Investor · Lakewood Ranch, FL · Member since 2019 · 72 posts · 47 votes
Hi,
I just completed a deal (duplex) and I inherited a tenant who does not have a bank account. He pays cash to the previous landlord.
I am new to real estate investing and would like to hear recommendations on what systems to use to receive payments in this case. I heard about paynearme and netspend. Any experience with them?
Any input or recommendation will be greatly appreciated.
I have around 20 residents that pay via Cozy. Too easy. I selected a wonderful, older single lady as a resident around a year ago. She had no checking account and preferred to pay cash. I stop by once a month and pick it up. I'll trade a little inconvenience for a great resident any day of the week. Plus, my wife forgives my sins when I leave some cold, hard cash laying around.
Each multifamily building I have has its own bank account. It's written into the lease that tenants must deposit their rents into that particular account (either by online bank transfer or by walking in a check/cash); I do not collect rents directly, nor would I if anyone asked. Systems don't work if there are any exceptions. Each tenant living in a building has their own unique rent amount, so even if they do not leave a notation with the rent payment, I know whom paid the rent based on the amount alone. I get an email alert each time a deposit is made.
I prefer not to use any third-party vendors (Zelle, etc.) because firstly, that creates another link in the chain that can break down between the tenant's deposit and my bank account. There is an occasional thread on BP where the vendor has a system crash of technical glitch and transfers are delayed. In a perfect situation, the payment will still be delayed (even if by hours) using this additional system.
And secondly, many of these vendors have "clawback" provisions where, in their terms of service, you give them permission to go back into your account - even weeks after the fact - and reverse a deposit that was made by your tenant.
My system is simple, allows for tenants to pay through multiple means, and does not cost me anything extra.
They can use their cash to purchase a money order and deliver that to you in whatever manner you ordinarily receive non-electronic rental payments, like a dropbox or by mail.
I had a tenant like that, he was a guard at a casino. I got him off cash payments and instead dropping money orders in to a lock box. I don't worry about how they pay; when they don't pay I get irked. Fortunately I have no non-payers now. Fingers crossed!
I was just watching BP YouTube "#ASKBP 005", and I heard Brandon saying there is a system called PAY NEAR ME and your tenant can go to Seven Eleven with cash to PAY RENT. I am not sure if this is feasible now or not because this is from 2015. Just I heard so I wanted to let you know.
I have around 20 residents that pay via Cozy. Too easy. I selected a wonderful, older single lady as a resident around a year ago. She had no checking account and preferred to pay cash. I stop by once a month and pick it up. I'll trade a little inconvenience for a great resident any day of the week. Plus, my wife forgives my sins when I leave some cold, hard cash laying around.
I currently rent a SFH in Miami. Never met the landlord. Don't have his number. The previous owner sold the house after about a year of us living here. The previous owner advised us that the new owner would email us with payment instructions.
Simply put. We deposit the rent in his business account and we don’t get evicted. Simple.
If you’re able to collect cash (because you’re local) I’d collect cash until a system can be put in place. Is recommend having them deposit the payment in your business bank account if your bank is local to the area. If this isn’t an option, money order by mail with tracking.
We use paynearme via buildium property management software. Tenants get a bar code they can use to pay at CVS, Ace Cash Expresss, or 7-11 stores. It's great! No charge backs either. If tenants are in trouble I require cash payment via paynearme rather than online rent pay where charge backs are possible. I don't think you can sign up for paynearne as an individual account with less than 100 units.
@Bernard Sanga, you must honor the lease but as soon as possible switch to non-cash or check payments!
Here are your options:
Direct deposit: Provide the tenants your account and routing number. They can go to your bank and deposit directly.
Money Order: Have the tenant get a money order and mail it to you. The issue becomes when it gets 'lost' in the mail
Never accept cash. Especially in person. If you absolutely must accept cash then make sure you provide a receipt. Start documenting it and showing a history.
@Bernard Sanga you can ask them to purchase a money order or you can have them deposit into a bank account.
Many of our residents do not have a bank account and these are methods we use for them. We never accept cash as in one occasion a tenant claimed he paid the rent to one of our employees and there was no way to prove it either way.
@Bernard Sanga I use Cozy.co to collect rent. I like it because late fees are automatically applied and since I've started using it, I haven't received a late payment. The other nice thing about it is the applicants pay to run their background and credit checks and it's basically free for landlords. However, I don't compromise on how rent is collected. If the tenant doesn't have a bank account you can suggest alternative banking, credit unions, or prepaid debit cards if you're doing online payments. When I switched, I gave a 30 day notice advising that it was just how I was collecting rent from now on.
Before, I was just taking checks and using online deposits since my bank at that time was almost two hours away. But now that I switched, I don't need to do anything. It just gets deposited directly to the bank account.
You could also ask the Tenant if his employer would be willing to deduct and pay directly to your account.
In my rental agreement (mtm) I give the option to pay online or in cash with one caveat.
Online can be done such as via Zelle, or Cozy,
No need to give out my bank account info.
However, if tenant choose to pay cash they have to get the cash to me, not me coming to them and there is a $30 charge to facilitate this. This accounts for my time, gas, etc to get to the bank or atm to deposit that cash.
Usually, tenant doesn't want to incur this additional charge so they normally figure out what to do to avoid it and work with the systems I already have in place that makes for a stress-free (98%) transaction.
I have a tenant on social security who had always paid the prior owner in cash. I spoke with my local bank who provided me my member # (I use a credit union for this property) so the tenant is not provided my account number. I require the tenant to make the deposit on their own in accordance with the lease terms. In 13 months, the tenant has been on time each month without any concerns.
I have been using this technique for multiple properties for several years without any problem, ever. The bank account number is printed in their lease:
RENT: A. You agree to pay the monthly rent indicated above via deposit to the following checking account at (BANK): account # 123456; routing # 67890 (nearest branch is 123 Main Street, New York, NY). Rent is due in advance and in full on or before the 1st day of each month without deduction or set off. Time is of the essence. Payment may not be made by third party checks. If rent is not paid physically at a branch (i.e. it is paid online or via bank transfer), the date of payment will be considered the date when funds reach our account.
And before I hear this objection, if someone has your account number, they MAY NOT withdraw from your account (unless your bank does not have any security measures in place). Any time you write a check to someone, your account number is on the bottom.
I use a regional credit union, and they have always been willing to work with me. My bank has an image of my photo ID and it comes up on the teller's screen when one of my accounts is accessed. I've also made it a point to be personally known by the staff at the branch in my portfolio's city. There are also notes on the account screen that informs the teller that these accounts will have tenants (i.e. non-account owners) depositing money. As I mentioned previously, the deposits can be in cash, personal check or some form of online transfer. The teller slip from the transaction is the tenant's receipt.
If you wanted to be especially prudent, could sweep the money out of that account each month into another "private" account, but I don't see how an unscrupulous tenant could withdraw money from the account. Any bank worth its salt is going to ask for photo ID for a withdrawal and they are clearly not the owner of the account. This would be no different than some other random person trying the same thing after you've written them as check. They would not get very far.
I can also tell you from anecdotal evidence from branch management, there are at least several other landlords that have a similar system set up at my banking institution. I've used this system since 2014 and I am very happy with the results thusfar.
I have been using this technique for multiple properties for several years without any problem, ever. The bank account number is printed in their lease:
RENT: A. You agree to pay the monthly rent indicated above via deposit to the following checking account at (BANK): account # 123456; routing # 67890 (nearest branch is 123 Main Street, New York, NY). Rent is due in advance and in full on or before the 1st day of each month without deduction or set off. Time is of the essence. Payment may not be made by third party checks. If rent is not paid physically at a branch (i.e. it is paid online or via bank transfer), the date of payment will be considered the date when funds reach our account.
And before I hear this objection, if someone has your account number, they MAY NOT withdraw from your account (unless your bank does not have any security measures in place). Any time you write a check to someone, your account number is on the bottom.
I use a regional credit union, and they have always been willing to work with me. My bank has an image of my photo ID and it comes up on the teller's screen when one of my accounts is accessed. I've also made it a point to be personally known by the staff at the branch in my portfolio's city. There are also notes on the account screen that informs the teller that these accounts will have tenants (i.e. non-account owners) depositing money. As I mentioned previously, the deposits can be in cash, personal check or some form of online transfer. The teller slip from the transaction is the tenant's receipt.
If you wanted to be especially prudent, could sweep the money out of that account each month into another "private" account, but I don't see how an unscrupulous tenant could withdraw money from the account. Any bank worth its salt is going to ask for photo ID for a withdrawal and they are clearly not the owner of the account. This would be no different than some other random person trying the same thing after you've written them as check. They would not get very far.
I can also tell you from anecdotal evidence from branch management, there are at least several other landlords that have a similar system set up at my banking institution. I've used this system since 2014 and I am very happy with the results thusfar.
Wesley, is your name on the account or do you have an LLC?
Wesley, is your name on the account or do you have an LLC?
My LLC is on the account, but I, personally, am listed as an authorized signer.
To provide additional context, my properties are held in personal names, but I have an operational/management LLC that is the "face of the company" - it is this LLC to which tenants pay rent and is the "owner" of the bank accounts, and its name appears on the letterhead of all tenant notices. This LLC does not hold any RE assets, but is the steward of the cash flow.
Very informative. Thank you for your response! I am talking to my bank now to see if I can make the same arrangement.
Bernard - Depending on where you bank, and what type of bank account you have, you may or may not be able to have your tenants make cash deposits into your account.
Just so you know, several years ago, most of the larger banks stopped allowing people who are not named on the account to deposit cash into an account. (The reason given is generally to fight money laundering, but you can read more about that here: LA Times: As branches close, some banks are saying they don’t want people’s money.)
However, there are a couple ways around it since obviously people like Wesley (and myself) still do this. #1 - Work with a bank/credit union that doesn't have this rule yet, or #2 - Even the banks named in that article I linked to that ban it will allow it if you have a business bank account with them, so just open a business bank account and have your tenants deposit the rent into that account.
Anyway, just wanted to pass this info along in case you run into this issue with your bank when you inquire.
As Kyle's post implies, find an institution that will meet your needs. With few exceptions, I've found credit unions (as opposed to banks - and the bigger they are, the less helpful) to be the most business and customer friendly.
Bernard, you are getting great advice here. I have a tenant who likes to pay in cash. I used to collect every month, but now that I know him better and trust him, I've given him a year's worth of deposit slips and he takes it straight to the bank. It helps that there is a branch within a mile of him. Works great for me and he's much more timely with his payments than he was when I had to coordinate a pick up.