Late fees-100% to property manager?

Question

Joe Splitrock · Answer

I respect that a property management company has overhead and needs to make profit. But what I never understood with property management is these extra fees. Our local PM charge 8%, then also have extra fees for pretty much any tenant contact. They charge to line up service calls. They charge for lease signing. They charge for tenant placement. They take the late fees. They charge for eviction. I struggle to wrap my head around what the 8% fee actually covers? It seems like that covers a trouble free tenant who pays on time. But given that rent collection is all electronic and they use software to manage, it seems 8% is steep. I am probably missing something here?

Patrick Daniel · Answer

The way that the property management company I used to work for is that we charged a flat fee for collecting late rents because of the extra work it took, and then forwarded anything above that amount to the owner.

Fred Heller · Answer

I keep the late fees because I'm the one who has to chase them down. I would prefer that I never collected a late fee because that extra $50 or so is not worth the time involved in collecting the late rent.

Brian Ploszay · Answer

Property management is a low margin business.  One revenue stream is late fees.  There are different practices though, with some passing it back to you.

Mike Dymski · Answer

I've had one manager split it 50/50 and two others pass it through 100% to owners.

Peter Tverdov · Answer

With my management company we pass along 100% of all late fees to the owner. Our theory is that we are going to find the best possible tenants we can and therefore there will be a minimal amount of late fees to chase in the first place. Hasn't failed us yet in 5+ years.

Doug Homer · Answer

My firm keeps the late fees 100%. I have a couple of issues with this. First of all, the late fees do not show up on my owner statement as being charged to the tenant and then being expensed back to the property management company. I feel that for purposes of transparency, both transactions should be shown on my owner's statement so that I can see that the practice is taking place.

My other issue with them keeping the entire 100% has to due with the fact that this creates an economic incentive for them to not collect rents on time. Let's say I have a unit renting for $500 per month and I pay 10% management fee. So they get $50 for the management fee each month and then if they don't collect the rent on time, they can easily collect another $50 to $100 per month on the late fees, thus doubling or tripling their income! That is outrageous to me. I would much rather have them put a bonus structure in place where I would pay them less in property management fees (say 7% to 8%) and then give a bonus on top of that if they collect my rents on time. If we then get in to a late fee situation, I think they should split them with the owner as I recognize they have increased work to collect the rents, but I'm also out funds while waiting on the rent to show up.

I could also argue that my management fee should be reduced if they don't collect the rent on time - after all isn't that what I'm paying them for?

Nathan Gesner · Answer

It varies but I keep all late fees as a property manager. If you have a crappy manager, they may let tenants pay late just to collect more income, but it's unlikely.

I manage over 300 rentals and six tenants were late this month for a total income of $312.50 into my pocket. Trust me, I would rather have all the tenants pay on time.

Dick Rosen · Answer

As a PM, yes I keep it all. I'm the one chasing it, if you want to chase it you don't need a PM.

Ray Harrell · Answer

Mine gave them to me, in theory. In fact, they never collected any past due rents! LOL.

Late fees-100% to property manager?

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