Should You Collect Rent Electronically/ Online?
Direct ACH Transactions: If your bank allows this, you can set up a direct payment from your tenants to you. This is a decent solution, however, there are two issues: (a) you have to give your account number and routing number to all your tenants which for the most part is safe, but there is some risk in this age of hackers and identity theft and (b) tenants choose when and how much they pay, so it's hard to automatically assess late penalties. This is often a free service from your bank, so that's good.
PayPal: A lot of landlords have resorted to PayPal. I don't like this solution for a few reasons. First, you want to make sure there are no fees, so your tenants have to make sure to choose that their rent payment is a personal transaction that should be funded with their checking account. I would highly recommend that you do not accept rent with a credit card, due to the high fees and the chance of a chargeback (i.e. the tenant asks the credit card company to refund their rent). Second, PayPal is hard to automate monthly. Third, you have to set up your website to collect different amounts of rent from different tenants (or make them enter their rent amount every month). In general, while cheap and easy, it requires that the tenant submit their rent in the right way so it is error prone.
Online Rent Collection: In my opinion, this is the best option. It is simple, easy and automated. Tenants can set up a direct debit from their checking account and it deposits automatically into your checking account without having to give everyone your banking information. My service has several great features:
- Ability to setup recurring or one-time payments either online or over the phone
- Ability to assess late fees on whatever day of the month you choose. Penalties can be on a "per-month" or "per-day" basis. My late fee is $20 per day, so tenants have the incentive to pay as soon as they can, even if they are late.
There are two types of online rent payment services -- you can pay a monthly fee, which is the best option if you have a lot of tenants. I am a part-time investor, so I've chosen a service that charges $3 per month per tenant. It's well worth the $36 per year to avoid the hassles of physical checks or PayPal. Here are some of the companies you should consider: http://www.biggerpockets.com/online-rent-payment.html
Any of these three options work well, but collecting your rent through an online service is the easiest and most hassle free so you can spend more time running your business.