Rental Payment Procedure - tennant make bank deposit

Rental Property Investor · Chattanooga, TN · Member since 2011 · 82 posts · 51 votes

I need feedback on this method of payment for tenants. I have given them my business bank account number and instructed them to take all payments to the bank and deposit them either by check or cash. Then send me a text or email confirming the deposit. This give both I and the tenant confirmation of the time, amount and who deposited. I have 8 rentals with 100% compliance. This saves me from going the po box then to bank. Are there any reasons why I should not do this? Thanks for the help

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Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

13y

When you write someone a check they have your account number. Remember checks?

With the deposit only ATM cards the tenant doesn't even have the account number. Just an ATM card. It can't be used for anything but to make a deposit.

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Bryan L.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
13y
I do this too. But don't allow them to deposit checks. If one bounces, you may get hit with a fee. Also, move the money out regularly.
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Chris M.
Investor · Davie, FL · Member since 2010 · 66 posts · 8 votes
13y
I also do this but I only have a few tenants so it makes it easy to identify who paid and when. One of my tenants uses the same bank so they have a standing transfer on the 1st of every month that I approve via emailed link.

I also set up email/text alerts for deposits on that account so I get instant notification. That way, if someone pays late without the late, I can immediately fwd the text to them and let them know the next payment must include it.
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Phillip Dwyer
Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
13y
This is bad practice. The wrong tenant can use your bank info to do bad things. I'm in the middle of cleaning up a mess from a property I took over where the owner had done as the previous two posts and yourself.
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
13y
I do it as well. So far it works.

The only person where I'm having sort of a problem with is 1 tenant, who, I believe, is bi-polar. Have sent her a letter end of August and advised her that I would not renew her lease, which was running out beginning of September, but that I'd be willing to let it go on month-to-month for a $ 25 increase.

Her deposit was the old amount and I'm sort of choosing my battles. She's sweet one moment and a raving lunatic the next. She cusses me out, threatens me, calls me any name she can think of. I just hang up and then she keeps calling back and leaving nasty messages. later she calls and apologizes and promises never to do it again.

Anyway, I hear from everyone that the house is spotless and that she's taking care of it immaculately. She always deposits on time, never a problem.

So, I'm picking my battles and will not approach her for the extra $ 25.00. It's a low-income neighborhood and it's difficult to find tenants who are perfect. She knows that I can give her notice anytime if she treats me the way she has.

Anyway, the only problem might be if someone puts in partial payments and if you try to evict it shows that you accepted partial payments, which can work against you in court. Would you then bring the money back to them? I guess that's the only way to deal with it.
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Callum K.
Rental Property Investor · Tulsa, OK · Member since 2012 · 291 posts · 102 votes
13y
Be sure you understand your (and their) banking requirement thoroughly. Depending on the type of transfer I know there are thresholds for different types of accounts in which deposits can be revoked. For instance, my employers bank can revoke a direct deposit for up to 90 days. My recommendation is to stick with them mailing a check to your bank because check fraud regulations are vast and provide much more protection than electronic deposits.
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Chris M.
Investor · Davie, FL · Member since 2010 · 66 posts · 8 votes
13y
Originally posted by Phillip Dwyer:
This is bad practice. The wrong tenant can use your bank info to do bad things. I'm in the middle of cleaning up a mess from a property I took over where the owner had done as the previous two posts and yourself.

@Phillip Dwyer are you at liberty to expand a bit on that situation? I am curious as to what risk I would be exposing myself to with this approach

My banker did mention the possibility of giving out deposit only slips or ATM cards to tenants, but those come at a cost and he didn't have that info handy.
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Andrea M.
Real Estate Investor · Hampton, VA · Member since 2012 · 562 posts · 109 votes
13y
A few of my tenants do this, but the account that they deposit into I keep minimum funds in it (to avoid shady happenings) and transfer rents payments into my main account , they all deposit cash/money order I don't accept personal checks. Some have even sent me a picture of the money order.
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Thomas DeMoss
OP
Rental Property Investor · Chattanooga, TN · Member since 2011 · 82 posts · 51 votes
13y
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
13y
Originally posted by Phillip Dwyer:
This is bad practice. The wrong tenant can use your bank info to do bad things. I'm in the middle of cleaning up a mess from a property I took over where the owner had done as the previous two posts and yourself.

Phillip:

There are ways to protect yourself. After much pitching and finagling with our bank, we convinced them to issue bank cards for each of our tenants {they charge us a nominal fee to print all these cards}.

These cards are configured to allow the tenants to deposit only via the teller or ATM. Deposits go into a separate (deposit only) account. Funds are then moved from here into our general account.

Since each tenant has a unique card number, we can easily match payments to tenants {I've written a procedure in our accounting software to do this when we download our bank transactions}.
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Mike Franco
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
13y
Originally posted by Phillip Dwyer:
This is bad practice. The wrong tenant can use your bank info to do bad things. I'm in the middle of cleaning up a mess from a property I took over where the owner had done as the previous two posts and yourself.

I called my bank and they told me there's nothing malicious they can do with your bank info.

When you write a check, it has your name, address, acct and routing number. The recipient has all this information.

He might be able to write a fake check or make a fake payment to a porn website, but the bank will take care of such fraud.
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Bryan L.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
13y
My method is much like that of Andrea M. I use one account to receive the rents, and then go online and transfer them to my main account. I also tell the renters to write their address on the deposit ticket, and I can see that deposit ticket online to know who made the deposit. As far as the renters having banking "information" - all they have is an account number. And that number is available to every single person in the world who I write a check to (it's on the check).
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Phillip Dwyer
Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
13y
Here's a few things that could happen:

1. Tenant makes partial deposit

2. Tenant makes deposit after evicition starts

3. Tenant uses account info to pay for their own stuff, and you don't notice

4. Tenant looses card

5. Bank is closed for holiday
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Account Closed
Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
13y
What happen to the old fashion way of paying with a money order or the landlord stop by and pick up the rent.

Joe Gore
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Bryan L.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
13y
@Account Closed - I've used this method with great success. I had one renter who paid on time for two years or so, and all I had to do was go to online banking and transfer to my other account. Much easier than "mail-box money". There's also a very large professional property management firm in my area that does something similar for rental houses that are out of town.

@Phillip Dwyer about "tenant uses account info to buy their own stuff" - EVERY person that you have every written a check to has your account number. The exact same info that the tenants will have. No more, no less. Now, it wouldn't surprise me if some careless bank teller might let them make a withdrawal, but that's the reason to sweep it to another account on a regular basis.
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
13y
@Joe Gore , that worked while I was living in the neighborhood and all of my properties where a few blocks from my house.

It's difficult, if a PM has to come out 3 times a day for the first 5 days of the months, because every tenant has their rent money ready at different times/dates. Or they give you a time and then they aren't there.

It's probably easy to do, if your properties are middle class and people mail their rent check to you. In better neighborhoods you might be able to add a special rent mailbox to one of your properties and tenants can deliver their envelopes there. In my neighborhood, that mailbox would be stolen, with the hope that someone paid with cash.

My properties are in a neighborhood where many people don't have bank accounts and they work with cash and want a receipt. Even mailing in a money order would be difficult, because they say they've mailed it and I haven't received it and then they'll have to try to get replacement, which would take 7-10 days.

By having them deposit cash, they get a receipt and I can check it on my computer and have access to the money here, across the country.
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
13y
Originally posted by Phillip Dwyer:
Here's a few things that could happen:
1. Tenant makes partial deposit
In our situation, every deposit is associated with a unique deposit card number, so we know who makes which payments. If rent is not paid in full by the first of the month, it is late and we move on to assigning a late fee and serving notice.

2. Tenant makes deposit after evicition starts

Under our Residential Tenancies Act, this would be immaterial to the eviction process. If the eviction was for a matter other than arrears in payment (i.e. the tenant did not owe us monies), we would forward the rent deposit to the Rentalsman to be held in-trust.

3. Tenant uses account info to pay for their own stuff, and you don't notice

Not possible for two reasons: 1) The account associated with the issued cards, is a deposit only account; and 2) At no time does the Tenant have knowledge of the account number.

4. Tenant looses card

This happens. We disable the card in question; issue the Tenant a new card; and charge them $5.00.

5. Bank is closed for holiday

Perhaps, but ATMs rarely take holidays {perhaps they need a better union }:-)

Now, in addition to using the "rent card" to make deposits via an ATM or at the bank, we still accept EFT, post-dated cheques, and cash (though it appears that we may not be legally required to continue to do this ... especially given that Tenants wanting to pay cash, can simply deposit using the card)

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Aaron Montague
Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes
13y
Dwolla.com for automated payments in my organization. It is a slow process to start up (I take a Money order for 1st/last/security) but is essentially the same thing as Paypal.com.

Except each transaction only costs the receiver 25 cents.
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Andrew Schultz
Real Estate Broker · Buffalo, NY · Member since 2013 · 102 posts · 36 votes
13y
Originally posted by Aaron Montague:
Dwolla.com for automated payments in my organization. It is a slow process to start up (I take a Money order for 1st/last/security) but is essentially the same thing as Paypal.com.

Except each transaction only costs the receiver 25 cents.

I see 2 downfalls here:

1) My funds are pooled with everyone elses funds in an account that I can't control and don't have access to.

2) If a tenant makes a deposit on Monday, it won't clear until Thursday, possibly Wednesday. Then for me to move those funds to my bank takes an additional 2-3 days.
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
13y
Originally posted by Phillip Dwyer:
This is bad practice. The wrong tenant can use your bank info to do bad things. I'm in the middle of cleaning up a mess from a property I took over where the owner had done as the previous two posts and yourself.

When I was reading this forum, this is exactly what came to my mind. WHy in the world would I give my banking info. to a tenant?

I totally understand looking for easier ways to collect. ACN, automatic withdrawal, paying to a paypal account are all ways I would think may accomplish this same goal. Maybe not and they may come with other risks. But, I simply could never see a way I would give my banking info to a renter.
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Account Closed
Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
13y
I agree never give your banking info to a tenant and a tenant should never give their banking info to a landlord.

Joe Gore
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Thomas DeMoss
OP
Rental Property Investor · Chattanooga, TN · Member since 2011 · 82 posts · 51 votes
13y
@ Chris Clothier

Chris the only info they have is my account number, which I would have to give them in order to do direct deposit. How do your tenants make payments?

Thanks.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
When you write someone a check they have your account number. Remember checks?

With the deposit only ATM cards the tenant doesn't even have the account number. Just an ATM card. It can't be used for anything but to make a deposit.
3 Reply
Aly W.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
13y
I have 2 tenants that make deposits into my business account every month. It's a deposit-only account. They go to the bank to do it. Easy for me.

The other tenants use www.erentpayment.com, which is a double blind system where their rent is debited from their account and deposited into mine. It's $3 a transaction. Saves them a trip to the bank. Easy for us both.
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Aly W.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
13y
And @Michaela G., I think we had the same tenant ;) Screaming and cursing one moment, and polite and apologetic the next. Also kept the property spotless....but I'm glad she's gone.
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
13y
Hey @Thomas DeMoss - Your renter has your name or the name of your business because they are renting from you personally. They have your bank and your bank account number. They may have your address from your lease agreement. If they don't, then they may have it from online records for the property. Point is, for simple abundance of caution, I would never give this data or suggest someone do.

I think @Jon Holdman makes a good suggestion. I've never used a deposit only debit card and from quick research, I'm not sure they would be offered at most banks. JP Morgan Chase, Wells Fargo and Bank of America all have ads marketing them so maybe they will be available at small banks too. I think that would be a viable option for a landlord.

Thomas, my properties are managed by my management company and we accept direct withdrawal from their accounts, ACH payments, money orders and cashiers checks.

So I do understand your plight as a landlord, but you asked for thoughts on the topic and I would never do that as an individual.
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