Property Manager "gotcha"

72 Replies

So I signed up with a property manager on my NC property. I'm paying 10% for their services. Last month my tenant was late 13 days on his payment. I just assumed that the late fee collected was going to be paid to me less their 10%. Nope! Apparently, the property mgr. pockets 100% of this late pay fee. So now I get it. The property Manager stands to make more money by NOT collecting rent on the due date. Has this happened to anyone else?

Sounds unethical to me! What does your contract with the property manager say? I would think 100% of the late fee should go to you, not the other way around. You are the one taking the risk, not them. You may need to sit down with the property manager and renegotiate the contract or find yourself a different property manager.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

Hi @Phil Mays  ,

Unfortunately, I hear this story too often. Be sure to review your property management contract to understand ALL of the fees your PM may be charging. If it is unclear or allows the PM to collect fees you feel should be due you (I agree with you), this might be a good opportunity to renegotiate or look for a different PM.

Good luck and keep us posted.

As crazy as it may sound that pretty standard practice for PMs.

I've heard that's a pretty common practice.  I think the argument on the PM's side is that there's extra work involved in collecting the late fee so they feel they should keep it once it's paid.

I don't use a PM, but if I did I'd have a real problem with that type of arrangement because it's basically an incentive to allow the tenant to pay rent late. 

Keep in mind that most things are negotiable though.  Maybe you could negotiate a 50/50 split of any late fees collected?  You should get something for being paid late, but the PM probably should too because it is extra work chasing down the tenant for the late rent. 

@Marsha Maynard---yes, seems unethical to me too........

@Dan DeMott ---I agree, I should have looked and questioned a little more and next time I will. Live and Learn. That's why I threw it out there.

@Kyle J. ----I agree that the PM should get something but all they did was send out a late notice and email...never even called. To me, that's not even worth 10%.

Thanks all for your responses. I did try to renegotiate but to no avail. They have me over a barrel so to speak as there's too much hassle for me to fire them and go through the process again to hire another PM on an out of state property. But there's always next time............Thanks!

I think if a property managers excuse for why they keep it is because its extra work is crap! There job is to be putting in tenants they can manage and if they put a bad one in that doesn't pay on time its on them. Yes, its extra work, but they could have spent a little extra time finding the right tenants as well.

The late fee should be added to the income for the month and they can get their 10% from that at that point - not the whole thing. 

Steven J., Will See Real Estate | 240‑394‑5733 | http://WillSeeRealEstate.com

That's normal. I would be less worried about getting the late fee, and more concerned about what actions were taken to get the rent.

Was a 3-day notice served? If so, how did it get to 13 days?

If a 3-day was not served, why not!

Originally posted by @Tyson Luthy :

That's normal. I would be less worried about getting the late fee, and more concerned about what actions were taken to get the rent.

Was a 3-day notice served? If so, how did it get to 13 days?

If a 3-day was not served, why not!

 I don't think there is a courthouse 3-day notice in NC.  If there is, I've never heard of it.

1) Landlords can demand rent one day after the due date.  If there is a grace period outlined in the lease, landlords must wait until one day after the grace period ends to demand rent.

2) Landlord must then wait 10 days after demanding unpaid rent before filing for eviction.

Here is a more legal explanation:

http://www.nolo.com/legal-encyclopedia/eviction-no...

Regarding @Phil Mays ' original post, I wouldn't like the idea of a PM keeping the entire late fee, but I understand the logic behind it.  To say the PM isn't doing enough to earn the late fee seems like an illogical complaint to me, because you are ostensibly using a PM in the first place to eliminate the need for you to do all the dirty work.  I realize in your case, being out of state, having a PM is a necessity, but I'm speaking more in general terms.

If this is the only complaint you have with the PM, I wouldn't look to change to a new PM. 

Good luck.

Unfortunately, so many PMs profit when there are problems, and therefore, they like them.  This puts their agenda and yours at odds.  It's really crazy.

The perfect PM contract is one where the PM only gets paid when rent comes in.  And they never profit when there are problems.  Flat fee only.  No "emergency" ability to spend your money.  In fact, a PM should have their pay docked when rent is late.  Then watch them get your money.

If a tenant can call you in the middle of the night to tell you about an emergency (if you were self-managing), a PM can call you, too, to get your approval to spend your money.

You need to write your own PM contracts, and look for an honest PM who would be willing to sign it.  They're out there.  But, just because it's standard practice to rip people off, doesn't make it right.  I honestly can't believe what the PM industry gets away with.  They need to self-police better.

Okay, end rant :-)

@Randy E.

Gotcha. Then it sounds like there may have been a 3 day grace period. If that's the case then it looks like the PM company followed the legal process and was able to collect the rent. This is good!

I wouldn't get to worked up about them keeping the late fee. Just make sure that you keep getting full rent payments.

If the tenants turn out to be a problem, then I would look into their screening process.

Yup, I've found that in certain markets in certain classed area that's the crap that you get. What's worse is when the also clip you a placement free on top of it, with eviction costs and etc. I've had tenants stay for 3 months, and it cost me money. Placement fees, eviction costs, and only 1 month of rent. Plus move out fees.

Its making me want to invest in higher end areas.

Medium logo640x400Troy Fisher, Lanika Home Inspections | [email protected] | http://www.lanikahis.com

I think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property.  It's the PM's job to pick tenants that are going to pay on time and in full each month.  If they have a turnover within the first year then there should be no tenant placement fee until at least after a year.  There has to be accountability with this.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Originally posted by @Dawn Anastasi :

If they have a turnover within the first year then there should be no tenant placement fee until at least after a year.  There has to be accountability with this.

 Agree 100% on this!

Originally posted by @Dawn Anastasi :

I think it makes sense to give the owners 100% of the late fee. After all, they have their money invested in the property.  It's the PM's job to pick tenants that are going to pay on time and in full each month.  If they have a turnover within the first year then there should be no tenant placement fee until at least after a year.  There has to be accountability with this.

Don't think it makes any sense whatsoever. What is the job of the property manager?

They are managing the property because you can't or won't. The key word here is managing.

What they are not doing is providing any sort of guarantee, they are not an insurance company, they are a management company. The clue is in their title "property manager".

Tenants who are late require the property manager (your agent) to do more work. Does your company do things for free?

Originally posted by @Steven J. :

I think if a property managers excuse for why they keep it is because its extra work is crap! There job is to be putting in tenants they can manage and if they put a bad one in that doesn't pay on time its on them. Yes, its extra work, but they could have spent a little extra time finding the right tenants as well.

The late fee should be added to the income for the month and they can get their 10% from that at that point - not the whole thing. 

 Have you ever flipped a house and had unforeseen expenses pop up?  How come your crystal ball didn't show them when you bought it?  Well had you spent a little extra time walking the house, surely you would have found them. 

I don't manage rentals so I really have no dog in this fight but your post lacks both logic and common sense.  The only way for anyone, owners included, to vet potential tenants is through a set of metrics.  If they pass all the metrics, there's a reasonably good chance they will be decent tenants.  However, it's impossible to predict an illness in the family or other extenuating circumstance that may cause someone to pay late, I don't care how much time you spend vetting them.

By the way, I do agree that the owner should keep the late fee.  

For 10% of the rent, I expect PMs to actually work.  Simply collecting the rent fee on time (as the tenant is contracted to do) is not work.  The work actually occurs when problems arise.  I should not have to pay them extra for problems they are suppose to MANAGE.

If I were the OP I'd be focusing my attention  on the what is going to happen to the rent due in 17 or so days rather than sweating a late fee.

We don't consider it constructive to invoke our late fee clauses and have never done so. Our preference is  to work with the tenant to get them back on track.

Just wondering if you read the contract in full before signing with the PM company?  I have read quite a few, and them keeping the late fee is usually spelled out in the contract.  If you haven't read through your management contract, now would be a good time as we had to turn down many companies that sounded great when we spoke to them but then had very weird terms in their management agreement that we just couldn't agree to, like must use their carpet cleaning company to have them cleaned once a year, turnover or not.  But all of them that we've seen had the standard bit about they keep the late fee.  They say it's because they have to take extra steps, send someone out to post, certified letter, etc.  I've pointed out that I have to pay extra interest if I was waiting for their rent to pay my mortgage, but that argument didn't change their minds.    It hasn't really been an issue as they do seem to screen well.  

I agree with Tyson.  The late fee is minor, how they go about collecting the late fee is important.  Also how often are your properties late, are notices timely and consistent, is eviction started right away etc etc. 

Be sure to keep a ledger of any pros and cons with this PM as they come up.  As it has been said on here, hire slowly and fire quickly.

Also, I recommend having a lawyer or contract savvy person review your PM contracts (any contract) including this one.  Make sure there is no other "gotchas".  Yes it may cost you $200-$400, but in the long run that is cheap insurance.  


Something worth noting is how they treat this contract with you, it may be an indication on how they treat contracts with tenants.  Is it poorly worded, have errors, or look like it came from the supply store?  The lease could be just as bad.

Sorry to hear about this, it must have been quite a surprise.  Thanks for sharing your experience.  Even if you can't do anything about it for the current contract, maybe others can avoid this situation.

I agree that it seems fair to give you the late fee or to at least to split it with you.  If you have a mortgage on the property, you're the one being hurt by the late payment.  It would be better to have things set up where the PM doesn't make money off things that create problems for you.

Anyway, thanks for sharing your experience!

@George Creel I have to agree with you and @Marc M. you're spot on about what the manager has to do. What I believe is part of the job of property management is dealing with problems as they come up. That is why they are paid - to mitigate and reduce risk of problems. When that is the job they shouldn't be getting paid more for it. I've only done a handful of flips and yes problems come up and they get fixed - I don't get more money for it. Its part of the business. Just like my 9-5 job if I get behind on work its still got to be completed on time and that may mean unpaid overtime. Its simply how my job is structured.

Steven J., Will See Real Estate | 240‑394‑5733 | http://WillSeeRealEstate.com

Originally posted by @Phil Mays :

@Marsha Maynard---yes, seems unethical to me too........

@Dan DeMott ---I agree, I should have looked and questioned a little more and next time I will. Live and Learn. That's why I threw it out there.

@Kyle J. ----I agree that the PM should get something but all they did was send out a late notice and email...never even called. To me, that's not even worth 10%.

Thanks all for your responses. I did try to renegotiate but to no avail. They have me over a barrel so to speak as there's too much hassle for me to fire them and go through the process again to hire another PM on an out of state property. But there's always next time............Thanks!

Oh man, you are a property manager's dream!  Now the PM knows you're all bark and no bite.  There are a lot of PMs whose business model relies on wearing you down.  And getting the listing when you're ready to sell.  Did you read your contract, especially the part where you're committed to list with them. :)

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