Rent Collection: What’s the Best Way to Collect Rent from Your Tenant?

Collect-Rent

 

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. Some worked out OK and others were poor choices. It’s a part of the rental process that deserves much more attention that I gave it. 

So what is the best way to collect rent from a tenant? That’s hard to answer because everyone will differ on what is important in a rental collection process. Ultimately, because I am the landlord, the best way is whatever works best for me and my situation. You want a rental collection process that protects you as a landlord, but is still convenient for tenants.

What rent collection options are available to landlords? Let’s take a look at some more traditional ways as well as newer, online options. 

Traditional Ways to Collect Rents from Tenants

Property manager

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.

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 a 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.

Use a drop box 

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.

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.

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.

Direct deposit / Auto withdrawal

Talk to your bank about setting up an automatic online transfer from your tenant’s 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.

3 Ways to Collect Rent Online from Tenants

Times have changed. There are more online rent collection options than ever before. Let’s look at some of the more popular options among landlords.

Cozy

Cozy is a free property management software. It helps landlords simplify the entire rental process. View tenant applications, get background checks, and set up rental payments all within Cozy. Check out this video to learn more about Cozy!

Avail

Avail is another free property management software landlords can use. Manage all your rentals within Avail. Set up automatic rent payments and track maintenance issues. There’s also an option for digital leases with Avail.

Buildium

If you manage a large number of rental properties, Buildium might be a good choice. It’s designed more for management companies than individual users, but is still a great option for property management. A paid plan is required to use Buildium.

Here’s a quick comparison of all 3 property management programs to get an idea of what they offer:

 cozy property management
Rent CollectionFree ACH
$2.99 Express Pay
$2 ACH Fee
3.5% Fee for Credit or Debit Card
$.050 EFT Payments
2.75% Fee for Credit Card
Deposit Time4-5 Days ACH
3 Days Express
3 Days1-2 Days
Restrict Partial PaymentsEnd of LeaseYesYes
Multiple Deposit AccountsYesYesYes, for an Extra Fee
Auto Late FeesFixedFixed or %Fixed
Background Check$24.99-$39.99$18.95-$34.95Basic Screening: $15
Premium: $18
Credit Check$24.99-$39.99$35Part of Screening (Above)
Digital LeaseNoPart of Paid PlansAvailable
Renter's InsuranceAvailableAvailableAvailable

Try them out and see which one works best for your rental business. The convenience of Cozy, Avail, and Buildium are hard to beat!

Cozy: Free Property Management Software Collect rent online, tenant screening, property listings, rental applications, rent estimates, insurance, expense tracking, maintenance, and more. Get Started Cozy: Free Property Management Software We earn a commission if you click this link and make a purchase at no additional cost to you.

More Ways to Collect Rent Online from Tenants

In addition to the online companies listed above, there are 2 more options to consider: PayPal and Venmo. PayPal is the most popular and oldest online payment service. Venmo is owned by PayPal and allows you to make mobile payments to anyone.

Allowing monthly rent payments through PayPal and Venmo can make life easier for your tenants. It’s all about convenience. There’s a good chance that they already have a PayPal or Venmo account set up.

With the convenience of PayPal and Venmo also comes negative aspects of online payment services. Landlords face some risks using these popular services because of their lack of protection. For example:

PayPal: There is something called PayPal Purchase Protection, which covers payments made through the website. However, if you look at the list of what’s not covered, the very first item listed is Real Estate. If there is any kind of dispute between you and your tenant, you may end up losing money.

Venmo: Venmo wasn’t originally created for business transactions. It was created to be able to send money between family and friends. One look at Venmo’s security information shows that “Venmo does not offer buyer or seller protection.” If you run into issues with payments, you won’t have Venmo backing you at all. Also, Venmo opens up the possibilities of receiving partial payments because the payments are automatic.

In the end, you’ll need to make a decision on whether the convenience of services like PayPal and Venmo are worth the potential headaches you could face with tenants.

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 which method is best for you.

 

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Comments

  1. InvestorJunkie says:

    Why not by credit card or PayPal?

    • Philip Taylor says:

      @InvestorJunkie Credit card is included in the “online rent payment” option above. I suspect that most people would see much higher fees with taking credit cards direct or through PayPal than with those third party solutions like WilliamPaid.com.

  2. InvestorJunkie says:

    Why not by credit card?

  3. I agree that Chase Quickpay is a great method. I use that whenever I can, even if the tenant doesn’t have a Chase account.
     
    How? 

    Log on to your Chase account, and click the “Pay a Person Using Chase Quickpay” on the right side of the screen after you login. (I know, you’re actually going to request money, rather than pay someone, but click that link anyway.)

    Click “Request Money,” then select “New Recipient,” enter their name and email address, enter the amount due and due date, click “Next,” and if all of the info on the next screen is correct, click “Submit.”
     
    Chase will then send your tenant an email inviting them to create a Chase Quickpay profile and to link their non-Chase checking account with their new Chase Quickpay profile. I included a list of instructions you or your readers can send to tenants who don’t bank with Chase, walking them through the process if they aren’t very tech saavy (There are a lot of steps but it’s actually quite easy, I just spelled it out in detail).
     
    Once they link their non-Chase checking account with their Chase Quickpay account, they’ll be able to send money via Chase Quickpay just as if they had a Chase checking account (because they will have authorized Chase Quickpay to take money from their non-Chase checking account and send it to you).
     
    Hope that helps if someday you have a tenant who doesn’t bank with Chase. I do this with one of my tenants now (who has a US Bank checking account) and it works great.
     
    Great post!
     
    Tim Murphy
    ApplyMate.com
     
    Instructions to send your tenant if he or she doesn’t have a Chase checking account but wants to use Chase Quickpay.

    – Open the email that says “Payment request from [NAME]”
    – Click to show pictures if they don’t automatically display in your email
    – Click the green Send Money button in the email
    – That will take you to a Chase.com page – at the bottom left it says “Not a Chase customer? You still can use Chase QuickPay.” Click the Sign Up Now link.
    – On the Enrollment for Non-Chase Customers, fill in all the required information, create a User ID and password, and click “Next.” Make sure you follow all the password and username guidelines, otherwise you’ll keep getting error messages.
    – On the following screen, enter your bank information and read the directions (pay special attention to the Verifying your bank account section.) Click submit/enter
    – Follow the on-screen instructions to get the verification code from your email. Enter it and hit “Verify”
    – Check your US Bank account and see if two small deposits were made from Chase (this could take a day or two). Once you see those amounts, log back into Chase and verify the amounts on the two deposits.
    Once you verify the two small Chase deposits, you should be able to send money by clicking the green Send Money button on the right side of the Chase Quickpay homepage.