Rent payment inquiry

[Kristen Ray]

Hello BP!

What has your experience been with allowing tenants to deposit their rent payments into your account at the bank? Has anyone experienced a time when the tenant made a withdrawl? Also, in terms of setting up ACH for direct deposit of rent, what challenges have you faced? 

From my understanding ACH can take 2 weeks to set up. Have you received late rent due to this factor? If so, how did you handle it?

[Kyle J.]

My tenants have my bank account number and the option to deposit rent directly at the bank.  It's not a big deal.  All you're giving them is the account number.  If you've ever written a check you've likely given a stranger that same info and maybe more (i.e. your address printed on the check, a copy of your signature, etc).  At least your tenant has passed a background screening (or at least should have) and you know where they live if they were to ever do anything.  But really, there's not much they can do with that info.  They can't make a withdrawal because they're not a listed account holder.  All they can do is make a deposit.

A couple of things to consider.  Some banks are restricting the ability of non-account holders to deposit cash into someone else's account citing the Bank Secrecy Act and an effort to fight money laundering.  (Here's an article on it: https://www.bankrate.com/banking/checking/cant-deposit-cash-into-someone-elses-account-these-are-your-options/.)  However, there are ways around it, such as having tenants deposit something other than cash (i.e. money orders, checks, etc), or just set up a business account like I did because these rules usually only apply to personal accounts. 

Also, there could be a concern if you ever have to evict a tenant because in some states a tenant could delay an eviction by depositing any amount of money in your account, and if they had your account number you may not be able to stop them from making that deposit.  I've never had to evict a tenant, so that's never been an issue for me.  However, there are ways to deal with that too.  One way is to set up deposit-only ATM cards for each tenant (different banks offer these) that they can use to make the deposits but that you can deactivate if you're going through an eviction (provided there is an alternate method for them to make rent payments).  Alternatively, in my state, my attorney has advised that even if a tenant were to make a partial payment to my account, I could still refuse the partial payment and return it to them and proceed with the eviction (consult with your own attorney on the laws for your state).

Overall, there's nothing inherently bad about tenants having your bank account number and it's a viable option for certain tenants, like the ones who don't have bank accounts.  I think certain rent payment portals are better (like Cozy), because they're automated.  However, those require the tenant to have a bank account, and typically the type of tenant who goes into a bank to make a rent payment doesn't have a bank account.