“Charlie, give that back right now!” we shout to no avail. He’s already gone, running like a madman through the house and out the back door.
It’s another day in the Turner household, raising the world’s cutest Yorkshire Terrier.
Charlie’s favorite game is “catch me if you can!” He’ll grab something he probably shouldn’t have, get our attention with a bark or growl, and then scurry through the house like a bat out of hell, waiting for one of us to chase him. Shoes, eyeglasses, frisbees, socks, bills, whatever he can find. And of course, we chase him. How could we resist, with those big brown eyes and fluffy face?
Tenants, on the other hand, are not so cute. We don’t play “catch me if you can” with a tenant’s rent, and neither should you. We train them to bring us the rent every time, though the technique to do this has changed over the years, based on trial and error. Below we’ve listed several ways that you could collect rent, and we’ve given the pros and cons of each. You’ll likely test out a few options over the coming years to develop a plan that works for you and your tenants, so don’t be afraid to try things out. For example, in a perfect world, all of our tenants would pay rent online, but we’ve discovered that many of our tenants do not have a computer or don’t know how to use it if they do. (We know that sounds crazy, but a huge portion of the US population doesn’t!) Therefore, we’ve had to come up with solutions that work for the tenant and that require the least amount of work for us, the landlords.
Let’s start with the big “no-no.” Don’t collect cash in person. Not only is it the most time-consuming way to get rent, it’s also the most dangerous.
When landlords go door to door and pick up rent on a monthly basis, people notice. “Oh, here comes the landlord doing her rounds. I wonder how much cash she’s got in her purse?” It’s just asking to get robbed. Some landlords boast about the gun they carry around so they can pick up rent in cash and fight off the thugs, but… is that the kind of life YOU want to lead? We sure don’t. Picking up rent in person also puts you into the “chasing rent” category, where you are training your tenant that they can tell you to jump and you will to ask, “How high?” You don’t want this kind of landlord-tenant relationship. Maintain authority and don’t pick up rent in person.
The only benefit to picking up rent in person is the ability to check up on your property to see how it’s performing. We get this, the desire to know what’s going on with your tenants and build a relationship. But there are much more efficient ways to do this than picking up rent in person, and we would encourage you to explore those.
Letting Tenants Drop the Rent Off at Your House
Don’t do this. Please. In fact, never give out your home address to tenants. Your tenants might be great people when they move in, but you never know the true character of someone until they are under incredible pressure or going through a difficult time. We once let a great tenant drop o rent in person to our home because he lived just a few blocks away. However, when he was late on his rent and we sent him the late notice, he stormed over to the house and started making a scene on the front porch, hollering and swearing. Of course, it didn’t do him any good, but having this take place on our doorstep was not an ideal situation.
Remember, you run a business not a hobby. The manager of the local pizza place wouldn’t give you his home address, right? When you have a problem with the pizza, you wouldn’t dream of driving to the pizza owner’s house to complain. You deal with business at the business. e same is true for your landlording business. If you have an in-home office like we do, this means issues can be dealt with over the phone or email during business hours. In the event a face-to-face encounter needs to happen, it can take place at the rental. Keep your business and personal life as separate as possible. This will ensure less stress and more safety for your family.
One of the most popular ways among landlords to get rent is through the mail. Tenants simply place their rent in an envelope and mail it to you. By having the tenant mail the rent, you don’t need to go pick it up; it simply is delivered to you. If you have a lot of tenants, picking up rent can be a five-minute task with one trip to your PO Box. (Because, of course, you wouldn’t think about giving your home address to all your tenants.)
We actually ran our company this way for a number of years, but have recently stopped accepting checks in the mail. On the 6th of the month, we would head to our PO Box and 90 percent of the rent would be there, but the other 10 percent would not. We would call the tenant and hear the same line over and over: “I mailed it! It must be lost in the mail!” Luckily, the post office places a date on every piece of mail the day it is sent (the postmark), and we could see the date the tenant mailed it.
Much of the time, of course, the tenant lied and simply claimed that they mailed it, when the postmarked date was after we called. But other times, the postmark date was actually early enough, and the post office simply delayed the letter for some reason or another. We’ve even had checks lost for several weeks in the mail, all the while thinking our tenant was trying to stiff us. Every month we ran into these problems, never knowing if the tenant was lying or if the rent really was lost. We would issue an eviction notice, only to get the check a few days later, after many heated conversations with the tenant. Or we would take the tenant’s word for it, only to discover later they lied. It was simply too irritating to deal with, and we needed to find a more immediate solution.
That said, if you plan to accept rent by mail, here are a few tips to follow:
- Get a PO Box and don’t give out your home address.
- Require that the rent be received by a certain date, not just sent. If rent is due on the 1st of the month but you have a five-day “grace period” (which just means rent is due by the 5th!), then the tenants must mail the rent so that you receive it by the 5th. If they mail it on the 4th, they should know they will likely get a late fee. If they mail it on the 5th, they will get a late fee.
- Make sure the tenant knows NOT to send cash. Yes, you will need to spell this out for them.
A Local Dropbox
If you own a larger multifamily property, you may consider installing a rental dropbox on the premises so tenants can pay their rent there. We once had a dropbox installed at our apartment complex but began to worry about the security of the box. If people want to break into something, they will. It doesn’t matter how secure it is. Although we didn’t allow tenants to drop off cash in this box (just money orders, cashier’s checks, or personal checks), it would still have been a nightmare if someone broke into the box and stole those checks. The risk was just too great, so we moved on from the dropbox and decided to implement other, more modern, solutions. Let’s talk about those now.
ACH, which stands for Automated Clearing House, is the system that banks use to talk to one another and send money from one checking/savings account to another. If you have automatic payments set up for some of your home bills (cable, utilities, etc.) and that payment is deducted directly out of your checking account, it’s likely they are using an ACH processor.
The problem with ACH processing is that, while it can be incredibly cheap to do an ACH transfer, it may not be cost-effective for a small-time landlord to set up. You must set up your ACH through the merchant services department at a bank or other financial institution, and there may be large setup fees or ongoing monthly fees. For example, some banks we’ve looked into charge $40 per month for the ability to do ACH transfer, plus another $0.25 per transaction. e $0.25 might not be a big deal, but the $40 per month might be crazy if you only have a few units. Therefore, doing ACH transfers directly might be best used when you have dozens of units or utilize a third-party to handle your ACH transactions online. Let’s talk about that next.
In the future, there’s a good probability that all rent is going to be paid online. However, that future is not quite here, so the process of collecting rent online is still a bit muddied. New startups in Silicon Valley are being founded on an almost daily basis to address this problem, but no one yet has the perfect solution (though depending on when you read this book, perhaps someone has emerged as the leader).
Therefore, there are dozens of different companies that you can work with to accept online payments, some better than others. With the huge failure rate of startups, however, most companies won’t be in operation by the time this book is published, so we won’t bother listing our favorite companies here in this book. Instead, we would like to direct you to a page on BiggerPockets that chronicles the best online rent payment companies right now, which we will continually be updating as new companies come and go. To see this list, just head to https://www.biggerpockets.com/payrentonline.
Now, if a tenant does not have a bank account or will not pay rent online, there is another solution that may come in handy: PayNearMe.
PayNearMe is a way to let your tenants pay rent in cash at a local 7-Eleven, ACE Cash Express, or other business that partners with the company. When the tenant takes their assigned PayNearMe Card with their unique barcode to one of PayNearMe’s payment locations and pays their rent, the landlord is instantly notified when the rent was paid (no more “it’s in the mail!”), and the money is then deposited into the landlord’s bank account. In other words, your tenant doesn’t need to go get a money order, write a check, get a stamp, address an envelope, or mail the rent. You as the landlord don’t need to wait around and wonder if your tenant really sent it or if they are simply lying so they can wait for their next pay day.
When a tenant uses PayNearMe, they simply go through the following four steps:
- The tenant takes their cash to an approved retailer.
- The tenant allows the cashier to scan their unique barcode that you supply them (or they have on their smartphone).
- The tenant hands over their cash to the cashier.
- The tenant gets a printed receipt right then and there, while you get instant notification that the rent was paid.
Each tenant’s account is managed online by the landlord, where the landlord can easily issue replacement cards, change the amount owed, enforce the amount owed (meaning PayNearMe will not accept anything less than what is owed), and even suspend payments (preventing, say, a tenant who is being evicted from making a one dollar payment and screwing up the process).
For the landlord, PayNearMe is free, though there may be a small setup fee. For tenants, there is, as of the writing of this book, a $3.99 charge to use the PayNearMe service. In other words, if the tenant chooses to live their life without a bank account, it’s fine — but it’s going to cost them $3.99 a month to pay their rent. This gives the tenant options without hurting you (the landlord) at all.
Collecting Rent: Summary
As you can see, when it comes to collecting rent, landlords have a lot of options besides knocking down doors. Not every option is going to work for you, and you’ll likely develop your own system as you move forward and as technology progresses. Since the day we started landlording, we’ve used every single strategy we’ve talked about here and are continuing to test new ideas.
Currently, we accept online payments through two different online companies (giving the tenant the option to choose which one they like better), and we also use PayNearMe. All three methods have proven to be very successful, all three are very simple, and all three give us almost instant notification of when rent was paid and automatically deposited into our bank account. The important thing is that you create a system for paying rent and continually try to improve that system to decrease your stress, boost your bottom line, and get paid, every time, on time.
[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Property. For more details on managing your properties like a pro, be sure to pick up the full book here.]
How do you collect rent?
Let us know which methods you prefer with a comment.