What’s the best way to collect rent from a tenant?
When I decided to become a landlord, one of the areas that I gave the least amount of thought to was collecting rent.
In hindsight, I should have determined my policy for rent payment and informed the tenant during the vetting process.
Because I left it ‘up in the air’, I got a variety of suggestions from my potential tenants.
Several tenants that performed poorly on their credit and background check offered to pay rents by auto draft, meaning, I could pull rent money from their checking account when it was due – no waiting for a rent check to arrive; no chasing down tenants to find the rent. The rent would be waiting on me in my checking account each month on the first.
One tenant offered to pay six months’ rent upfront. She was desperate. I’m not even sure if that is legal, but I didn’t have to make that decision because someone else was in front of her in my vetting process.
After landing my tenant, he and I started discussing rent payment. The lease agreement we signed technically said that I would allow rent payment to be made by check, money order, cashier’s check, or direct deposit / auto draft. Basically, I didn’t limit it, beyond not allowing cash payments.
My tenant asked what bank I had and we discovered that we both used Chase. He suggested making rent payments using Chase’s QuickPay, as that’s what he and his previous landlord had done. I’ve used the service to make payments to contractors for my business before, so I was comfortable with the process and knew what to expect. I liked the idea.
So far it’s worked out great. Each month, on the 27th or so, my tenant sends money to me using Chase QuickPay, and by the 1st or 2nd, the money is in my account and available for use. QuickPay also has the option to request payment, which I could use to prompt my tenant, but I have not felt the need to do that.
So that’s my experience with rent collection so far. No issues, thankfully, and no expense (Chase QuickPay is free to use) or time invested to collect my rent.
But I suspect that most people who have rental properties don’t just have one tenant and/or all of their tenants don’t also have a Chase checking account. So I thought I’d share some other rent collection options. This will also help me to have my act together the next time.
Different Ways to Collect Rents from Tenants
Hire a property manager to do it for you. Even if you didn’t use a property manager to vet your prospective tenants, you can still hire one to collect rents and manage maintenance requests for you. By hiring a property manager, you take the stress of coming up with a rent collection method out of the equation.
Go old-school and do face-to-face payments. Believe it or not, there are advantages to collecting rent in person. I asked Joshua Dorkin, Founder and CEO of BiggerPockets.com to share his thoughts on rent collection and this is what he said about collecting in person:
“collecting in person via an appointment at the property will let you get a chance to see the condition of the property. If you don’t have it written into your lease, the odds are pretty good that your tenants will likely invite you in; if you want to ensure the monthly inspection, you can simply write this into your lease — something like “rents will be collected in person at a monthly property inspection.””
Joshua went on to say that this is a tactic he would only recommend to landlords that might expect high turnover or property damage with their unit. If these aren’t a big deal for you, then it might not be necessary. Joshua also stated that be wary of collecting a lot of cash rents in person, as you’ll become a target for thieves.
Utilize a drop box for payments. If you don’t feel the need to collect your rent in person, place a drop box on the rental property and have your tenant place a check, money order, or cashier’s check in the box on rent payment day. Using this method would allow you to still check up on the property condition (at least the outside) while not requiring a specific appointment to meet with the tenant. A friend of mine uses this method and hasn’t reported any issues.
Take rent payments by mail. In certain situations it may make sense to have your tenant simply mail the payment (check, money order, or cashier’s check) to an address each month. Of course timing becomes an issue (i.e. “the check is in the mail”). If you go this route, it may be wise to provide your tenant with pre-addressed and stamped envelopes to make the process as smooth as possible.
Require payments by bank deposit. When Mrs. PT and I were just married, we rented a townhome for a year. We didn’t meet our landlord till six months into the lease because he lived in Long Island, NY. Because he lived so far away, he couldn’t swing by and pick up his rent. So, he gave us a year’s worth of deposit slips tied to his account with Wells Fargo. On the first of each month, we would swing by the nearest Wells Fargo branch and deposit our check into his account. As a tenant I wasn’t too bothered by this method (as I received a deposit receipt as evidence of my payment) and I’m sure our landlord loved the ease of this method.
Go automatic with direct deposit or auto withdrawal. Talk to your bank about setting up an automatic online transfer from your tenants bank account or paycheck to your checking account. There will likely be a small fee to implement this service, but I know some smaller banks or credit unions might do this for free. I looked into this with Chase and it was going to be $25 a month, which cuts too far into my rental profit margin.
Utilize an online rent payment service. One other solution is to use a third party provider to facilitate the rent collection. There are several online rent payment services to choose from, each with a variety of fees. From what I gathered, these services are slightly cheaper than the automatic services you can find with a bank. BiggerPockets.com has a complete list of online rent payment tools to choose from, like WilliamPaid.com, eRentPayment.com, and ClearNow.com.
So that’s my summary of the different rent collection methods available today. Which one you use will of course depend on your particular situation and needs. Be sure to factor in time, cost, safety, and convenience as you decide with method is best for you.
If you collect rent using one of these methods (or a different method) I’d love to hear about it. Let us know in the comment section below.
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