Using cash to pay for many things makes sense. You can buy pretty much anything you can afford with cash. However, there are instances when you do not want to accept or use cash. One time you do not want to use cash is when you are paying or collecting a rental payment. Even with a receipt, issues can arise if either party disagrees with the amount paid. To avoid an owner/tenant rental payment conflict owners should have several methods of rental collection including checks, cashier’s checks, bank transfers, bill pay, credit cards and Paypal.
Before discussing ways to collect rent, it is important to designate a location for the rental payments to go. Do you want rent payments delivered to a specific address, such as a business address? Or do you want them dropped off in a locked mailbox where the tenant lives? I personally find that a locked mailbox on site is easier for me and the tenants. In today’s information age, it is a pain having to mail checks and a chore that seems archaic. As an owner you should figure out the easiest way for the tenant to get you rent, mailing a rental payment is no longer the easiest method. And remember what is easy on the tenants is usually easy on the owner.
Once you have a location established for the tenants to drop off rent, make sure you do not change the location too often. Constantly changing where to place the rent check confuses everyone, especially the tenants. Most owners want rent in the form of a check or cashier’s check. This is a good way to collect rent as there is a clear paper trail for both the owner and tenant should a dispute arise. As an owner, time becomes a factor due to recurring monthly expenses and receiving rent sooner than later is always beneficial.
Most owners are familiar with the Internet and online banking. Many banks have systems setup for easy acceptance of bank money transfers or Bill Pay. However, it is good to know the difference between the two. A bank money transfer online is simply one person transferring funds from one account to another. This transfer could be between someone’s personal accounts or between two people’s accounts. Bill Pay is a system setup where a person authorizes the bank to pay a bill on their behalf. With Bill Pay the bank actually cuts and mails a check to the recipient. The main difference is a bank money transfer is instantaneous or happens the next day depending on the bank, while Bill Pay can take a few days.
The reason to setup alternative rental payment means is so the owner can have multiple ways of receiving rent and the tenant has multiple ways to pay rent. Most tenants have credit cards so it is a good idea to look into a credit card payment service. Many apartment owners who own several units have credit card systems in place. The downside is the cost. A company that accepts credit card payments on an owner’s behalf will likely charge a fee per transaction, along with a monthly service charge. If you do not own many units, putting a credit card system in place does not make economic sense. However there is an alternative: Paypal.
Most people are familiar with Paypal due to Ebay, the online auction company. Paypal is a service which collects money from the payer, i.e. the tenant and pays the recipient, i.e. the apartment owner over the Internet. Both parties must sign up for Paypal and according to Paypal’s Web site the costs vary based on transaction size, but it will come to around 3 percent of the total monthly rent. An owner must decide if they want to absorb the cost of the transaction fee, have the tenant absorb the cost or split it down the middle. In the end, this is just another option available to collect rent.
The expression goes “with a larger net, you can catch more fish.” The principal is the same with rental collection. The more options you have for rental collection, the more opportunities the tenant has to pay the owner. A check or a cashier’s check is a great way to collect rent as both leave a clear, easy to follow paper trail. However, bank transfers, bill pay, credit cards and Paypal are also wonderful ways to collect rent. Remember, the more options the tenant has to pay rent, the fewer excuses they have to offer.
Mike Heayn is a real estate investor and commercial loan consultant, specializing in Multi-Family Lending. He can be e-mailed at email@example.com.