We’ve been talking about the costs of property management; we already covered the two primary costs: ongoing management and tenant placement. Most owners anticipate these. We also previously addressed ancillary transactions, vendor relationships and administration fees that might cost you money. Today, we’re discussing the obligations of applicants and tenants. This is an area we personally handle with caution, because property management is a customer service business. While in some cases it’s possible to generate revenue from tenants, you probably don’t want to develop an adversarial relationship with your tenants. You benefit most when you have happy, stable long term tenants taking care of your property. As a reflection, you probably want to make sure that your property manager is also encouraging happy, stable, long-term tenancies. Residents might be liable for some expenses associated with their tenancy, but you should be aware of how your property management company relates to their tenants financially.
Application Fee
Application fees are standard expenses, incurred to cover the costs associated with receiving, qualifying and evaluating potential tenants.
Late Fees
Tenants sometimes find themselves paying late fees. In a perfect world every tenant pays rent on time. But if the rent is received late, it is typically written into the rental contract that a late fee applies. Does the property manager keep the late fee? Do they forward the entire amount to you? Is it split between you both? If there are tenant charges like late fees, you need to know what gets paid first – the rent or the late fee? If a tenant pays late and cannot come up with the entire obligation, will the amount that is paid go to you first or to the property management company first? It’s worth asking to find out how this process is handled, if it were to occur.
Incidental Costs
If a tenant decides to change the contract by maybe moving in an additional tenant or moving out an existing tenant, the contract needs to be rewritten. A property manager could justifiably charge a document preparation fee. If you have a tenant who hasn’t paid on time and a Three Day Notice needs to be served, there might be a process service fee. Or, if a tenant has set an appointment with a vendor and then the tenant isn’t home when a vendor shows up, the property manager – or vendor – might charge a missed call fee. Similarly, there could be charges for lockouts, lost keys or other missing items.
Some property managers might seemingly be creative. For example, we know of companies that charge for a pet approval process. This is certainly for your benefit, but could also be a source of income for the property management firm. It’s a complex system where the tenant pays the property manager to inspect the property several times a year to ensure there is no pet damage. Conceivably, everybody wins. But you should be aware that this program is in effect.
You need to know how a property manager addresses these tenant-directed costs, and what the impact would be on your tenants. The money collected is not coming out of your 
pocket directly, but it is potentially one aspect of the cash flow for the management property. You want to ensure your tenant has a good and productive relationship with the company you have hired to manage your rental home.
As you know, property management can be complicated. We’re here to help you simplify it. Contact DeDe’s Rentals if you have any questions or need any help.
