Give Me Five…Ways to Collect Rent the Right WayBy Angela RoseReal estate can be a financially sound investment thanks to both the rental income it generates and property appreciation. However, managing rental properties isn’t without headaches, especially when it comes to getting tenants to pay rent on time. Even if you’ve clearly established due dates and late fees in your rental agreements, failing to dictate the method your tenant will use to pay that rent can seriously interfere with your cash flow.In this article, we’ll take a look at four possible methods of collecting rent that we think you should avoid, as well as one that works best to simplify payment, fee assessment and tracking.1 CASHIf you choose to accept rent from tenants in cash, you’re going to need to collect it in person each month. If you have multiple rental properties to attend to, that can take up a significant amount of time. You’re also going to become a target for thieves until all those bills have been safely deposited.“Accepting cash payments requires additional steps for the landlord,” said Jonathan Coleman, MBA, broker and Realtor Relations Manager at Go4Rent. “The landlord should provide the tenant with a receipt, and then has to make an extra trip to deposit those funds into his or her bank account each time.”Our take: Not recommended.2 Check“The check’s in the mail” is a phrase you’re likely to hear frequently if you choose to allow tenants to pay their rent by old-school check. As long as it is postmarked by the due date, you can’t legally count their rent as late even if it takes a week or more for the USPS to deliver it to you. During that time, you don’t have access to funds you may be counting on as income. Tenants may also mail checks that their bank accounts can’t actually cover, resulting in a nonsufficient funds (NSF) fee.“The biggest issue we see with paper checks is the NSF fee,” said Coleman. “If the check is returned by the tenant’s bank, the landlord’s bank usually imposes a fee to the landlord’s bank account. Additionally, it may take up to a week for the bank to notify the landlord of the NSF check, on top of notifying the tenants that they will have to cover any incurred fees due to NSFs.”Our take: Not recommended.3 ACH DebitsA recurring monthly automated clearing house (ACH) debit from your tenant’s bank account into yours is a more modern method of rent collection. It’s usually set up by your tenant through his or her bank, and requires filling out and signing a document that authorizes a repeat withdrawal of a set amount. If your tenant eventually renews the lease and you’ve raised the rent, they’ll need to submit a new authorization.While convenient, ACH debits (minus payment methods like Zelle) can bounce just like paper checks if your tenant doesn’t have enough money in the account. This will result in NSF fees charged to you and a need to collect the missing rent plus fees from your tenant. You’re also likely to pay a transaction fee for each ACH debit you accept, and it may take up to a week for each funds transfer.Our take: Not recommended.4 Third-Party Payment AppsApps like Venmo, PayPal, Square, Apple Pay and others are popular with many of today’s consumers because of their convenience. They make it easy to make purchases or send money to friends or family, but they’re not the best option for landlords who need to collect rent for several reasons.First, the majority of these apps charge businesses, including landlords, transaction fees. This can consume up to 3% of each rent payment you accept. If your tenant is paying $1,200 per month in rent, you’ll lose $36 each time due to transaction fees. There may also be a delay of several days between payment processing through these apps and when funds are available in your bank account.Coleman points out a second issue: These apps open the door to partial payments, which can complicate eviction matters and create bookkeeping nightmares.“If landlords have stipulated that they will only accept full rent payments, they’re unable to prevent partial payments using these methods,” he says. “If the landlord has several tenants, it can become difficult to know which tenant made which payment, and there’s no automatic tracking of late fees.”Our take: Not recommended.5 Online Property Management PortalsFor landlords looking for a rent collection method that offers convenience and fewer potential headaches, an online property management portal is likely the best solution. There are many available from the simple (offering basic rent collection features) to the more complex (integrating listing, leasing, rent collection and more).Go4Rent provides an online portal for free to landlords that allows their tenants to pay rent, automatically accounts for late fees, and keeps a running balance of the tenant’s account,” said Coleman. “Additionally, landlords can add ancillary fees like RentSurety to the required payment or a maintenance fee that occurred during the month. When the tenant pays rent, they can also pay the additional fees. This will really make the landlord’s life easier.”Our take: Recommended.
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