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How to Automate Your Rent Collections Using Dwolla

by Jimmy Moncrief on February 26, 2014 · 57 comments

  
Save 5 Years as an Owner of Rental Property

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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{ 57 comments… read them below or add one }

Ben Leybovich February 26, 2014 at 6:16 am

I am checking it out. Thanks Jimmy!

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Jimmy February 26, 2014 at 3:53 pm

Very cool!

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Jimmy February 27, 2014 at 7:28 pm

Ben

Do you have a process for collecting rent online?

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Steve Babiak February 26, 2014 at 6:40 am

As an intelligence analyst, you may be over-qualified to analyze tenant behavior :)

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Jimmy February 27, 2014 at 7:29 pm

Naa..

You know what they say about military intelligence! :-)

How did you find that out?

Were you in?

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Trevor February 26, 2014 at 6:40 am

I was going to use sparkrent, they want a dollar. This sounds pretty good, I will try it. Thanks Jimmy.

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Aaron Yates February 26, 2014 at 6:46 am

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.

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Jimmy February 26, 2014 at 3:54 pm

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. :-)

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Jimmy February 27, 2014 at 7:30 pm

Aaron

Do you make your tenants use this?

One thing you might consider is a discount for using an automated system?

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Aaron Yates February 27, 2014 at 7:39 pm

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.

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Arthur February 26, 2014 at 7:07 am

Can you explain how you’ve made it part of the application process?

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Jimmy February 26, 2014 at 4:27 pm

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. :-)

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Curt February 26, 2014 at 7:31 am

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

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Sharon Tzib February 26, 2014 at 7:34 am

Curt, once you sign up for an account, you can schedule both recurring payments and recurring requests, for free.

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Jimmy February 27, 2014 at 7:30 pm

Curt

Thanks for pointing that out! Do you make your tenants use this?

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Sharon Tzib February 26, 2014 at 7:33 am

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!

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Jimmy February 27, 2014 at 7:34 pm

Sharon

Thanks for the questions! What are you using now?

Here are some of the recipes:

https://ifttt.com/recipes/96152-create-a-new-document-in-gdrive-when-you-receive-a-digital-receipt-in-your-gmail-drive-gmail-rec

https://ifttt.com/recipes/133438-expense-receipt-to-google-doc

I don’t make the tenant pay the 0.25 cents. I agree that it is kind of a hassle for the tennat – but its a hastle for me dealing with checks! Do you agree?

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Sharon Tzib February 28, 2014 at 7:52 am

Yeah, Jimmy, for the convenience factor, I’d be fine with the $.25 fee, but I must say to Dwolla’s execs, who are following this thread, I think that it is bass ackwards having the receiver pay the fee. In my opinion, it should be the sender.

Thanks for the links – I will check them out. Take care.

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Jason February 26, 2014 at 10:52 am

We use Spark Rent. $1 per transaction, funds are automatically deposited into bank account. Auto-reminders and late fees, etc.

https://www.sparkrent.com/

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Jimmy February 26, 2014 at 3:55 pm

Cool – Jason.

Thanks for the heads up!

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Max at Dwolla February 26, 2014 at 11:18 am

Jimmy,

Thank you for sharing this! Great ideas for a low tech solution.

Another online rent collection platform that uses Dwolla is Greenhouse PM — http://www.greenhousepm.com/.

They keep track of rent payments and help you get your money using Dwolla. Give them a try!

-Max Farrell
Business Development at Dwolla

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Ian Zimmerman February 26, 2014 at 11:35 am
Jimmy February 26, 2014 at 3:56 pm

Thanks for chiming in Ian!

I’m obviously a big fan and love using it for other things so I don’t have to worry about paypal fees.

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Geoff February 26, 2014 at 9:09 pm

I went to the link provided, there isn’t much information there about Dwolla other than the Q & A. Is there a video showing how it works? or more visual instruction without getting signed up first?

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Ian Zimmerman March 2, 2014 at 1:29 pm

Geoff,

Here are a couple more links that can hopefully help you out:
https://www.dwolla.com/landlords

You would probably use our HUB page feature so here is a link with a video showing what this would look like: http://help.dwolla.com/customer/portal/articles/1203220-dwolla-hub-page

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John Andruszka February 26, 2014 at 11:47 am

Thanks for the great article.

What’s the IFTTT recipe to post a receipt to google docs?

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Jimmy February 26, 2014 at 4:04 pm
John Andruszka February 28, 2014 at 5:28 am

Thanks!

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Arthur February 26, 2014 at 12:38 pm

How do you prevent a tenant from sending a partial payment to avoid eviction?

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Jimmy February 26, 2014 at 4:04 pm

Hmm

Just like anything else. Partial payment = eviction.

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Arthur February 26, 2014 at 6:12 pm

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.

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Jimmy February 27, 2014 at 7:37 pm

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.

Aaron Kinney March 1, 2014 at 2:21 pm

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 March 4, 2014 at 8:54 am

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.

Sean February 26, 2014 at 1:23 pm

I would be interested to know about how you integrate into the application process as well as integrate into quickbooks.

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Jimmy February 27, 2014 at 7:49 pm

Sean

See below. What is your current quickbooks process?

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Jimmy February 26, 2014 at 4:22 pm

Sean

Sure thing. Although I will probably just give the details into another blog post. :-)

To get you started though:

Try these recipes for connecting your dwolla account with your quickbooks:

https://zapier.com/app/editor/612353

https://zapier.com/app/editor/612360

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Glenn F. February 26, 2014 at 6:24 pm

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!

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Jimmy February 27, 2014 at 7:51 pm

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?

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Dave Tanner February 27, 2014 at 6:18 am

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

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Jimmy February 27, 2014 at 7:52 pm

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?

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Dave Tanner February 28, 2014 at 8:16 am

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

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Ian Zimmerman March 2, 2014 at 1:39 pm

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

Ed Christian February 27, 2014 at 12:43 pm

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?

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Jimmy February 27, 2014 at 7:54 pm

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?

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Tyson February 28, 2014 at 12:01 pm

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.

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ZANNE March 2, 2014 at 9:39 am

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.

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Ian Zimmerman March 3, 2014 at 7:24 am

Zannie,

Another upside about Dwolla is how safe the network is. Dwolla never transmits your financial information during a transaction. This limits the threat of identity theft. You sign up for an account, link your bank account to your Dwolla account, and then you are simply transferring funds in the network (cash), no financial information.

You can read more here: http://help.dwolla.com/customer/portal/articles/1203293-is-dwolla-safe-.

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Mike March 2, 2014 at 11:39 am

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.

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Larry Brown March 2, 2014 at 6:38 pm

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?

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Deanna March 3, 2014 at 12:36 pm

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”).

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Deanna March 3, 2014 at 1:55 pm

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.

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Hampton Parr March 3, 2014 at 4:15 pm

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.

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Melissa Lobaugh March 4, 2014 at 10:45 pm

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.

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Neil Rainford March 6, 2014 at 6:03 am

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.

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Nancy March 11, 2014 at 6:24 pm

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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Tyler July 2, 2014 at 10:22 am

Great article!! Were you in the 2600 or 0200 field? I just got out, former 2621.

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