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?
