My Favorite Rent Collection Method (Shocker—It’s Not Electronic)

by | BiggerPockets.com

I love technology, and finding new and more streamlined ways to use it to do everyday tasks is fun for me. My banking, accounting, calendar, communication, task management, project tracking, and hard money loan underwriting are all done electronically.

I’ll move as many other tasks as I can to an electronic system, too. For instance, I scan in receipts and contact info so I don’t have to keep paper.

I always have multiple businesses and volunteer projects going at once, so being able to multi-task using a device is pretty important for me.

All of that being said, it may surprise you that my rent collection method is decidedly old school. Here’s what I do, and why I do it.

How I Collect Rent

Are you ready? I pick up the rent at the property.

Tenants place their checks in a locked mailbox at the property by no later than 7 a.m. on the due date, which is the 25th of the month (more on that later). The mailbox has a slot similar to this one below.

I drive to the property, snap photos of the checks to deposit using my phone, and walk the building. Sometimes I see a tenant; more frequently, I don’t. I’ll chat if I do.

I also arrange to meet my maintenance person there, pay him, and discuss any issues he is dealing with or tasks on his plate.

“WHAT? And waste all that time? Why on earth?” some of you are probably asking, wondering if I also grew up with rotary phones.

Hear me out though. Here’s why I do this.

Property Condition

Going to each property forces me to pay attention to the condition of the property and not assume that everything is fine. I can see for myself.

If something needs repair or replacement, I notice. (Yes, I’ll admit to being a control freak.) I take a minute to walk around, and I can discuss it on the spot with the maintenance person.

Related: Hiring a Property Manager vs. Self Managing: What’s Better?

Tenant Relationship

Because I see my property—and sometimes the tenants—on a regular basis, my renters know that I am involved and aware. It can head off problems before they start.

Can this be a detriment if the relationship with the tenant deteriorates for other reasons? Absolutely.

It is not possible for me to be just “the property manager.” They all know I’m the owner. If I tried to pretend, I’d for sure slip up and give it away, and then they would know I was lying. That’s just me.

But because I’ve screened carefully for excellent tenants, I seldom have issues. So, staying in touch occasionally is a positive on both sides.

I once saw someone write on BiggerPockets: “Be nice to your tenants. They are buying you a building.” It’s too true!

Another reason I like to keep close tabs on my renters is that many of my properties are what I call “starter units.” It may be the tenant’s first apartment, they might have their first real job, or they may be broke and starting over after a divorce.

In other words, they don’t always have their financial affairs in peak condition. Some of them still like to use money orders to ensure they don’t bounce a check.

If that’s the case, trying to set up electronic payment methods can be difficult for them—especially if they don’t pay for internet—so fighting the tide is harder than working with it.

Maintenance Person Relationship

Like I mentioned, I pay my maintenance person monthly during the same visit as the rent collection. It’s an opportunity for him or her to keep me up-to-date on things that might not be immediately evident.

And as his day job’s schedule changes occasionally, or he has vacations or family time planned, we can work out coverage and supply issues. This has paid off with multi-year loyalty from my current maintenance person, so since it ain’t broke, I ain’t fixin’ it.

first-property

Related: Why Good Maintenance is the Best Way to Retain Tenants

Rental Period

Now, I’ll talk about why my rent is collected on the 25th. A guru discussed this plan. (It may have been Jeffrey Taylor?)

I don’t collect on the 25th for the rental month 1st through 30th, I collect on the 25th for the rental period 25th through 24th. It’s illegal in some states to hold more than a specific amount of money in advance though, so be sure to comply with your state’s laws when making this decision.

Why do I do this?

When I started, I needed to make sure to collect rent before my mortgage payment was due. That way, if I had to wait for a check to clear (or bounce), I still had the mortgage funds in time for the 1st.

Later, as I moved into commercial mortgages, it became less important. Those don’t always start on the 1st, and I had reserves. But it was a lifesaver when starting out, and I didn’t want to change midstream.

Caveats

This won’t work if you are trying to scale. My hard money lending business grew to full time, while my rental properties didn’t.

I’m not good at managing a property manager. I preferred to manage tenants myself, as screening is the most important part of rentals. Maintenance of the properties was easy with a maintenance person and a few trusted contractors. So, I let it stay small.

If you are aiming for hundreds of units, I don’t recommend this approach. If you are buying property out of state, it won’t work either.

You’ll need to focus on how to find a good property management company and not try to do it yourself. But if you are like many investors on BiggerPockets, you aren’t there yet. So, I encourage you to consider if this low-tech approach will work for you and help you keep tabs on your property.

What do you think of my rent collection method? Would you ever try this approach?

Comment below!

About Author

Ann Bellamy

Ann Bellamy has been a hard money lender in Massachusetts and New Hampshire since 2006 at Buy Now, LLC and has been investing part time in rental properties in New Hampshire since 1996, holding 23 units and an office building. She has built two modular spec houses and bought a portfolio of MA tax liens, and has been in a leadership role in 3 real estate investing groups in New England. She and her partners have managed Black Diamond Real Estate Investors for 6 1/2 years, serving all levels of investors in Massachusetts and surrounding states. Ann has been a Bigger Pockets member since 2009, and enthusiastically recommends it to all investors she meets.

26 Comments

  1. Dave Rav

    Surprising. However, like you my rents all are due on the 25th! Keeps my CF in order, and me in control of money flow. How did you know my secret?! 🙂

    But, I definitely disagree with you on physically collecting the rent. I understand it allows you to opportunity to inspect the property, see the tenant etc. However there are at least 10 reasons why caution should be headed here
    1) Too much confrontation (or the potential for)
    2). Potentially dangerous (what if tenants are going through a bad situation? They know they can’t pay, or need to break the lease, or are violating your rules. Now youve put yourself “on-location” and could be a victim of that fallout)
    3). Lockbox gets stolen.
    4). Youre carrying cash money or other forms of payment, on your person
    5). Folks become aware of this money collection. (not necessarily tenants) now know your pattern. Think the armored car example.
    6). You could be robbed
    7). You could be injured
    8). Youre a target for the “nosy Nancy” or “the Talker”. (the bored tenant hangs out there just to talk, or better yet, offer excuses why can’t pay. Rent pickup now takes that much longer, and is “painful”)
    9). Inefficient method (already covered by you)
    10). There are higher and better uses of your time. (You mention you own multiple biz’s)

    • Ann Bellamy

      1-8 I don’t have that kind of tenants or that kind of neighborhood, so not a problem. If it became a problem, I’m sure I’m smart enough to change my method. I have considered electronic methods for years, because I like it, but I know I’d never go to the property, which I think is not wise since I self manage.
      10. True dat. but I still like it, so I get to choose. 🙂
      Thanks for your lengthy comment, Dave, I’m sure that will be applicable to others reading this so is good information for them. Just as mine might work for some of them.

      • John Lenhart

        The biggest issue I have with dropboxes, and we have them at some of our properties, is that they are prime to be stolen. One of the larger operators in my area had 3 boxes stolen in a matter of a few months and these were class B properties in good neighborhoods.

        Yes, both checks and money orders can be replaced but with a money order, it can take a month or longer for the tenant to be reimbursed for the lost money order, plus tenant costs, etc. (I hate dealing with lost or stolen money orders). Checks can be replaced easier, but if the person who stole the check cashes it, it can be a challenge for the individual dealing with their bank.

        Electronic is almost the safest way to pay for everyone right now in my opinion.

        Many of your other points are good, it if it helps get you a reason to come to the property more often, that is a good thing.

        • Ann Bellamy

          Thank you, John. I would normally be all electronic, but I know my own propensity for assuming all is well at my properties, and finding out later that it wasn’t the case. Thanks for your comment.

  2. Rick Imby

    I like your process and it makes sense. I was by one of my properties recently and the tenant had moved out a couple of weeks before. I went in and the property manager had not even been in since they moved out. I am currently looking for a new property manager.

  3. Mike S.

    The biggest problem of a rent drop box is that you have legally accepted the risks. The tenant is no longer responsible or liable for the rent when they claim it was paid and “broken” into.
    In order to avoid this transfer of liability, you will need to make it optional to use the drop box and have in writing alternative payment methods. Also have in writing that use of the drop box is at their risk and payment of rent is not considered complete until you physically receive it. Their are other legal implications for drop boxes, but that is the major one if you insist on having them.

    • Ann Bellamy

      Good points, but the major one is to not allow them to put cash in the dropbox. Only checks that can be stopped. Therefore, no harm done. I may have to absorb their fee for stopping payment on the lost rent check, but in 21 years it has never happened. It’s also important that you don’t try with with D Class properties. Or maybe even C. Mine are old buildings (almost everything in New England is old) in nice neighborhoods, and I can attract good people.

  4. Maria Paikos-Hantzis

    Ann, Great post. It’s exactly what I do with my properties. Though some tenants (younger ones) do send checks electronically. I give them the option. I very rarely see a tenant, but either way I’m more than happy to chat with them. They like that I’m checking on the property on a regular basis. I too have a lot of long term tenants and properties in nice neighborhoods (Mass. like you).

    • Ann Bellamy

      You are right, Rob, I can do it on other days, but I know my own bad habits. Since being present involves driving to the property, I simply combine the two to force myself to go there regularly. It’s a personal choice for me.

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