5 Practical Solutions For Landlords With Rent Payment Drama

Collecting rent is the lifeblood of any rental business. Without rents coming in, your mortgage payments, property taxes, insurance, and any other debts and expenses will not be met. Simply put, you need the rents coming in to turn your assets into cash flowing properties, right?

That said, over the years, I have heard a lot of rants regarding collecting rents from other landlords.

“My tenant said he sent in a check, but I never received it.”

“My tenant’s check just bounced for the third time…”

“My tenant said she gave the money to the property manager, but my property manager said he never received it.”

Sounds familiar?

Sure, you can collect the rent yourself, but is it feasible all the time? What if you are already too busy with your day job or building your own business (or both)? What if you are out of town?

Don’t worry. Here are five solutions that can help you take care of rent collection.

5 Practical Solutions For Landlords With Rent Payment Drama

Solution 1: Online Payment

Online payment is one of the options that you can consider. There are several excellent online payment systems that are specifically designed for rental payment: eRentPayment, Pay Your Rent, or others (check out the BiggerPockets directory of online rent payment tools).

There is an associated cost with the service. Each online payment system has different monthly fees when you opt to use the service.

The beauty of online payment systems is that they give you a clear paper trail and bookkeeping automation. This leaves little room for discrepancies and eliminates inconclusive arguments between the landlord, tenants, and property managers.

Financial transactions can be clearly recorded with the bookkeeping automation that is built in within the online payment systems. Export functions can link up directly to your designated bookkeeping system (such as Quickbooks). This saves us the work of manually encoding invoices and organizing rental receipts.

Despite all these attractive features, landlords need to be cognizant of two populations that may have trouble paying online: the elderly and low-income tenants.

For the elderly, online payment might cause more inconvenience, as they are not as familiar with the new technology.

For the low-income earners, they might not have enough money in their bank account to set up the online payment system. Most of the low-income earners get paid in cash and often do not make deposit in a bank.

Solution 2: Delegate Rent Collection to Your Property Manager

Paying rent on time is non-negotiable, and your tenant must clearly understand this principle. Collecting rent may sound easy, but in reality, rent collection can be a difficult task, especially if your tenant is troublesome.

To avoid all sorts of stress, you can hire someone to collect rent for you. The person will act as your “billing department” who also serves as a buffer between you and your tenants.

For more information on hiring a property manager, please refer to the article “The 3 Non-Negotiable Roles CRUCIAL to Your Property Management Team.”

To avoid the same drama as to where the money goes, instruct your property manager to deposit the money right away once it is collected. In certain states, there are laws requiring property managers to deposit into your account within a certain period of time, say, one week. After that, you can chase after your property manager and maybe file for an embezzlement case. But I hope you won’t get into that situation.

Aside from depositing the collected rent ASAP, request the property manager to issue a receipt to the tenants AND give you a copy also. The key is to obtain the proof to minimize complications.

Solution 3: Direct Deposit

Direct Deposit via Automated Clearing House (ACH) is another option in collecting rent. This would definitely spare you from the drama. This is achieved through a bank or a utility company. How does this work? Direct Deposit via the ACH Network means automatically transferring money directly into the landlord’s bank account on a set interval, thereby freeing you from the trouble of cashing a paper check.

This solution might be feasible for tenants who dislike electronic payments. This is also good for tenants who are forgetful (personal experience: I forgot to pay rent last month).

Solution 4: Request Tenants to Mail in Payment

The next (but not so ideal) solution is to ask your tenant to mail in the rental payments. I am not particularly a fan of this solution, mainly because it is a good excuse for the “I mailed out the rent but guess it hasn’t come yet” drama.

However, if this is the only solution that works for you, keep these points in mind:

Ask tenants to order a tracking number for you to track the mail.
Demand money orders for less credit-worthy tenants.

You can also offer to reimburse your tenants for the tracking number, as well as money order fees. That could be a fair solution for you and your tenants.

Solution 5: Request Tenants to Deposit Money to Your Account

Request your tenants deposit the monthly rent into your account. All you need to do is to provide your account number.

This is my favorite solution amongst the aforementioned. This is convenient (no physical work involved), safe (minimal possibility of embezzlement), and transparent (no drama/mailing accidents).

Another benefit of this option is that there’s no dispute regarding the trail of payment. For me, my rule is simple: If I don’t see the money in my bank account, it doesn’t count. Banks also provide receipts for any deposits, which is equivalent to record keeping on both sides. Think of it as leveraging the bank’s well-established system to keep track of money.

Here are some useful tips if you decide to make use of solution #5.

Use sub-accounts. Allot a different account number for each tenant to facilitate rent tracking. These sub-accounts can be rolled up to a main account for easy accounting purposes (one checkbook, one balance for verification).
Pick a bank that is convenient for your tenants. For example, I use Citibank for general personal banking but not for rent collection. Citibank has no branches in Jersey City, where my properties are located.
Accept only money orders or cash as deposit.
- Sometimes tenants will purposely submit a personal check even though there are insufficient funds (to deceive landlords into thinking that they deposit the money in order to buy more time before eviction). You can actually write a clause into your lease agreement stating that you only accept cash or money orders.
- Or you can soften the language and say that you accept checks but will no longer accept personal checks.
- If the tenants complain about costs, educate the tenants that it is cheaper to obtain a money order from USPS (Post Service) instead of a bank ($1 vs. $10 per money order).

Having suggested these 5 solutions, the decision is yours to make. You may evaluate each one again and select the solution that works for you.

If you were to ask me, I would choose solution #5. This is the rental collection procedure that I have used for most of my tenants. This is what I find most efficient and effective in my neighborhood. Again, your decision will depend on your situation, your neighborhood, and your tenant demographics. It is only you who can tell which of these 5 solutions would work. Feel free to experiment with a couple and tailor them to your needs.

Bottom line, whichever method you choose, as long as you are able to collect rent, it is a good method. Remember, results trump style any day.

Do you have questions, comments or feedback? Which of these systems do you use for rent payment?

Be sure to weigh in with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.