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Updated almost 6 years ago, 02/25/2019
Convincing tenants to use electronica payment
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?
I had this exact situation recently. I inherited a tenant who doesn't have a bank account and used to pay rent via money orders. After asking around, the best solution I found was to simply have them deposit the money order into my bank account directly at the bank. It's safe, secure, and most importantly simple for the tenant. Sure, it's not as ideal as an ACH transfer but it's better than cash, checks, prepaid cards, or anything involving the mail.
Note: Paynearme and Propertyware do allow cash deposits but have minimum usage amounts that are untenable for a landlord with only a few tenants.
I am encouraged by the generosity of all of you experienced investors.
Thank you to everyone who thought about our dilemma and took the time to share their insights.
We are putting the different tips together to generate a game plan.
Wish us luck!
Elford
Originally posted by @Jason L.:
I had this exact situation recently. I inherited a tenant who doesn't have a bank account and used to pay rent via money orders. After asking around, the best solution I found was to simply have them deposit the money order into my bank account directly at the bank. It's safe, secure, and most importantly simple for the tenant. Sure, it's not as ideal as an ACH transfer but it's better than cash, checks, prepaid cards, or anything involving the mail.
Note: Paynearme and Propertyware do allow cash deposits but have minimum usage amounts that are untenable for a landlord with only a few tenants.
Hi Jason,
Thanks for the advice. We have officially been real estate investors for 2 weeks. There are so many things to learn! We established an account at a bank that is reasonably close to the property. So, her depositing the money directly into our accounts is an option.
Thanks for the tips about Paynearme and Propertyware. We only have 2 units so far.
Elford
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
Hi @Elford Stephens ,
For our tenants that do not have bank accounts, we suggest that they take a look at Simplebank.com (no affiliation). We like Simplebank because they do not charge fees like most of the pre-paid debit cards and provide more complete services. However, Simplebank is an online bank, not a payment processor service.
Netspend is a pre-paid debit card that can be used in lieu of a bank account for ACH debit transactions required by our payment processor. We don't recommend it due to pretty high fees compared to Simplebank.
We use Buildium for our property management software and they provide for online rent payments via a third-party payment processor, Forte payment systems. Buildium allows our tenants to pay by ACH debit which requires an account number and a routing number for fifty cents (.50) or by credit card with a fee (2.75%). One of the really nice things about Buildium is that our accounting entries are done automatically for payments made online.
Paynearme.com is a cash payment system that lets your tenants pay rent in cash at a network of stores and then you receive the money electronically. I don't think they are directly serving small landlords at this time; the service just became available to Buildium clients and it is nicely integrated with the Buildium accounting software. The tenant pays $3.99 for the paynearme service. Buildium might be overkill for one property but if you are planning on scaling up pretty quickly we recommend it; it has been a big help to us. (No affiliation other than as customer)
@Elford Stephens if she wants to keep records she still can. It's just safer if she pays on line. It's a risk factor if anything is mailed. Paying online is fast simple and I'm sure she'll receive a confirmation email of payment.
Originally posted by @Peter Aziz:
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
I have a tenant who pays Paypal as well. It's a great option (as is Venmo), but this issue in this situation is that neither service offers a cash option. It's only useful for tenants with bank accounts that they can link.
I wrote in a small discount $10 on renewal for electronic payment recieved on the first. They switched. A cash deposit at the bank is acceptable too. I even walked one older tenant through the electronic process so they could see the e deposit shows thier name.
@Elford Stephens We make monthly draft transfer directly from a checking account (ACH transfer) a condition of the lease agreement. We set this up through quickbooks online and avoid transaction fees. Receipts/deposits/etc all happened automatically as scheduled. We have yet to have an approved tenant who has refused this method. It’s been a great decision for is.
@Elford Stephens my guess is that your tenants do not have bank accounts. Some people have difficulty keeping bank accounts, because they don't track funds and overdraft, so they get closed. You can ask them to open an account, but it just may not be an option for certain people.
Without a bank account you cannot use Cozy or Venmo or most other electronic payment methods.
Venmo is arguably a more secure method, because I don't think you can recall payment. Venmo is a multi purpose payment system and doesn't have any interface for managing payments or tenants.
Cozy uses the traditional electronic payment system that all other electronic payments follow (utilities, mortgage, car payment, etc). Cozy is purpose built for rental property payments, so you can schedule payment, add late fees and they have other management features. In Cozy you can see scheduled and in process payments. You can also see payment history for each tenant.
I have used Cozy for a few years and have been happy. I would trust Venmo too based on what I have read. I just prefer the tenant focused interface in Cozy.
We set the expectation up front with new tenants that Cozy is required and that it requires a bank account. Although with our credit screening standard, I expect everyone would have a bank account. Usually lack of bank account comes with other credit problems.
One option is offering financially incentive to use electronic payment. Tell them rent is $1010 with money orders or cash, but you will give a $10 discount for using electronic payment. Always use "discount for electronic payment" to avoid accusations of deceptive pricing.
@Elford Stephens That's the best way to learn (along the way) and that's how we learned as well! You're welcome and I'm sure it'll work out well.
I use this as an additional screening method. My potential tenant MUST have a bank account and allow an ACH from my bank. If they don't have a bank account they don;t qualify. Why? Because 1- I don't chase money. 2- If they don;t have a bank account it is almost always because they bounced checks and haven't paid the bank back yet. 3- If they don't have a bank account they probably are more transient and leave in the middle of the night.
Screen well, then you don;t have to worry about evictions. I'm am doing only my second eviction in 18 years of someone I put into my houses. Yes I have evicted several tenants that I inherited when buying a property but I knew that going in and accounted for that in the price.
Most landlords chase money all the time and don;t value the cost of their time. I tell my tenants that if they bounce the ACH they have 48 hours to track me down and get me a cashier check or the eviction letter goes out and then there is n turning back. I don;t chase them. I tell them I don;t pay people to live in my properties so I am the fist bill they should pay before cars, utilities, etc. Or they won't have to worry about it because they will be living in their car. Just business. If they believe your they don;t test you! Just like your kids but you better be willing to make an example out of one to prove to the others. It only took me once and I use that story with each new renter as they sign their doc's.
Originally posted by @Jason L.:
Originally posted by @Peter Aziz:
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
I have a tenant who pays Paypal as well. It's a great option (as is Venmo), but this issue in this situation is that neither service offers a cash option. It's only useful for tenants with bank accounts that they can link.
Jason, be careful with Paypal. The person doing the paying can dispute the payment (not sure for how long, but I know it's for an extended period of time) and the person receiving the payment has little recourse for the dispute. Venmo does not have this option, so when you're receiving payment, insist on Venmo and when you're making the payment, insist on Paypal.
Originally posted by @Mindy Jensen:
Originally posted by @Jason L.:
Originally posted by @Peter Aziz:
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
I have a tenant who pays Paypal as well. It's a great option (as is Venmo), but this issue in this situation is that neither service offers a cash option. It's only useful for tenants with bank accounts that they can link.
Jason, be careful with Paypal. The person doing the paying can dispute the payment (not sure for how long, but I know it's for an extended period of time) and the person receiving the payment has little recourse for the dispute. Venmo does not have this option, so when you're receiving payment, insist on Venmo and when you're making the payment, insist on Paypal.
Thanks, Mindy. Thankfully my tenant has been there for 4 years already and I think we're on pretty good terms, but this info is certainly enough for me to make sure I get the next tenant on Venmo or Cozy instead.
@Wesley W.
How can you tell which tenant deposited and which didn't?
Also, if they deposit a check that bounces, you get hit with the fee
@Elford Stephens
Make it mandatory. They can pay via PayPal, cozy.co, venmo, cash (it's an app), or at any Walgreens using bill pay.
@Elford Stephens for the tenants that don't have bank accounts can they get a gift card? Then you charge the card like you would any other online payment.
Originally posted by @Chris C.:
@Wesley W.
How can you tell which tenant deposited and which didn't?
Also, if they deposit a check that bounces, you get hit with the fee
(1) Good question. Oftentimes, my tenants will add a note with the payment (either online or the teller types it at the branch if they pay in person). Also, each building has its own checking account and each unit within the building has its own unique rent amount (even by a few dollars), so I can tell that way, as well.
(2) My lease covers bounced checks, but I'm not sure how - other than collecting cash on the doorsteps - you can avoid that risk. I hope I don't jinx myself but I can honestly say I have never had a bounced check from a tenant I've placed. If I did, here is the lease language (which happens to be the very next paragraph after the one I pasted in my earlier post):
B. Payment after 5pm on the 5th day of the month must include a late charge of $50.00 paid in full, as additional rent. This fee is added each month that there is any outstanding balance due. We reserve the right to refuse payment after expiration of our demand for rent or possession. If your check is dishonored by your bank, you must pay us a service charge of $50.00 plus any other charges provided by law and plus any accrued late charge(s). If one of your checks is dishonored, you may be required to pay, at our option, future rent in guaranteed funds. We are not required to redeposit a dishonored check. Any payment due under this lease is rent. We may apply any payment to any outstanding balance regardless of any notation on or with the payment.
Originally posted by @Peter Aziz:
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
Hi Peter,
I was not aware that Paypal is an option. I will add this to the list of options to review.
Thanks,
Elford
Originally posted by @Jill F.:
Hi @Elford Stephens ,
For our tenants that do not have bank accounts, we suggest that they take a look at Simplebank.com (no affiliation). We like Simplebank because they do not charge fees like most of the pre-paid debit cards and provide more complete services. However, Simplebank is an online bank, not a payment processor service.
Netspend is a pre-paid debit card that can be used in lieu of a bank account for ACH debit transactions required by our payment processor. We don't recommend it due to pretty high fees compared to Simplebank.
We use Buildium for our property management software and they provide for online rent payments via a third-party payment processor, Forte payment systems. Buildium allows our tenants to pay by ACH debit which requires an account number and a routing number for fifty cents (.50) or by credit card with a fee (2.75%). One of the really nice things about Buildium is that our accounting entries are done automatically for payments made online.
Paynearme.com is a cash payment system that lets your tenants pay rent in cash at a network of stores and then you receive the money electronically. I don't think they are directly serving small landlords at this time; the service just became available to Buildium clients and it is nicely integrated with the Buildium accounting software. The tenant pays $3.99 for the paynearme service. Buildium might be overkill for one property but if you are planning on scaling up pretty quickly we recommend it; it has been a big help to us. (No affiliation other than as customer)
Hi Jill,
I reviewed the Simple website. It does look like a viable option for a tenant who has internet access. Paynearme.com sounds great, but we are starting out small. It appears that I need to request a demo with them to get the information I need about the service.
Thanks for the advice,
Elford
Originally posted by @Karen Kerry:
@Elford Stephens if she wants to keep records she still can. It's just safer if she pays on line. It's a risk factor if anything is mailed. Paying online is fast simple and I'm sure she'll receive a confirmation email of payment.
Hi Karen,
We are learning our lesson about "mailed" payments already. We will definitely be discussing the risk of this with her and future tenants. I personally pay all of my bills online. I find that record keeping is simpler this way. I will have to investigate her concerns more thoroughly when I meet with her next week.
Thanks for the input,
Elford
Originally posted by @Jason L.:
Originally posted by @Peter Aziz:
All of my tenants pay me via Venmo or PayPal. Works like a charm, although PayPal takes 24 hours to transfer into my bank account.
I have a tenant who pays Paypal as well. It's a great option (as is Venmo), but this issue in this situation is that neither service offers a cash option. It's only useful for tenants with bank accounts that they can link.
Good to know.
Thanks Jason,
Elford
Originally posted by @Chris C.:
@Elford Stephens
Make it mandatory. They can pay via PayPal, cozy.co, venmo, cash (it's an app), or at any Walgreens using bill pay.
Hi Chris,
Good insights. I have heard people discuss setting rents at different rates to distinguish who paid. I was not sure what you meant by paying at Walgreens. Western Union popped up. This might be a great option (especially as there is one right across the street.) I reviewed the website. The cost for sending cash is somewhat steep. However this may encourage them to open a bank account.
Thanks for the tips,
Elford
Originally posted by @Account Closed:
@Elford Stephens for the tenants that don't have bank accounts can they get a gift card? Then you charge the card like you would any other online payment.
Hi Xan,
I appreciate you input. However, I am uncertain what type of gift card they would need to purchase that I could access for rent payment.
Thanks,
Elford
@Elford Stephens
I highly recommend cozy and putting it in the lease. Cozy has several advantages as it can report payment to credit agency building your tenant credit score. Also, great functionality to store/share documents with your tenants like leases, move in lead paint addendum etc. it has one of the best tools that I have found to create a system.