Property Management - When and how do they charge their % ?

13 Replies

I have my first property manager for one unit.  This is the second month this tenant has been in there, and he hasn't paid yet 21st of the month.  However, it is normal for the Property Management Company to charge the 10% on the first of the month if they get the rent or not?  My new property management company charged me the 10% on the first of the month (which I paid).  So just wondering if this is normal or not.

Originally posted by @Xela Batchelder :

I have my first property manager for one unit.  This is the second month this tenant has been in there, and he hasn't paid yet 21st of the month.  However, it is normal for the Property Management Company to charge the 10% on the first of the month if they get the rent or not?  My new property management company charged me the 10% on the first of the month (which I paid).  So just wondering if this is normal or not.

Yes. You don't expect someone to work for you for free do you?

Bit of a confusing post. What does your PM Agreement say about when they pay/send reports?  That will address your first question, maybe.  If it says the pay / send reports prior to the 21st then you have an issue and should be contacting them ASAP.  Phone, text, email etc...and find out where your report is at the very least.  Even if they didn't collect any money they should have sent a report.  If they do this after the 21st of the month (every company is different) then nothing to get excited about but you can still contact them and ask questions.  

The second question, well, same answer.  Look at your PM Agreement.  I think @James Wise missed the part where you said "if they get the rent or not".  Some companies charge a fee no matter if they collect rent or not (usually a lower flat fee) and some (I think most) charge a % based on what they collected.  

I am assuming your agreement with them is the former, where you pay a flat fee no matter if the collect or not.  I assume that because you said you paid them 10%.  Not that they deducted the 10% from what was collected and paid you the balance. I

If I were you I would look at your PM Agreement or contact your company and ask them how they charge you so you can understand that and when they deliver their reports/funds so again, you can understand that.

Originally posted by @James Wise :
Originally posted by @Xela Batchelder:

I have my first property manager for one unit.  This is the second month this tenant has been in there, and he hasn't paid yet 21st of the month.  However, it is normal for the Property Management Company to charge the 10% on the first of the month if they get the rent or not?  My new property management company charged me the 10% on the first of the month (which I paid).  So just wondering if this is normal or not.

Yes. You don't expect someone to work for you for free do you? 

No, I don't!  It just always sounded like it was literally a % of what came in, to incentivize them to get good tenants.  So far the first tenant she got me went AWOL before 1 month was up, so she got that full month of rent for placing the tenant, and then this new tenant, and she got the first full month of rent, so she's made two months of rent, and then 10% of this month before I make anything.  But good to know you just pay the % if they collect rent or not.  Thanks!

No one said this "But good to know you just pay the % if they collect rent or not. Thanks!"

You need to read your Management Agreement and understand how they apply fees.  No one here knows.  

@Xela Batchelder I would refer to your management agreement for answers to these questions. It all should be spelled out for you there. Typically the fee gets paid from owner proceeds but if the rent isn't paid, then the fee won't get withheld. It sounds like you get billed for the fee even if the rent doesn't get paid. Keep in mind, even if the tenant doesn't pay the rent, the PM is still working behind the scenes. Shaking the trees for rent is work, trust me. There should also be something in the agreement telling you exactly when you will be paid by. For example, our agreement says our owners get proceeds no later than the 15th of the month, unless the tenant pays late. Refer back to your agreement and you will probably get all of your questions answered. 

Originally posted by @Xela Batchelder :
Originally posted by @James Wise:
Originally posted by @Xela Batchelder:

I have my first property manager for one unit.  This is the second month this tenant has been in there, and he hasn't paid yet 21st of the month.  However, it is normal for the Property Management Company to charge the 10% on the first of the month if they get the rent or not?  My new property management company charged me the 10% on the first of the month (which I paid).  So just wondering if this is normal or not.

Yes. You don't expect someone to work for you for free do you? 

No, I don't!  It just always sounded like it was literally a % of what came in, to incentivize them to get good tenants.  So far the first tenant she got me went AWOL before 1 month was up, so she got that full month of rent for placing the tenant, and then this new tenant, and she got the first full month of rent, so she's made two months of rent, and then 10% of this month before I make anything.  But good to know you just pay the % if they collect rent or not.  Thanks!

 She just collected two full month placement fees for placing two bad tenants and she is still working for you? 

Regardless of what the agreement says, there is no way I would agree to pay a placement fee for a new tenant after the old one lasted one month. I can't imagine James or any other reputable property manager would charge you for replacement two months in a row. I don't have all the details here, but this is highly suspicious. I am even wondering if you are being scammed. 

At a minimum this property manager owes you an explanation on why their screening process is failing. Have you challenged them on this and requested that they refund the fees? I would be curious what they say in their defense. 

OK, I guess it isn't super clear in the contract either.  It just says "For one house/dwelling the first months rent to clean, photograph, screen and place the tenant, and 10% of the monthly rent to manage it."  It isn't very specific about how it is calculated.  I was also wondering if it was a bit of a scam, but they are highly recommended in our town.  And never having used any Property Management company before I don't know what is usual or not.  So all your comments have been very helpful. I now know it could go either way depending on the contract.  And, I certainly know more questions to ask prior to hiring another company, (and it may be sooner rather than later).  I'll have to have a chat with them but wanted to go in knowing more about how other property management companies operate.  Thank you!

Originally posted by @Scott M. :

Bit of a confusing post. What does your PM Agreement say about when they pay/send reports?  That will address your first question, maybe.  If it says the pay / send reports prior to the 21st then you have an issue and should be contacting them ASAP.  Phone, text, email etc...and find out where your report is at the very least.  Even if they didn't collect any money they should have sent a report.  If they do this after the 21st of the month (every company is different) then nothing to get excited about but you can still contact them and ask questions.  

The second question, well, same answer.  Look at your PM Agreement.  I think @James Wise missed the part where you said "if they get the rent or not".  Some companies charge a fee no matter if they collect rent or not (usually a lower flat fee) and some (I think most) charge a % based on what they collected.  

I am assuming your agreement with them is the former, where you pay a flat fee no matter if the collect or not.  I assume that because you said you paid them 10%.  Not that they deducted the 10% from what was collected and paid you the balance. I

If I were you I would look at your PM Agreement or contact your company and ask them how they charge you so you can understand that and when they deliver their reports/funds so again, you can understand that.

Most reputable property managers are charging you something every single month. It's like a gym membership, just because you get a whopper on the way home and remain fat don't mean you don't gotta pay the fee. Any PM (especially in a post Covid eviction moratorium world) who is so inadequate at running their own business they they'd be so desperate to work for free when something that is part of this business happens is not someone whom you should be entrusting such a large investment in. 

It's also worth noting that assuming proper tenant screening measures are taken it's going to be the asset type and class that truly determines your tenant base, not your property manager. So if we are looking for root causes to the issues the O.P. is having my first questions would be 

  • What is your property managers screening criteria?
  • What type of property is this?
  • What asset class is this?
  • How much did you buy the property for?
  • How much is the tenant's rent?
  • What is the median income in the metro area this property is located in?
  • Is the median income in the neighborhood that this property is located in higher or lower than the median income of the entire metro area?

 The answers to those questions above is what is going to demonstrate how many times you're likely to be dealing with non pay. And you best believe that there is only 2 ways to deal with non pay.

  • Deal with it yourself.
  • Pay someone else to deal with it for you.

Neither of those two ways to deal with it involve someone working for you on the hope that they'll get paid only if and when they can extract money from your tenant lol. Professionals don't do that people, c'mon. If you are hiring bottom of the barrel people, maybe they will work for that structure, but the sophisticated and quality property managers will not. Property management is like anything else, you get what you pay for. Ask yourself this, if you were to be charged for a murder you didn't (or did I guess lol) commit who do you want defending you? The $2,000 an hour guy or the public defender?

@Xela Batchelder If you had a tenant skip out after only 1 month, the PM either didn't screen very well or the tenant had an extreme change of circumstance. Either way, your PM should have worked with you on the fee. I would have a conversation about that and if they won't, then I would plan to change management at the first opportunity. Sorry you are having this experience. All PM's are not like that. 

@Xela Batchelder

My PM only collects when they collect. If the tenants doesn’t pay, they don’t get paid, regardless if they placed the tenant or not. My disbursement is on the 10th of each month and is accompanied by an ow era statement. I have $150 limit on repairs, meaning if the repair will be over $150 they have to call me for approval. Hope that helps.

You may want to renegotiate with your PMC to add a clause that they will replace a nonperforming tenant at no cost, if a tenant they place does not pay first 3 months of rent and has to be removed.

Many owners have asked us to extend our 3 month guarantee to 12 months, thinking it will force us to better screen tenants. We respond to them that if that's what they want, we'll just hold out for applicants with 800+ credit scores and their property will sit vacant for many months. Our position is too many things in life happen - tenants lose jobs, get divorces, die, etc, and are margins are so small to begin with that we cannot afford to take on all the risk.

Some PMC's do offer 12 month replacement guarantees and cover all eviction costs, etc, but they usually only do that on Class A properties or have an assortment of loopholes out of their guarantees.