Collecting Rent From your Tenants

 A question that can be very simple, but many property management companies differ in opinion on this topic. Some operations only deal with certified funds, some don’t accept cash, others take only online payments. With so many different approaches, how do you know what is right for your property? A few factors can determine what type of payment you should accept. If you are a DIY landlord you may consider these options.

Cash. Cash is king, right? While this may seem like a no-brainer, there is also a lot of liability when accepting cash. Have you ever misplaced your wallet? If a tenant is sending you cash in the mail and it gets lost, there would be a huge problem and possibly a he said she said argument. Anything you can do as a landlord to mitigate your errors and liability will go a long way in running a smooth business. Quick story, I once had a tenant who traditionally was paying in certified funds and this was the preferred method back then. They started to become late on the rent regularly and would then come into the office and pay with cash including the late fees. If a tenant is paying a lot in cash it could mean something more. Although not the norm, it could mean the cash is coming from a business that is frowned upon, I.E. Drugs. After this tenant was paying late in cash, I ordered up a routine inspection. What we found was disheartening. This gentleman and his wife had begun to deal drugs and we had to turn it over to the authorities and order the eviction. Now, the eviction never went through as the tenants fled from the home leaving all their personal belongings and leaving the property owner with a large mess to clean up. Again, this situation is something that I have come across once, but I will ask myself if we are taking cash from a tenant, are they selling drugs? Welcome to being a landlord. Just an FYI, but this property was a 1500 dollar rental with 4 beds and 2.5 baths in a good area of town. Not your typical drug dealing household, but it can happen anywhere.

1. Certified funds. Certified funds in the form of money orders or cashiers check is a system that has proved its worth over time. The tenant has a receipt that they can hold onto and this will protect them as well as you. A lot of our tenants still prefer this method as it built-in in checks and balances. If the landlord were to somehow lose the funds, the tenant can go back to their bank or place of purchase and request a new money order. The merchant may request a stop payment on the original one that was issued, but as a landlord, you should offer to pay for this. If they lose their funds, they can do the same. Many companies will still accept this form as it is safe and not as convenient but the safest in my opinion.
2. Personal Check. While not preferred, trustworthy tenants could be allowed to submit these and have very minimal problems. The only issue with personal checks is the turn time if they bounce. Sometimes it can take up to 12 days for a bank to let the landlord know the check has bounced. Bad checks are the first sign that the tenant has some financial issues. We still accept personal checks, but if the tenant bounces one during their tenancy, we no longer accept anything but certified funds.
3. Online Payments/E-checks. Most self-managing landlords will not have the ability to accept this form of payment. However, there are options. I have an investor who I do tenant placement for. He owns 5 units and self-manages for. I rent out his properties and turn the leases back over to him after the tenant moves in. He sets up PayPal for each of his tenants and it works well for him. On the larger company scale, many companies use this as their preferred form of payment. Almost all Property management software has this as a built-in option in their systems. It is very simple to set up for the tenants and seamlessly integrates into their system. This can be set to automatically come out each month or tenants can log in at any time and make the payment with a checking or savings account. At ERA we have seen a steady increase of tenants using this option exclusively. It cuts down on late paying tenants because they can do it at midnight from their couch. Tenants are irresponsible and sometimes forget, having this option can drastically reduce headaches of collecting rent.

The type of property you own can largely dictate the type of payment your tenant would likely prefer. Lower end homes or apartments often side with cash and certified funds. While more expensive rental units, because of the type of tenants will gravitate towards online payments, as their finances are in order more often than not. Find an option that works for the tenant and if a change in policy is required to consider a better option to increase your likelihood of collecting rent on time.