Late Fees with a PM Question

[Larry S.]

Hi All,

I'm super excited to be under contract for my first property.  I was reading through a PM agreement from the company I intend to use, it states that the PM keeps all late fees. Is this common practice in the PM industry? I expected it would be along the lines of a 50/50 split, as they are obviously doing additional work to track down the payment so I'd expect they'd earn a portion of it.  Or this could be the norm and something else I'm learning working through my first deal.

Larry

[Filipe Pereira]

Originally posted by @Wesley W.:

The way I see it, if the PM placed the tenant and they are paying late and the PM keeps the fees, the PM and owner's goals are not aligned.

This incentivises the PM to place a marginal tenant and collect a "bonus" when they pay late.  They also get to charge for the turnover when the bum has to get evicted and - even worse - some PMs still charge their management fee for the apartment that is vacant because they placed a bad tenant.

Sometimes, that is.

Example - we just took over management of a 5 unit multi - family. We placed none of the tenants ourselves. 3 of them paid late the first month. We "chased" each one down, got the owner their rent, and retained the late fees. Is it our fault that the tenants paid late? Nope. Did we get the owner the gross income s/he is expecting each month? Yes, full 100% collection of all scheduled rents. 

Here at Connecticut Property Management, if we place a marginal tenant which then leads to an eviction down the road, that doesn't look very good for us. Why would the owner renew their contract with us? I hope any PM company that is placing tenants that regularly leads to one eviction after another gets fired. They shouldn't be in the business. 

Less than 5% of our tenants pay late and most of the properties we manage are in C+/B- areas. Collecting late fees is the exception, not the norm. Personally I don't understand why a landlord would rather kick someone out (and pay the fees to re-rent the unit) than have their PM collect a simple late fee, if it isn't affecting the owners finances come the end of the month (i.e. 100% of the rents are still being collected).