Venmo To Start Charging Fees—Should Landlords Be Worried?

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All landlords want to collect rent with as little hassle as possible. Collecting rent in full and on time is the only way to protect your cash flow and keep your rental property business profitable.

To streamline rent collection, most landlords use various online methods to receive rent payments. One popular method landlords use to collect rent online for free is Venmo.

However, for many landlords, using Venmo for rent collection will get more expensive. Venmo announced that as of July 20, 2021, it would start charging transaction fees for “goods and services.” So, if you’re using Venmo for any business transaction, you will have to pay 1.9% + $0.10 for each transaction.

Of course, Venmo already allows business transactions and charges a 3% transaction fee for them. But some landlords use their personal account to receive rent from tenants—even though this goes against Venmo’s terms and conditions.

How will changes to Venmo’s transactions affect you if you have a small landlord business? Are there free alternatives to Venmo for collecting rent without paying transactions fees?

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The cost of using Venmo for online rent collection

Venmo was never designed as a method for landlords to collect rent. Initially, the peer-to-peer app was for people who knew and trusted each other to transfer money. There’s no fee for personal transactions, and you can withdraw up to $2,999.99 per week. So, it became common for small-time landlords to use their personal Venmo accounts to collect rent payments and bypass the business transaction fees.

However, using a Venmo personal account to collect rent violates their terms. According to the Venmo website, “you CANNOT use Venmo to accept payment from (or send payment to) another user for a good or service, unless explicitly authorized by Venmo.”

To collect rent using Venmo, you need to set up a business profile. Then every time you receive rent, you incur a 3% transaction fee. For this, Venmo offers payment protection to ensure smooth, safe, and hassle-free transactions for landlords and tenants.

As of July 20, users can choose a payment option for “goods and services.” In this case, landlords will pay 1.9% + $0.10 of the transaction fee. Even if the tenant doesn’t choose the “goods and services” option, it’s still possible that Venmo’s AI system will detect payment descriptions and flag the payment for “goods and services.” There are already online discussions on how to get around this issue.

There is another way that Venmo will become more expensive to use. Anyone who wants to make an instant funds transfer to their bank account will now have a 1.5% transaction fee in place of the current 1%.

The pros and cons of using Venmo to accept online rent payments

Peer-to-peer apps are popular for rent collection because they’re fast, efficient, and—until now—cheap. Most people are familiar with PayPal, Venmo, Zelle, and CashApp for money transfers, so there is usually little or no learning curve for tenants to start paying rent using these methods.

Compared to receiving rent checks or cash, collecting rent online saves landlords time. No longer do you need to check the mail and drive to the bank to deposit money. Then there is the hassle of waiting for checks to clear and dealing with bounced checks.

However, using cash apps or “digital wallets” for rent collection has its drawbacks. Unless you use a business account, apps such as Venmo and PayPal don’t include payment protection for landlords. If your tenant has a dispute about rent payment, there is no way to resolve the issue through the payment app. Additionally, there may be fees to transfer money to your bank account.

There’s another concern for landlords when using Venmo or PayPal for rent collection: There is no way to prevent partial payments. A tenant can pay any amount of rent they want. This can present you with significant problems if you’ve got a problem tenant in one of your units.

Suppose you are trying to evict a tenant for a lease agreement violation. A delinquent tenant could pay as little as $1 through Venmo to cure or stop the eviction. This means that it could become almost impossible to evict a tenant if you accept rental payments through Venmo or PayPal.

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Alternatives to Venmo for collecting rent online

With payment apps such as Venmo getting more expensive for landlords to use, looking for alternatives makes sense. Several apps are specially designed for landlords and property managers. Some are paid-for property management apps with a host of features. In contrast, other free apps are designed for rent collection and security deposits.

Here are some advantages of using a rent collection or property management app.

• Collect rent online for free. Look for trusted property management apps that allow free rent collection. Typically, there is no charge for ACH payments or payments with a debit card. However, for credit card transactions, it’s standard practice to include a transaction fee.
• Set up recurring payments. All landlords want to collect rent on time and in full. Tenants can set up regular payments with rent collection apps, so they never miss a rent payment. This not only improves your cash flow, but saves you from charging tenants late fees.
• Instant messaging. Another benefit of apps for landlords is the ability to send instant messages to tenants. This could be to an individual tenant or bulk messages to all your tenants. You can also set up automatic rent payment reminders for your tenants to help improve cash flow.
• Maintenance requests. Property management apps also give you the option of processing maintenance requests. For example, a tenant can send the request along with images of the issue. You are then able to assign the job to a contractor and monitor progress through the app.
• Process documents electronically. The best property manager apps also let you handle rental agreements, leases, security deposits, and other essential documents. For example, using eSign services, you and your tenant can sign documents electronically. This saves time because you don’t have to meet tenants in person to sign documents.

There are many excellent rental apps for property managers and landlords to choose from. These apps allow you to collect rent without slapping on transaction fees. And, because they are designed for landlords, they contain many other valuable features specific to the rental property industry.

It could be that payment apps such as Venmo, Zelle, and PayPal for rent collection go the same way paper checks: They were helpful for a time but became burdensome and expensive for landlords to use.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.