Convincing tenants to use electronica payment

[Elford Stephens]

 Hi, we are new real estate investors. We just purchased our first property.    The tenants are accustomed to paying their rent to the old owner in cash. This will not work for us.  We would like them to use some form of electronic payment either direct deposit or Cozy.co.   One of the tenants would like to mail us money orders. Her concern is that she is a new renter and she would like to be able to keep track of her payments.   What arguments would you use to persuade her to use electronic payments? 

[Ned Carey]

@Elford Stephens  If they have a smart phone show them how easy it is to do with an app.. The problem is many tenants don't have smart phones but more importantly they don't have bank accounts to pull the money from. 

I vaguely recall saying 7-11 had some way for tenants to pay.

[Elford Stephens]

Hi Ned,  

I did not consider whether or not our tenant has a bank account. I will discuss that with them and inquire whether they have a smart phone.  I appreciate the advice. 

Thank you,

Elford

[Anthony Bellesbach]

venmo is a good app for payments and its free have not used the others at all thou. Yes you would need a bank account and smart phone . 

[Elford Stephens]

Anthony,

I had not heard of Venmo before.  I am reviewing the information on the website.  It does appear to be a good electronic payment solution. 

Thank you for the information,

Elford

[Max T.]

Not only does cozy keep track of rental payments, it gives tenants the option of reporting them to the credit bureaus, thus building the credit score for a new renter. That should help convince her.

[William W.]

I think a lot of tenants are afraid that the landlord will be able to draw the rent without their permission somehow, and aren’t aware that they are still in control of when it gets paid.

Beyond that, I think many just don’t have a bank account.

[Wesley W.]

I make payment method a condition of all my leases, which are M2M.  If I offer an exception for just one tenant, I now no longer have a system.  Tenants can pay via bank to bank online transfer, walk in to a branch and pay with personal check, cash, wampum.  I care not.   They do not need a bank account to make a rent deposit to my account at my bank.  There is a note on my account that non-account holders will be making deposits and not to give a receipt with a balance.  If you're extra concerned, you can always "sweep" the money to a new account after the first of the month. 

Here is an excerpt from my lease:

A. You agree to pay the monthly rent indicated above via deposit to the following checking account at (bank name): account # 123456; routing # 123456  (nearest branch is 1 Main Street, New York, NY). Rent is due in advance and in full on or before the 1st day of each month without deduction or set off. Time is of the essence. Payment may not be made by third party checks. If rent is not paid physically at a branch (i.e. it is paid online or via bank transfer), the date of payment will be considered the date when funds reach our account. 

[Nathan Gesner]

Make the transition by requiring it with every new lease. Tell them you accept payments via Cozy.co or whatever system you use and make them figure it out. If they are adamant they want to pay in cash or mail a money order then let them rent somewhere else. Educate them when they apply and there won't be any problem.

[Steven Foster Wilson]

Venmo is what I use, it connects to either your bank account or even a credit card. Explain to how easy it is to track all of her payments with the click of a button. 

[Jill F.]

We insist that all payment be made online. We set up a buildium account for each tenant if the tenant doesn't want to sign on and use it we have an ACH permission form and we set it up for them. 

Some of the prepaid debit cards are capable of ACH debit transactions (netspend). A lot of "unbanked" people like and use these cards but they are such a bad deal that the federal goverment negotiated a deal with a bank for the "Direct Express" card for the receipt of government benefits but unfortunately it DOES NOT permit ACH debit transactions. We tell tenants that don't have a bank account or ACH debit capable card about simplebank.com, a no fee online bank that we like but it's up to the tenant to get it done... and we do insist that it be done. We are working on getting paynearme set up through Buildium and then tenants will be able to pay cash at 7-11 and ace and we'll still get our money electronically (with all accounting entries done).

[Ryan Swan]

@Elford Stephens how difficult it may or may not be will really depend on the class of tenant at your property. In my case, I had zero issues when I switched all 20 or so tenants to electronic payments at the same time a few years ago. Tell the tenants how the new system will be better for them in terms of money/time savings and convenience factor. One tenant continued to make her deposit directly at my bank simply because she did not have internet at the time. 

I used the payment systems through Buildium which is pretty straight forward. Send your tenants a PDF guide showing them how easy your electronic rent payment system will be. They can even set up recurring payments so they won't miss another rent payment. 

[Nicholette Moore]

Elford, 

   Is the tenant residing in the same city as you are? I was concerned about this as well.. when i purchase my first property.  If the tenant is older or is not willing to pay electronically.. what's the plan? I can see how it would be necessary to receive it electronically if you reside in another city.. but how much of a headache would it be to go pick it up? Or have someone pick it up for you? I'm creating a gameplan for myself by inquiring. 

[Josue Vargas]

The only time I MAY consider lowering my criteria and accepting other payment methods than electronic means is for the baby boomers and above generation if they require it upfront.  Enforcing them using electronic systems may stress them enough to look somewhere else than my property. 

[Elenis Camargo]

@Elford Stephens I just acquired an inherited tenant with my third property last week who is used to paying with money orders for the past 12 years. I'm out of state and told her that it's not recommended to mail a money order because it can get lost in the mail and no one can get it back. I gave her a few options: 1) Use cozy.co, 2) use Zelle from her Wells Fargo bank directly to my Chase bank, or 3) deposit the money directly into my Chase bank. Just tell them that you definitely cannot accept cash payments because there would be no record of this, and that you do not accept checks or money orders. All monthly rents must be paid online via Cozy or some other online payment system. I had one tenant that ended up asking if she can use Venmo and I said yes. Whatever makes it easier and it's all electronic and free for me so it's fine. Just make it sound like you have a process in place, these are the rules and they have to follow them if they want to stay in your property. Best of luck!!

[Elford Stephens]

Originally posted by @Max T.:

Not only does cozy keep track of rental payments, it gives tenants the option of reporting them to the credit bureaus, thus building the credit score for a new renter. That should help convince her.

I can see how this tip could motivate her to use Cozy. 

Thanks Max T,

Elford

[Elford Stephens]

Originally posted by @William W.:

I think a lot of tenants are afraid that the landlord will be able to draw the rent without their permission somehow, and aren’t aware that they are still in control of when it gets paid.

Beyond that, I think many just don’t have a bank account.

I am meeting with her next week.  I will ask about her fears (and whether she has a bank account.)

Thanks for the advice William W,

Elford

[Elford Stephens]

Originally posted by @Wesley W.:

I make payment method a condition of all my leases, which are M2M.  If I offer an exception for just one tenant, I now no longer have a system.  Tenants can pay via bank to bank online transfer, walk in to a branch and pay with personal check, cash, wampum.  I care not.   They do not need a bank account to make a rent deposit to my account at my bank.  There is a note on my account that non-account holders will be making deposits and not to give a receipt with a balance.  If you're extra concerned, you can always "sweep" the money to a new account after the first of the month. 

Here is an excerpt from my lease:

A. You agree to pay the monthly rent indicated above via deposit to the following checking account at (bank name): account # 123456; routing # 123456  (nearest branch is 1 Main Street, New York, NY). Rent is due in advance and in full on or before the 1st day of each month without deduction or set off. Time is of the essence. Payment may not be made by third party checks. If rent is not paid physically at a branch (i.e. it is paid online or via bank transfer), the date of payment will be considered the date when funds reach our account. 

Wesley W,

I have saved the excerpt from your lease.  I am considering placing this in any future leases we generate.  I will also contact the bank about not allowing tenants to request balances.

Thank you,

Elford

[Elford Stephens]

Originally posted by @Nathan Gesner:

Make the transition by requiring it with every new lease. Tell them you accept payments via Cozy.co or whatever system you use and make them figure it out. If they are adamant they want to pay in cash or mail a money order then let them rent somewhere else. Educate them when they apply and there won't be any problem.

Hi Nathan,

I just got home from our local REI meeting. Some experienced investors there recommend having the existing tenants sign new leases drafted by our company. Others recommend leaving the existing lease in place until it is expired. If I follow what your saying, my plan will be to have the tenants sign new leases when the current lease expires and include the accepted payment methods in the new lease.

Thank you,

Elford

[Elford Stephens]

Originally posted by @Jill F.:

We insist that all payment be made online. We set up a buildium account for each tenant if the tenant doesn't want to sign on and use it we have an ACH permission form and we set it up for them. 

Some of the prepaid debit cards are capable of ACH debit transactions (netspend). A lot of "unbanked" people like and use these cards but they are such a bad deal that the federal goverment negotiated a deal with a bank for the "Direct Express" card for the receipt of government benefits but unfortunately it DOES NOT permit ACH debit transactions. We tell tenants that don't have a bank account or ACH debit capable card about simplebank.com, a no fee online bank that we like but it's up to the tenant to get it done... and we do insist that it be done. We are working on getting paynearme set up through Buildium and then tenants will be able to pay cash at 7-11 and ace and we'll still get our money electronically (with all accounting entries done).

Hi Jill F,

You have introduced several payment services that I was not aware of (Simplebank.com, netspend & paynearme).  I will investigate the options to understand which might suit my tenant's needs.

Thank you,

Elford

[Elford Stephens]

Originally posted by @Ryan Swan:

@Elford Stephens how difficult it may or may not be will really depend on the class of tenant at your property. In my case, I had zero issues when I switched all 20 or so tenants to electronic payments at the same time a few years ago. Tell the tenants how the new system will be better for them in terms of money/time savings and convenience factor. One tenant continued to make her deposit directly at my bank simply because she did not have internet at the time. 

I used the payment systems through Buildium which is pretty straight forward. Send your tenants a PDF guide showing them how easy your electronic rent payment system will be. They can even set up recurring payments so they won't miss another rent payment. 

Hi Ryan,

Thanks for the tips.

Elford

[Nathan Gesner]

 You can't change an existing lease until it is expired or all parties agree to the changes. Some tenants don't know this so you could try to get them to terminate the current lease (get this in writing) and sign a new one. If they refuse, then you'll have to wait.

[Derek Guivehchi]

@Elford Stephens

Look into “pay near me” or “rentmoney” there are several options that give tenants the ability to make physical payments at Wal mart, 7-11, CVS, Kroger and other chain stores. Most management software includes some additional payment options for tenants too.

[Elford Stephens]

Originally posted by @Nicholette Moore:

Elford, 

   Is the tenant residing in the same city as you are? I was concerned about this as well.. when i purchase my first property.  If the tenant is older or is not willing to pay electronically.. what's the plan? I can see how it would be necessary to receive it electronically if you reside in another city.. but how much of a headache would it be to go pick it up? Or have someone pick it up for you? I'm creating a gameplan for myself by inquiring. 

Hi Nicholette,

It's about a 30 min drive from our location to the property. So, it's not too far. However, our goal is create a system that in several years can be managed from anywhere (with access to phone & internet). I am following the advice I have received at the local REI meetings and in the books I've studied (e.g. Landlording on Autopilot) to establish a minimal hassle system that promotes on time rent payment. I have been advised to move away from checks because they can bounced. I have been advised to move away from cash because of the increased risk of robbery and the lack of a paper trail. I am not experienced. So, I draw my insights of those who have been enough to share their stories. Picking up the rent works well if you want cash. But, that is not necessary for my group. We want to be able to show the property's income to justify the market values of our properties.

Please let me know your thoughts,

Elford

[Elford Stephens]

Originally posted by @Josue Vargas:

The only time I MAY consider lowering my criteria and accepting other payment methods than electronic means is for the baby boomers and above generation if they require it upfront.  Enforcing them using electronic systems may stress them enough to look somewhere else than my property. 

Hi Josue,

I hear what you are saying.  Funny thing though.  Its our young tenant who is hesitant.  Our other tenant is living on social security and she had no problem establishing a monthly direct deposit.

Crazy huh?

Elford

[Elford Stephens]

Originally posted by @Elenis Camargo:

@Elford Stephens I just acquired an inherited tenant with my third property last week who is used to paying with money orders for the past 12 years. I'm out of state and told her that it's not recommended to mail a money order because it can get lost in the mail and no one can get it back. I gave her a few options: 1) Use cozy.co, 2) use Zelle from her Wells Fargo bank directly to my Chase bank, or 3) deposit the money directly into my Chase bank. Just tell them that you definitely cannot accept cash payments because there would be no record of this, and that you do not accept checks or money orders. All monthly rents must be paid online via Cozy or some other online payment system. I had one tenant that ended up asking if she can use Venmo and I said yes. Whatever makes it easier and it's all electronic and free for me so it's fine. Just make it sound like you have a process in place, these are the rules and they have to follow them if they want to stay in your property. Best of luck!!

Hi Elenis,

We are learning along the way.  I we initially agreed to money orders, but I see your point about them getting lost.  We meet with the tenants next Thursday.  We will discuss this policy either then in person or before then over the phone.  I think we will give them the options of direct deposit, ACH or Cozy.  

I appreciate you advice,

Elford