How to Automate Your Rent Collections Using Dwolla
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.
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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.
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…
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
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.
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.