How to Automate Your Rent Collections Using Dwolla

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I got into rental properties kind-of by accident; it was simply easier to rent our house out than sell it. As it is with many things, I like to experiment so I decided to take a risk. I could rent my house out and make about $100 over my mortgage. If it ended up as a disaster,  I could sell it the next year. 

Ten years later, I’ve had some unexpected positive surprises and,  of course, some unexpected negatives. Everybody always tells you about some disaster they experienced with rentals, but few talk about the positives. I will try and give a summary of both AND a solution that solves a BIG unexpected problem I had.

The biggest advantage that I didn’t think of was the tax benefits.  Being able to expense your interest and add a depreciation expense reduced my tax burden significantly.

The biggest disadvantage that I didn’t think of was dealing with checks. I HATE checks for the following reasons:

  • They get “lost” in the mail
  • They bounce
  • I get charged a fee when they bounce
  • I have to wait for them to arrive in the mail

Finding a solution was impossible – and I was an intelligence analyst for the Marine Corps! (Leave jokes about that in the comments)

The check problem is exacerbated when I get multiple checks for each property due to roommates paying separately.  Before you get all: “I would have a clause in my contract regarding split payments,” know that I do, in fact, have this in my contract.

In reality though, what are you going to do when you have a mortgage to pay and you get a partial check in the mail from your tenant? Would you simply not cash it and charge the tenant a $25 fee? By doing this, you risk the tenant not paying at all.

The Problems

So, here are some possible solutions, as well as some of the drawbacks for doing so:

Solution #1: Deposit directly into my bank account

Drawback To This Solution:I’ve heard horror stories about tenants having your bank account information (though, a possible solution is to get a voided check and an ACH authorization form from your bank.)

Solution #2: Credit Card processing

Drawback To This Solution: High fee’s – I charge $800/month for rent which is $9,600/year – standard credit card fees would cost me $264 a year approximately.  Plus, tenants would have to have credit cards and that brings up a whole new set of nightmares.

Which brings me to solution #3…

Dwolla

Solution #3: Dwolla – an online way to send money to anyone for just 25 cents, with no additional fees.

Drawback To This Solution: None really.  The only hassle is getting tenants signed-up and verified.  However, I’ve hacked around this because I simply make it a part of the application process.  This actually has an embedded benefit for me – weeds out non-serious renters, so I don’t waste my time

There are also key advantages for renters using Dwolla, such as the ease at which roommates can split the rent and, therefore, they won’t “forget” to pay rent.

Another benefit for landlords and owners of rental property using Dwolla is automating the accounting and documentation.  If you renters use Dwolla you can automate the accounting of this using Zapier where it automatically creates a QuickBooks entry.

You can also create a trigger in Zapier or IFTTT so that when the renter pays you, you create a receipt and store it in a Google Doc, Evernote, Quickbooks, ETC.

Summary

In summary, there are numerous reasons you should try out Dwolla or some variation of an ACH transfer as an owner of real estate.  It literally cost you nothing to get started and will save you a ton of time.

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About Author

Jimmy Moncrief is a bank underwriter and real estate investor. He blogs at RealEstateFinanceHQ.com where he talks about all things real estate. He also is the creater of free evernote templates for BiggerPockets members to learn how to better organize and automate their real estate investing.

57 Comments

  1. Great to see someone other than me going the route of not physically collecting rent.

    But what do you do if they dont have a bank account?

    This is why I still allow them to deposit right at the bank. They dont have my account number so Im not worried that someone may withdraw.
    In fact they cant even deposit funds without a 4 digit number i give them even if they have the account name.

    • Aaron

      Great point! I’m always surprised when tenants don’t have bank accounts.

      However, since I work at a bank – this makes it easy for them to open an account. :-)

      • Yes Jimmy. I do not physically collect rent anymore. I started this some time ago because of my traveling. Im not always home on the first and dont want tenants using that as an excuse.

        All my payment processes are completely free to them and me.

        It makes things very efficient for me.

        No discount. Plus rent is due on the first. Its late on the 2nd.

    • Arthur

      I just let them know very up-front that if you want this unit you have to sign-up with Dwolla – which is free.

      That way you don’t have to think about or worry about late charges. :-)

  2. I’ve been using https://erentpayment.com/ which allows a check box to automatically pay each month. No effort for financially solid folks who always have the rent in their bank account on the 1st.

    I didn’t see where dwolla allows for automating the payment EACH month hands off?? If they do this all for $0.25 that would be great. Erentpayment charges $3.

    curt

  3. So with IFTTT, you are essentially creating a trigger that says “if” I get a Dwolla payment, “then” create a receipt in Google docs? Is that what you’re doing? Also, are you relying on the tenant to pay the $.25 when they send the rent to you, since it appears that by default the receiver pays that?

    The only drawback to this over Paypal is the delay that is caused if you don’t “bank” money in Dwolla’s system for sending payments. Receiving side seems straight forward enough though. Thanks!

      • But I thought if you accept any money during an eviction process you need to stop the eviction. I recall someone saying this is another reason they don’t allow a tenant to deposit directly to their bank account. Maybe I’m saying it wrong.

        • Arthur

          I’m sure every state is very different. I’m not a lawyer. However, I have known people to evict even when partial payments were being taken.

          Does that help?

          One thing to avoid attorney fee’s is just to call the general sessions court that handles eviction and ask them.

        • Hey Arthur and Jimmy,

          In my state (South Carolina), I cannot evict if I accept a partial payment. I use eRentPayment.com to accept electronic payments, which gives you the option to block partial payments. It also automatically calculates and tacks on late fees.

          My lower-income renters would definitely try to make the partial payments, but for a little nicer rentals like what Jimmy holds, he may be able to trust his tenants to pay the full amount.

        • Travis Geary on

          I’m not a lawyer and am not offering legal advice, but I’m actually dealing with this right now. In VA, it seems that a landlord can accept partial payment of rent so long as they send a letter of “Acceptance with Reservation” WITHIN 5 DAYS of receiving the payment. Essentially the reservation of rights letters states that they reserve their right to evict even though they accepted the payment. This notice can either be included with the original Pay or Quit notice (I don’t know why someone would do that), or it can be sent after receiving payment like I said. You should check the code in your state.

  4. I will definitely check out dwolla.I use intuit payment network now, which is what powers sparkrent. At .50 a transaction vs. 1.00 for sparkrent I loose a few features but it’s been working for me. The sender doesn’t even need to sign up for an account unless they want the recurring option. Dwolla seems like the new value leader!

    • Glenn

      As Grandma says: If it ain’t broke, don’t fix it!

      You might want to check-out the recipe’s above for integrating it into google docs and quckbooks.

      What is your current system for this?

  5. Can you break it down in more detail because the info on Dwolla site is vague. So the renter “emails” you a payment once it’s set up? Renter side requirements would be to have a bank account and an email account, is that all? Any bank or only “participating” banks? Ian Zimmerman feel free to respond since you work there. Thanks

    • Dave

      Not dodging your question, but I would just jump-in and see for yourself since it’s free to set everything-up.

      What are you using now for collecting rent?

      • I’m using the worst system their is besides driving around picking the rent up. Almost all drop it in a lockbox at my house, though they have the option of mailing. Wasn’t a big deal with 1 or 2 units 10 yrs ago, but now I have almost $8,000/mo coming to my door. My neighbors have to think I’m a drug dealer, haha. This is why I’m wanting to solve this issue soon. Thanks for the article, many of us need it.
        Dave

        • Dave, assuming you don’t have a website the flow would be pretty simple.
          Step 1. You sign up for an account.
          Step 2. Tell your tenants to set up for an account.
          Step 3. Your tenants would then just want to set up a recurring monthly payment to your account. Funds would come out of their account on the 1st of every month, go to your Dwolla account or you can have it automatically transfer to your connected bank account.

          https://www.dwolla.com/landlords

  6. It is nice how many neat ideas people are using out there. Great post! Can you show how you use Dwolla in your application and lease? Do tenants pay the application fee using Dwolla?

    • Ed

      GENIUS IDEA! I’m going to start doing this!

      For now though I don’t charge the application fee through Dwolla – but that is an awesome idea!!!!

      It’s mainly via email – I just send them a request via the dwolla system. It’s free – jump in and try for yourself..

      What are you using now for collecting rent?

  7. Great post. In this day and age, the hassle of collecting physical checks are over!

    I’ve gotta say though, that I still accept physical checks, but it’s not a nightmare for me. I don’t collect rent from them, it is up to them to bring it to me. And if they don’t, they know there are stiff late fees that will be enforced. This along with other things has allowed me to collect physical checks while avoiding bad situations.

  8. Dwolla sounds like a great idea.

    Re:
    “Solution #1: Deposit directly into my bank account
    Drawback To This Solution:I’ve heard horror stories about tenants having your bank account information (though, a possible solution is to get a voided check and an ACH authorization form from your bank.)”

    Every time you write a check to someone, that person has your acct info. Anyone can make a deposit into your acct easily and the risk is no greater than all the other checks you’ve written. You don’t even need to give a voided check to a tenant, just give the bank name and the acct number.

  9. I’ve been using WilliamPaid for the past 6 months. Free service where you set up rental properties and bank accounts. No banking information goes to the tenant and you don’t receive bank account information from the tenant. Email based rent payments but monthly payments can be scheduled by the tenant.

    There is a 3 day delay between the date the funds are removed from the tenants’ account and when the funds are credited to my account. Has worked very well so far. The email invitation to the tenant process is a little confusing but not terrible. Once it is set up the notifications are via email and then I track the deposits through online banking.

    Very satisfied so far…. but I watch it very closely.

  10. When using Dwolla when are funds actually available to you? I looked at several articles on the Dwolla website. In the article on recurring transactions it indicates funds will be available to the receiver in 3-4 business days. In an article on auto withdrawal (i.e., transferring the funds from Dwolla to your personal bank account) it states funds will be available within 2-3 days. Does this mean that if a tenant pays you through Dwolla on the 1st of the month you actually do not have those funds available for 5-7 business days? What has your experience been?

  11. Still having my tenant do direct deposit to bank, in person (though I don’t know if the bank is allowing that with newer customers). I have a “different” situation.
    a) I live 500 miles away
    b) one rental
    c) a TINY town– tiny 150+ year old bank. The tellers know if the face in front of them doesn’t match the name on the account.
    d) as Zanne points out, everyone you ever write a check to has access to your bank account number.

    My parents also have a tiny number of rentals (4) on a property adjacent to their home. Collecting rent in person is a bit of a hassle, but it gives the tenant an opportunity to mention potential problems without “complaining” (“by the way, the bathroom faucet hasn’t been turning off completely”, “I’ve been hearing a dripping noise under the house”).

  12. Given the recent issues with BitCoin/Mt. Gox being hacked and ($millions) disappearing, what safeguards are there to prevent a similar issue with Dwolla? Reading the fine print, it’s through Veridian credit union, so no FDIC insurance.

  13. Hampton Parr on

    You should check out LandlordStation. Their rent payment system is built on Dwolla’s platform so you get the same technology plus a bunch of other useful stuff like tenant screening, online document storage, property listing service, etc.

  14. Thank you. I will look into this for an option to my tenants that like to pay online. Here’s what I’ve come up with.

    Five months ago I started having my tenants deposit in my business bank account at my credit union. I give them a deposit slip I made out and had the credit union approve. It has only;
    The name, address, and phone number of the credit union
    “Deposit to the account of My Business”
    and a memo line for them to print their name.
    The teller gives them a “temporary” hand written receipt with only my account name on it. They can also send the payments to the bank, drop them in the overnight box, or transfer from their account if they have one at the same credit union.
    It’s worked quite well and costs me nothing. The money is available immediately. And late fees are paid without a whimper. I go online on the 1st of each month at 5:00 pm and count my money! If someone hasn’t paid I give them a call and they have an eviction notice posted between 2:00pm and 5:00pm the next day.

    I tried to set this up at a few of the local banks and they couldn’t accommodate me. If they thought about it, they may have been able to get more accounts. I’ve had 2 tenants open accounts at my credit union so they can call in and transfer their payments. So talk to your local credit union.

  15. Neil Rainford on

    I use the same system that Melissa uses at my credit union, except I am not quite as militant about eviction notices- I typically use a little softer touch on the first pass but I do enforce the late fee. I don’t worry about tenants having my bank account numbers because, everyone has them every time I write a check, and these are accounts from which the mortgages are drawn each month and reserves are moved to other accounts so there is never much money held in them anyway. I add the credit union acct number, the name, and the date by which rent is due into each lease. I have also asked my credit union to print up deposit slips, they look like check books except they list the property address on each deposit slip as well as the account number. They gladly did this for free to ensure that tenants were depositing to the correct sub accounts. I leave a couple of these in each property. This system works great! On my end, I set up alerts on the accounts so if someone fails to pay, and I am not paying close attention, and the mortgage is pulled, I get a text and I can correct the shortfall by 11pm that night with no penalty to me. Finally, most financial institutions have a free electronic funds transfer system, often called Bill Payer etc., that tenants can use to push money to my accounts if they want to, so I am really not sure why I’d want an outside system that holds the money for a number of days. Interesting article though and I will be glad to learn how I may be exposing myself to unnecessary risk.

  16. Hello! I’m a new member here at BP even though we have been investor/landlords for many years. Our current count is around 6 rental or managed properties.And we are planning to rapidly expand that portfolio this year with the goal of retiring my husband by year end.

    For the past two or three years we have been using eRentPayment.com and have been very pleased with it. For the question of how do we get the tenants to agree to it we started with the empty houses and made it not only part of our application information, lease contract “Addendum for eRentPayment”, but also in our advertising on CL and for screening the callers from the sign in the yard. “Must have email address and bank account.” What a simple and amazing screening tool THAT SENTENCE has become! eRentPayment does now accept pre-paid debit cards and our latest tenant in the property we are managing for a family member went that route. We will see how it works out.

    So, now I only go to the bank with one check that is mailed from a 10 year tenant we inherited 5 years ago when we bought the property and she always has the check in my mailbox on the 31st. I’m not willing to upset that sweet one with telling her she has to use eRentPayment.

    One last thing; the $3 fee can be set up to be paid by the landlord, the tenant or split. We pay-it is well worth it in my mind.

    I look forward to exploring this site and touching base occasionally with all of you.

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