In talking with homeowners, I am oftentimes shocked at what their property managers are charging them. When you are owning a vacation home, it is just like owning a business — you need to make sure your expenses are in line with your income. Even if you have had the same property manager for years, you need to look at your bill each and every month and check all the charges on the statement. Here are some of the most common charges that property managers are unethically charging homeowners.
Download Your FREE copy of ‘How to Rent Your House!
Renting your house is a great way to enter the world of real estate investing, but most first-timers (understandably) have a lot of questions. Fortunately, the experts at BiggerPockets have put together a complimentary guide on ‘How to Rent Your House’. All the skills, tools, and confidence you need to successfully rent your house are just a mouse-click away.
3 Common Expenses Property Managers Unethically Charge Homeowners
Credit Card Fees
This has actually become a really popular expense that property managers are passing along to their homeowners. If your property manager is charging you this fee, you need to demand that they stop charging it today. The property managers are already making a commission or a fee on every booking they are putting into your house.
For example if a guest is paying $100 a night to stay in your house, the property manager is taking anywhere from 20% to 35% commission for that booking. Credit card processing fees should be considered a business expense by the property manager and should not be passed on to the homeowner.
Monthly Recurring Fees
I’ve seen these monthly fees be as high as $25 to $50 a month. I called a property manager here in Orlando, and they told me their recurring fees take care of batteries for the remote control, light bulbs, trash bags, dishwashing soap, room deodorizers, etc. For this they were charging $35 a month. Wow! I never knew batteries and light bulbs were so expensive.
Free Use of Your Vacation Home for a Week or 2 Weeks a Year
I really like this one. A property manager in North Carolina was charging this and explaining to their homeowners that they need to use the vacation home 1 or 2 weeks a year so they can have their marketing partners stay in their vacation home. They said the goal was to promote all the vacation homes in the area. Sure, it sounds good, but the property managers are still making 20% to 35% on the bookings from those marketing partners so shouldn’t they share in the cost of putting up those guests?
When you are evaluating your property manager or if you think your vacation home property manager is taking advantage of you, then you should put in some processes to make sure the company is acting ethically. Here are a few processes you might consider.
3 Ways to Protect Yourself Against Unethical Property Managers
Pay Your Own Bills
This is huge; you need to tell the property management company that you are going to pay your monthly utility bills. Your utility bills shows you when someone has been staying in your home and when someone hasn’t. Your monthly utility bill should correlate with your booking calendar.
Most property management companies will want to pay the utility bills for you, as they say they don’t want the power or water to be cut off while a guest is staying in the house. Here in Orlando, we do not pay any of our owners’ utility bills, and I can think of only a handful of times in 12 years that we have had the power or water cut off due to non-payment.
Don’t Pay Money into Escrow
Most property managers, especially the ones in Orlando, ask the owners to pay $1,500 to $2,000 in escrow. This money is to cover expenses if the expenses are higher than the revenue for the month. If you are paying your own utility bills, there should be very few months — if ever — where the expenses are not higher than the revenue. The biggest problem I see with the escrow payment is that the owners hardly ever get back their full escrow money if they decide to leave this particular management company.
Owner Must Approve All Expenses Over $100
If there is something that needs to be fixed in your vacation home, you should have it in writing that the management company will not do any repairs until they have your approval. There are only two ways to make money in vacation home property management, and that is through bookings or repairs to the unit. On every repair, you should make sure you have some type of warranty on the work (in writing), you need to make sure you are getting the work done as cost efficiently as possible, and need to make sure the work really needs to be performed.
My father used to always tell me, “Check on what you expect to get respect.” If you own a vacation home, you need to make sure you are checking up on and questioning any expense that is being charged by your management company. Most vacation home property managers are ethical and do business the right way, but there are a few bad apples out there. It doesn’t take but a few minutes each month to make sure all the numbers are working out correctly.
How do you ensure that your property managers are honest with expenses?
Leave your comments below!