It could be anything... a mistake in estimating, a cost overrun, or something like the place burns down and the insurance wasn't properly taken out, or theft (of the money outright) or theft of materials along the way.    

I'm going off the understanding that you still need to spend 500+ hours in the business to achieve material participation (please correct me if I'm wrong). 

Multiple people including myself have tried to caution him of the the true costs but he's been repeatedly dismissive and has made it clear we give him motivation and he wants to prove us all wrong (whatever that means). 

Most PM software allows late fees to be charged.Ours allows us to absorb the cost of tenants paying electronically thru the software - it usually wants to charge tenants, but we want them to pay electronically.We manually charge tenants a Processing Fee for mailing in their rent, a slightly lower Processing Fee for depositing to our bank.Your success will depend on the Class of your tenants.

.:) And travelling to my clients place of business and helping them do RE deals..

Unless it's cost-prohibitive, I'd remove it for the same reasons people have stated: 1.

(MTM leases should cost more than yearly leases.)

Our program only requires a small 10% down payment on the purchase price and we will fund 100% of your rehab costs.

They have been managing fine, although not too busy, I guess because of the market.

Hey Max my business partner and I are agents and investors here in Phoenix ourselves.