also share the late fee with the owner if it ends up affecting their disbursement.  For example, if an owner normally gets their disbursement on the 15th each month, and the tenant pays late, but prior to this date, the owner does not suffer and can still have access to their funds as if the tenant paid on time.  However, if the tenant still has not paid by the time we disburse, then it can negatively affect the owner's use of those funds.  If that is the case, we have the ability to share the additional income with the owner.

We also do not collect late fees unless the tenant catches up.  For instance, if tenant is in eviction, but they pay all they owe except for late fees, we do not take the late fees out of the owner's funds.  I think that is only fair.  We would apply tenant funds to rents first.  If there are any excess funds, we can apply towards late fees.  We also put any other fees ahead of the late fees.  Many companies don't do this.

There are a lot of variables, and unfortunately, experience is the best way to figure it all out.  I hope this helps.  Best of luck with your investment.

Ron Todd · Answer

I work with a couple different PMs. They all keep the deposits (and I prefer it that way). One charges 10% of the late fee and the others just pass the late fee to me in it's entirety. I agree with the other posters that proper screening has been helpful in avoiding the late fee most of the time.

Mike L. · Answer

I use a management company as well and they charge late fees - as for security deposits, some states/cities have different rules but we keep them in my operating account here and track as a liability on the books.

Agree with @Terry A. Kemp II on seeing the price sheet for all things including signing fee, turnover fee (in addition to materials and labor), snow/lawn, marketing and the hourly labor rate as they usually make a lot of their money on repairs so a higher % with significantly lower labor rate may help make your costs more predictable. One other point to note, is that you may be able to negotiate the rate/turnover costs/signing fees etc. down, especially if you have multiple properties with the same property management company. That said, the most important thing is finding someone you can trust who comes well recommended and making sure the costs work with your numbers.

Zachary Ray · Answer

Read over their management contract and check how they will be holding the security deposit and if it is in an interest bearing account. They should outline how all fees will be allocated in that contract. Sometimes when a property management company charges lower than 10 percent they have additional fees to supplement their income.

Terry A. · Answer

Thank you everyone for you advice and opinions.  We just got off the phone with our property manager.  Got everything sorted and a better deal for the both of us.  We are purchasing the home through her agency, she is the sellers agent, and our agent is a member of her team.  So it benefits her twice.  Since we are purchasing it through her agency, she is giving us a 8% rate and we will split the late fee. I do not thing there will be many late fees due to it being a in military community. All of the other questions were asked and answered and we really like her.

Here's to closing at the end of the month

Theresa Harris · Answer

@Terry A. Kemp II  They should hold the deposit as they are the ones that have to return it.  Depending on where they are, they may or may not have to return the deposit with interest once the tenant moves out.

As for late fees, that will depend on the contract.  If the tenant is late, what does it cost the PM vs owner?  I could see how they might be entitled to a percentage (same as with the rent) for the extra time to follow up on the late rent, but then again part of their job is to collect the rent and most of the time, if they've done a good job screening, that should be a piece of cake.  I think most of it should go to the owner as they are the ones who have to cover that shortage.

Property Manager Fees Questions???

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