My new tenant, who will move in Oct. 1st, has requested that her employer automatically deposit rent into our account weekly. Our bank said they would do it and it all sounds good to me, but I have never collected rent like this before. I'm planning to call her employer to confirm and find out what day she gets paid. Just thinking through how to set it up in the lease agreement. She will pay Octobers rent upfront as part of the first months rent and security deposit required to move in. Looking for advice, especially for writing the lease agreement "payment of rent" section, and any potential pitfalls of collecting the rent this way. Thanks for reading my post!
@Heidi Dunn just a word of caution to have a backup plan. I tried this with one of my very first tenants - an Amazon employee - and despite every party doing everything "correctly," it just didn't work. Not saying you'll have the same outcome, but think a step ahead just in case. Is the paycheck deposited to a bank account that could have an auto ACH to you on payday? It's an extra step, but now it's a direct transaction, not a third-party transaction. Is the check deposited onto a payroll debit card? You could take the money off of that, but you'd have to pay processing fees. I hope it works or great for you, but I don't want you to be caught flat-footed. Good luck!
Come time for eviction will it be more difficult to process with the rent being paid by the employer rather than the tenant.
Make it crystal clear to the tenant that any issues with the payment of the rent the tenant will be held responsible. The excuse "my employer made the mistake" will not be acceptable. When rent is not paid on time the tenant should be immediately issued the pay or quit notice before seeking any explanations from the tenant. The tenant must be held liable for any and all late fees.
In the case of auto payment no excuses for not payment should be accepted and no leniency should be shown for late payments.
Be very aware that payments will immediately stop in the event the tenant should become unemployed.
Colleen F., Thomas S. and Dan Schwartz thank you for your valuable feedback!
@heidi dunn, the hassle of figuring this out is well worth it. Since there's an extra wee in four out of 12 months, you'll end up with an extra monthly payment each year.
Everything is figureoutable!
Best to you
@Al Williamson -- I understand what you are implying by suggesting there would be an extra payment made each year, but that's assuming that the tenant is required to pay 25% of the rent each week. Similar to how paying half your mortgage twice a month (semi-monthly) means you make 13 mortgage payments over the course of a year. A great way to pay down your mortgage faster if that's your goal. For example:
If rent is $1000/mo -- the tenant will pay $12,000/year
If rent payments pulled from their paycheck are 25% of that monthly amount, it would mean they pay $250 every Friday (let's assume that is payday).
In this scenario -- they will make 52 payments of $250 a year, or a total of $13,000 (one extra rent payment).
But, the implication of doing that seems rather unethical to me, unless you are letting them know you up front you are penalizing them for paying rent in that fashion. Otherwise, it just seems that it would be taking advantage of someone's lack of understanding of the math behind that scenario. Instead, the weekly rent payment should be based on the $12,000 a year, divided by 52 weeks, for a weekly amount of $230.77 (not $250).
Just my two cents.
@Heidi Dunn -- I appreciate your question because it's interesting to me, as a future landlord, to hear of some different scenarios around how tenants want to pay. My initial thought was that it is awesome you have a tenant who wants to go ahead and pay rent right out of their paycheck, as it would seem to me to be a huge plus. I didn't think of some of the concerns that have been addressed by some of the BP community -- that's a big part of why I have been so pleased with BP! Best of luck to you either way -- keep us posted on that happens! :)
@Heidi Dunn , this is a huge red flag to me. Sounds like someone who is so bad with money that they can't be counted on to pay rent once/month like a normal tenant.
I would pass on this person.
@Dan Schwartz @Thomas S. @Colleen F. @Al Williamson @Duane Gunkler @Jaysen Medhurst Early on I felt very uncertain with this tenant, but after an application, credit report and talking with her in person I decided to go for it. I also talked with her employer, which she has worked at for over 20 years. Here is how I worded the Payments section of the lease:
2. PAYMENTS: As a courtesy to Resident, ........................, and at Resident’s request, the Owners agree that Monthly rent payments will be made via Direct Deposit from .............payroll check (income/wages) from ................, aka ...............,
located at ..........................Each month rent will be paid in the amount of $200, per week, starting October 5th, 2017 and ending at the termination of this lease agreement, or otherwise previously agreed upon, as stated below, including the months which have 5 pay periods.The extra pay periods will accumulate and may be applied toward the last months’ rent.It may not be misconstrued that...........................(................) is responsible for the payment of rent, and this lease agreement is between the parties stated in the third paragraph of this Lease Agreement.If an error, or stoppage, occurs in the automatic deposit, either by the Resident or her employer, it shall be paid immediately by the Resident ................and all other late payments, fees and conditions of this agreement will apply.Should the Resident wish to change the method of payment, the Owner must first be notified in writing in such a time frame that rent will be paid in full and on time according as follows: Rent and/or other charges are to be paid at such place or method designated by the owner as follows check or money order by mail, or cash in person.
All payments are to be made payable to .........................., or in the case of automatic deposit, the OWNERS bank account information will be provided to the necessary party to accommodate the deposits.
OWNER acknowledges receipt of the First Month's rent of $800, and a Security Deposit of $800, and additional charges/fees for ____N/A__, for a total payment of $1,600 at least two weeks in advance of the effective date of this Lease Agreement.
I hope my wording of the contract alleviates any future issues with accepting payment this way. Most of all I hope my new tenant never has issues paying the rent and takes care of the property.
Thanks so much for everyone's input. It helped to shape the wording of the contract. I'm so glad to be part of the BP community.
It doesn't matter who pays the rent. As long as it's in your account on time, you should be happy. If it runs late, you can evict. The tenant can blame their employer or Donald Trump but none of that will matter in a court of law. The Tenant is ultimately responsible for ensuring rent is paid.
Another thing you can do is to demand first position on DD order. For example, the company I work for allows me 3 different accounts to deposit money to. The first two I set up as fixed dollar amounts and the last one is simply the remainder. If you are not first position then you could potentially get shorted if your tenant has a bad paycheck.
I would personally have offered the weekly payments at a slightly higher rate than the monthly. You are offering them a convenience btw and asking to be rewarded for making their life easier isn't unethical as long as you are up front about it. I would personally charge a weekly rate of 25% of the monthly rate. The way you are doing it is fine except it requires you to then issue a refund check at the end of each year for one month's rent to adjust for the overpayment of rent through DD.