How to approach late payment situation, especially with a PM?

[Turgut Oz]

I have a rental property in Texas and I hired a local management company to manage it. They placed a tenant who did not pay the first month on time. The rent is due 1st of the month. The tenant paid two partial payments for that month later and still owes an unpaid portion from that month. In the second month, I noticed he did not pay the rent again and PM says (upon my asking about the situation) the tenant contacted them and told that he will pay half in 10th (half of second month's rent), and rest about 17th. So I am facing a situation where I definitely do not get payments on time, and also not in full.  Especially, it is not just late payment, it is partial late payments scattered over the month.

My property manager takes 100% of the late fees so it is actually better for them if a tenant pays the rent late every month. They did not even bother to let me know these partial payments plans if I did not contact them. While I know this is only a two-month experience but I also know that these things become habitual, occurring every month if the tenant knows it is OK to do that. Having payment issues in the very first months is a strong indicator that they placed a wrong tenant. 

How should I approach this property management? What are reasonable things to expect and demand from them? Currently, I feel like they do not care. Also, how many late payment patterns form a basis for eviction if this thing continues in the future?

[Nathan Gesner]

Quote from @Turgut Oz:

I have a rental property in Texas and I hired a local management company to manage it. They placed a tenant who did not pay the first month on time. The rent is due 1st of the month. The tenant paid two partial payments for that month later and still owes an unpaid portion from that month. In the second month, I noticed he did not pay the rent again and PM says (upon my asking about the situation) the tenant contacted them and told that he will pay half in 10th (half of second month's rent), and rest about 17th. So I am facing a situation where I definitely do not get payments on time, and also not in full.  Especially, it is not just late payment, it is partial late payments scattered over the month.

My property manager takes 100% of the late fees so it is actually better for them if a tenant pays the rent late every month. They did not even bother to let me know these partial payments plans if I did not contact them. While I know this is only a two-month experience but I also know that these things become habitual, occurring every month if the tenant knows it is OK to do that. Having payment issues in the very first months is a strong indicator that they placed a wrong tenant. 

How should I approach this property management? What are reasonable things to expect and demand from them? Currently, I feel like they do not care. Also, how many late payment patterns form a basis for eviction if this thing continues in the future?

Keeping the late fee is not the issue. The real issue is that they allowed your tenant to pay late, not pay in full, and now they are allowing it again the second month. This is unacceptable. My policy is to charge a late fee on the 5th (earliest allowed by law), then a 3-day Pay or Quit on the 11th. If tenant doesn't pay after the 3-day Notice, then I'm immediatel filing in court and get a hearing in 7 - 14 days. Then I win and the tenant is out within 48 hours.

A property manager should be leading the way to protect your property, income, time, and sanity. They should keep you informed of what steps they are taking to protect you, not calling to explain the problem and then asking for your advice.

Start by demanding they start the eviction process immediately. While they work on that, you should be looking for a new property manager. Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!