The forest and the trees: questions after erentpayment issues

10 Replies

Many of you probably know about (or worse have lost money with) the erentpayment.com SNAFU; I was lucky that I had payments processed right before this all happened. (Link for those that are interested: BP erentpayment.com thread)

I've come to a serious realization from this that I have overlooked a major component of my business. Most landlords go through hoops of due diligence vetting tenants, contractors, and the properties themselves. We have inspections, call in experts, run credit and background checks more in depth than most employers, and ask for references.

However, for the actual lifeblood of the business - cash flow- I found a website that looked pretty and offered some services that seemed to gel with what I needed at the time and signed up. I didn't consider the fact that pretty much anybody can pay to setup a pretty website with good functionality and contract with a third party payment processor. I didn't check their background, I didn't talk to the owner, I didn't check to see that they had insurance or fundamentally understand how they handled my resident's payments. Luckily it didn't bite me in the ***, but it easily could have. 

I completely ignored a concept of counter-party risk - something I am 100% familiar with analyzing in my paper investments, but didn't even really think about in my RE investments.

Now I have to search for a new method of payment and am asking myself the question - "what don't I know that I don't know"?

I'm struggling with these two questions, and would love input from some other folks on BP:

1. How do you vet your financial/legal/etc. third party partners?

and

2. What other counter-party risk am I completely ignoring in my business?

Hey Steven - I did exactly the same thing with ERentPayment.. I have been asking myself those same questions. I am going to follow this thread and hopefully pick up some good info from others.  Thanks for posting the questions. 

I'm going through something similar with my accounting software. I've been using Quicken for several years but they "force" you to buy the next version by messing with functions and making it error out. Now they are going to a yearly fee program so I've been looking at property management software in general. I'm old, and don't like my information stored on a cloud somewhere and I have to wonder what these companies do with the data...

I think ERP gained a lot of credibility from forums like this. We naturally rely on the advice of others- especially as it comes to this particular forum on this site- because we know we are all similarly situated in atleast one way- we are landlords. No one can be faulted because they were doing there job until they weren't.

Our colleagues have unfortunately paid a price for a lesson we can all learn from. I was happy to see Cozy come right out and try and set nerves at ease. I am hopeful that they will come out with a more detailed explanation for us all to understand the inner workings of the transfers. Stripe seems like a much more accepted and legit transfer platform.

@Clay O. I think there were a more of us that barely missed the bullet than got hit - and there seems to be a lot that were impacted!

@Lily R. Property management software is another huge variable I have been pondering. Right now I don't feel I have quite a large enough portfolio to warrant dedicated software, but I hope to be there soon so am looking to scale. The biggest questions I now find myself wondering about them is based around the sustainability of their business model. Their software suite won't do me any good if they go out of business! I'm inclined to feel that whatever the "big boys" use would be the safest route here. I need to find out what the massive multi-family property managers use...

@Patrick M. I did see one message from someone @ Cozy, but I'm not sure it completely put my nerves at ease. I'm sure erentpayment would have come out with a similar message had the situation been reversed. My understanding of Cozy's response is they have a "better" third party partner, never personally take control of funds, and have more rigorous software & security protocols. I have not heard anything about what safeguards Cozy has put in place in case they or their third party partner suddenly have stability issues.

I'm not saying the sky is falling and we shouldn't trust anyone. The question remains open:

How do you vet third party partners and assess their counter-party risk? (And which ones should we be vetting more rigorously!)

@Steven Loveless I think you would like to see a guarantee by Cozy for lost funds. The problem is that with the business model they never control your money, so how could they ever begin insuring it or guaranteeing it. They use Stripe for as a conduit for ACH transfers.  

https://cozy.co/blog/how-payments-work-at-cozy/

They are not moving your money from one companies account to another companies account to your account like ERP. So there is no risk that one of those companies will up and decide- "hey I want to keep your funds." Like happened with ERP.

Further, you believe if this happened to someone else, ERP would have come out with a similar message as Cozy. Lets take a moment to examine that. Based on the utter lack of communication and attempts to spread misinformation by ERP- I would not put it past them... but have you seen their 3rd party companies myspace webpage? Additionally they would have never been able to claim that funds were not being held by their vendor and in this case, their vendor's vendor- yeesh.

Cozy has explained what it does and laid bare its process and its partner, Stripe. This is part of why you started this thread- "What do we really know?" They have tried to answer this as effectively and expediently as possible (They were out immediately when ERP was still floating different versions of events, when they decided to make radio contact.)

I would suggest that you look into Zelle or perhaps get a business account with your bank and pay for ACH payments. I am very happy with Cozy. I am satisfied and confident in their explanation. They have developed a host of ways to make money while still providing free rent payment transfers. That is good business and I love that they are 100% devoted to landlords and tenants.

One thing I never understood is why are people using payment services like this instead of a large known company like paypal or google wallet, both of which are options I use to collect rent with.

@Patrick M. I'm not knocking Cozy or saying they do anything improperly or risky. In the link you sent to me they explicitly state that "we take responsibility for every dollar we process." Okay - so back to the point of the thread, how do I verify that? Does that mean they have insurance in case their partner (Stripe) commits fraud or has processing issues? Any significant delay in rent processing is potentially crippling for some folks. Does this come down to what Russell mentioned of sticking to the big players trusting that anyone that operates in the $1billion+ ballpark is inherently trustworthy? 

Straight to bank-bank ACH's is what I am settling on for now. Just curious as to other folks' thoughts on which third parties we don't vet well enough (and playing a bit of devil's advocate.)

@Russell Brazil I can't speak for everyone, but I can tell you why I used ERP in this particular case - they were the most affordable option for a provider that reports rent to credit bureaus. I have a cost-sensitive resident who is trying to build credit, so this is what we settled on. In hindsight, that was probably a bad move (hence the reason for the thread).

@Steven Loveless I did not think you were. It just seems that you are saying things that don't jive with what has been discussed and the information that is out there. As for them taking responsibility- after they make that statement they go through a couple of points of how they "take responsibility." They have vetted and disclosed their processor, they maintain a strict cyber security protocols, etc. This demonstrates their responsibility. I think you are reading this as "we guarantee your payment" which is something no one can realistically do.

In your reply to Russell you outline why you went with ERP. But frankly this does not make sense because Cozy is free for tenant and Landlord  and can report to credit, (I will state that I have never seen anyone definitely state that this can positively effect someone's credit score.) And it is an bank to bank ACH transfer. Hence my rehashing it.

@Russell Brazil I use Cozy because it is Landlord Centric. I list my apartments on it and it lists to services that I otherwise would not access (realtor, etc.). It allows for online application, credit and background checks. It offers free ACH rent payment for myself and my tenant. It provides them with the ability to report to a credit bureau- which I really view more as an incentive to use it from their end. They also have rent estimate service and expense tracking (free) but I don't use these (yet).

Google wallet uses Stripe.

Is Paypal free? 

BTW- Better Business Bureau Scores:

Cozy: A+

Stripe: A+

Paypal: A

Google Wallet: A-

How long has ERP been around? In some of these threads I recall seeing people say "I've been using them for 7/8/9 years, with no issues"....so if they were operating for that long with no real issues, that's a pretty decent track record for people to trust them without doing a huge in depth research hunt. No one has a crystal ball......even companies that have insurance can screw you....the insurance company the use may suck and not pay etc etc....there are no guarantees with any company or person you work with....

Old friend used to say....."I've never lost money to someone I didn't trust....because if I didn't trust them I wouldn't have done business with them"...... so how far do you have to go trust someone? Internet research can only go so far....find me ANY company that doesn't have some form of bad internet review/opinion from some unhappy customer

I was in the process of signing up for ERP when this hit....bullet dodged. The reason I was interested as opposed to direct ACH/Zelle/Paypal....its all automated to tack on late fees, send reminders to the tenant, not accept partial payments etc.....all nice features that take some of the work and hassle out of collecting rent payments. I'm willing to pay a small fee to do that if it makes my life easier.

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