Technological advancements impact the way we exchange goods and services. eCommerce has consistently driven the need for mobile wallets while helping to reduce the need for paper checks or cash.
Apps like Venmo and PayPal have upscaled the usability of mobile wallets by making peer-to-peer money transfers convenient and easy to use. As a result, they’re an excellent fit for paying money to family and friends or paying bills online.
But what about using Venmo or PayPal for collecting rent? Off face value, these digital wallets seem like a good idea because they get rid of rent checks and cash payments. After all, you want to collect your rent in full, on time, and without hassle. However, there are compelling reasons to avoid PayPal and Venmo to collect rent.
Let’s go over why landlords should never use Venmo or PayPal to collect rent.
Using Venmo to collect rent
Venmo is a digital wallet for making instant transfers. With Venmo, all your tenant needs to do is transfer the rent payment to your account, and it arrives instantly. In addition, the app allows the tenant to use their debit card, credit card, or bank balance.
Unfortunately, Venmo is not the best option for collecting rental payments. Not only is there no protection, but Venmo lacks essential features that many rent collection apps come with standard.
Let’s look at the pros and cons of using Venmo for rent payments.
The pros of using Venmo to collect rent
- Easy to use: Once you download the Venmo app, you can start sending and receiving payments.
- The money transfer is free: A tenant can make transfers from their Venmo account to your account for free.
- Allows tenants to split rent: With Venmo, a tenant can split the rent between roommates. They can send an instant payment to the tenant responsible for paying the landlord.
- Venmo offers credit and debit card payments: The app provides credit and debit cards without charging annual fees. However, it can add 3% to the tenant’s credit card rent payment.
- Social media features: Venmo incorporates popular social media features like comments, likes, and messages on payments. This switches up the user experience, enhancing the experience and allowing parties to communicate.
The cons of using Venmo to collect rent
- Charges fees for business transactions and “cash a check” features: Though person-to-person fees are free on Venmo, rent payments are categorized as a business transaction with a 1.9% processing fee plus $0.10. Also, if you use the “Cash a Check” feature to deposit a check directly to your Venmo account, you will be charged 1% and a minimum of $5.
- Charges fees for instant payments: There is a 1.5% fee (with a minimum fee of $0.25 and a maximum fee of $15) for instant transfers on Venmo.
- No recurring payments option: Tenants can’t set up automatic rental payments. Therefore, late rent payments become more likely, causing disrupted cash flow.
- Impossible to cancel a Venmo payment: Venmo’s policies do not allow a refund to the renter or transfer to the landlord if a tenant pays the wrong amount due to incorrect details. The “no cancellation policy” makes it impossible to cancel a Venmo payment.
- No automatic late fee calculations: Unlike rent payment apps, there is no way to charge late fees automatically. So, this means more paperwork and administration for you.
- Venmo’s dispute policies: Generally, Venmo won’t get involved in payment disputes. However, if they do, the company will often favor the buyer (tenant) over the seller (landlord).
- Venmo can’t block a partial payment. You can’t decline or stop a rent payment made via Venmo. Nor can you block partial payments. The eviction process halts once the landlord accepts payment in some states, depending on the conditions of your situation. Therefore, you may find it difficult to evict a tenant.
- No option for credit bureau reporting: With Venmo, you cannot report rent payments to credit bureaus, which affects the tenant’s credit score. When credit reporting is out of the picture, there would be no means of incentivizing or penalizing late rent payments.
It’s easy to see how these cons outweigh the pros. No doubt, Venmo works perfectly for sending money to family and friends. It could even be helpful to split the rent between roommates. However, it is a bad idea for landlords to use it for rent collection. It offers neither protection nor incentive to you as a landlord.
That said, is PayPal a better alternative for rent payments?
Using PayPal to collect rent
Like Venmo, PayPal is generally great for making instant transfers. But is it suitable for landlords?
The pros of using PayPal to collect rent
- User friendly: The app is easy to use and provides robust security that helps to prevent fraud. It keeps your bank and credit card info safe by encrypting them.
- Offers multiple payment methods: Rent payments can be made with a debit card, a credit card, a bank account, or a PayPal balance.
- Business accounts: A PayPal business account helps you keep track of your invoices. It offers payment protection plans for accounting purposes. However, there is no protection for real estate transactions.
- PayPal sending limits: With a verified PayPal account, there are only a few limits to how much you can send. PayPal sending limits offer an option of sending up to $60,000 in a single transaction. However, these can sometimes be limited to $10,000. Also, remember that rent payment goes to your PayPal account, not your bank.
The cons of using PayPal to collect rent
- Limited features for landlords: You can’t apply and enforce late fees automatically; neither can you block payments. This makes it challenging to go through an eviction process successfully.
- PayPal charges for rent payments: Although friends and family transactions are free on PayPal, business fees range from 1.9% to 3.5%, including a fixed rate of up to $0.49 commission. PayPal classifies rent as “goods and services,” qualifying it as a commercial transaction. However, there is no payment protection for “real estate transactions.”
- Charges for instant transfers: PayPal charges 1% on instant access to your funds, while a free bank transfer will take a few days.
- Insufficient protection for landlords: When payment disputes arise, PayPal often takes sides with the payer, in this case, the tenant. Just like Venmo, landlords are offered little to no protection.
- Inability to report payments to credit bureau reporting: PayPal’s features do not include an option to report rent payments to credit bureaus. Late payments showing up on a credit report can motivate tenants to pay rent on time. With PayPal and Venmo, you miss out on this incentive.
- Rent reminders: PayPal doesn’t send rent reminders before the due date. It only does when invoices are overdue.
Overall, apps like PayPal and Venmo do nothing to serve your interests as a landlord. So, what should you do instead?
Let’s talk about property management apps and why they’re a better alternative.
Why use property management apps?
Property management apps offer the best options for rent collection. Here are some of the benefits of property management apps:
- They’re designed for rental management: Property management apps help you charge and track security deposits, late rents or utility fees, prorate rent, and send automatic reminders to tenants.
- Efficiency: Property management tools incorporate features such as leasing, applications, screening, and rent collection. In addition, some apps facilitate maintenance requests.
- Recordkeeping: Property management apps keep track of rent payments, making them visible to landlords and tenants. Some apps connect with accounting software and allow landlords to enter their revenues and expenses.
- Flexible payments: With property management apps, you can decline or block payments, split rent payments among tenants, set up recurring payments, prorate rent fees, and enforce late rents.
- Low charges for rent collection: Most property management apps don’t charge fees for rent collection. If they do, they’re a lot lower than Venmo or PayPal.
- Credit bureau reporting: Some property management apps allow you to report your collections to credit bureaus.
Purchasing your first rental property is just the beginning of your real estate journey, because being a good landlord is almost as important as making good deals. BiggerPockets’ free guide How to Become a Landlord: Managing Rental Properties for Real Estate Investors will teach you everything—from setting rent to handling evictions.
The benefits offered by property management apps make a strong argument against using Venmo or PayPal for rent payments.
PayPal and Venmo are not designed to serve your interests as a landlord. Instead, stick with the software built for you.
Property management apps will facilitate instant, prompt, and adequately documented transactions.
What do you use to collect rent payments? Let us know in the comment section below!