3 Rent-Paying Methods That Beat Mailed Checks Any Day

by | BiggerPockets.com

During the lease signing, when you get to the part that says how much the monthly rent is, this is a good time to collect the money for the first month’s rent. You should have already received the tenant’s security deposit (in the form of the “deposit to hold” when they were approved), so typically, this is when you would collect the first month’s rent.

If a tenant moves in in the middle of the month, I don’t prorate the amount they pay for that first month. Instead, I prorate the second month to match the first. In other words, every tenant pays a full month’s rent when they move in, but when the time comes to pay the rent on the first of the following month, they will pay only for the amount of days they lived in the home the previous month. For example, if the rent is $1,200 per month, and they move in on January 10, they will pay a full $1,200 for rent when they move in but only $800 on February 1.

One final note on the rent, only accept rent in certified funds, such as a money order or a cashier’s check. Don’t take cash, and don’t accept personal checks, especially for the first month’s rent. You do not want to move a tenant in and find out weeks later that the check was bad, forcing you to evict. This is a wise policy to have all around in your relationship with your tenants: certified funds only.

in-between-deals

3 Ways for Tenants to Pay Rent

As for rent payments in the future, I recommend not picking up the rent in person, because this will only train the tenant to expect you each month. For my rentals, I used to mail monthly statements to the tenant, and they mailed their certified funds to my post-office box. However, over time, I grew tired of the “my check is lost in the mail” story, so I switched to giving tenants three different options:

  1. PayNearMe.com or PayLease.com: These similar services allow tenants without bank accounts to pay at local businesses like Wal-Mart or 7-11. Currently, the tenant must pay a small fee ($4) for this service, but it is generally free (or low cost) to the landlord.
  2. Dwolla: Similar to PayPal, tenants can use Dwolla to pay rent directly from their checking account for free. This was a little bit cumbersome to get set up, but once I got it going the process works pretty great. The only trouble I’ve had is that some banks don’t work with Dwolla (usually small community banks) so prepared for such an instance.
  3. Intuit Payment Network: Intuit, the company behind TurboTax and QuickBooks, offers a payment solution that is extremely easy to use and that allows tenants to pay their rent directly from their checking account. Currently, payments are just $.50 each and we use this when the tenant’s bank doesn’t work with Dwolla.

Many landlords have different techniques for collecting rent, so be sure to check out the BiggerPockets Forums for more suggestions and ideas from other experienced property owners. Ultimately, you may change or adapt your style as you learn more and grow, or as technology advances.

How do you have your tenants pay rent?

Let me know about your system with a comment!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

24 Comments

  1. Dawn Vought

    Good tips Brandon! We got tired of the “check is lost in the mail” excuse a long time ago as well. I require electronic payments of my tenants now. We use Chase Bank, so we generally use the Chase QuickPay system which can connect with most banks. We also allow tenants to use their own banks system if that is easier for them, such as Bank of America bill pay or Pop Money for the “credit union” type banks. I believe most of the major banks now have some sort of electronic payment system available, all of which is totally free to both the buyer and sender. We also get basically instantaneous emails when a payment has been sent, which we go by to determine if the payment was sent on time or not. Makes it very cut and dry!

  2. karen rittenhouse

    Hi Brandon:
    We use pay services as you describe, mostly through banks. For tenants who don’t have bank accounts, its certified funds in the mail.

    Never cash, as you mentioned. I don’t want anyone thinking we have cash in the office (we don’t). Checks are fine – not at contract signing for the reason you mentioned – but we do accept checks after they’ve moved in. Bounce one check, however, and we’ll only accept certified funds after that.

    We also charge $5 for anyone who brings payment to the office as that totally disrupts office flow. Automatic payments are, without a doubt, the best way to go and offering a discount for those if needed is worth it for the hassle that they save.

    Thanks for your tips!

    • Joseph M.

      Agreed. I use Cozy and its awesome, all these other options are cumbersome by comparison. I will be doing all my future rentals either through property managers or via Cozy only. If they can’t pay automatically via ACH then they dont get to be my tenant.

    • Keith Leckey

      We have used cozy as well. It’s great low/no cost option. We have also used erentpayment which allows the tenant to have their rent payments reported to TransUnion to help boost their credit score. There is a $3 fee for this service which you can pay as the landlord, split with tenant or have the tenant pay all of it. Earlier this year we started switching our tenants over to Rentecdirect which is an online property management software. They can pay their rent thru their tenant portal (no cost) and it’s nice for maintenance requests, easy access to copies of all the lease paperwork, producing a variety of reports, etc.

    • Clint S.

      I use Cozy as well. It’s incredibly simple to use and FREE for the tenant and landlord. My only complaint with Cozy is that it takes 7 or 8 days for funds to hit my account after the tenant makes the payment. Oddly, you can pay a premium (I think $7/mo.) to get your payments in 2 days instead of 7 or 8. I think Cozy probably invests the funds in the interim to make some money off of their free service but obviously can’t verify that. But it would explain why they don’t just go ahead and get the money into your account by day 2.

  3. Jason Henning

    We use Venmo and it works great. It’s free for both tenant and landlord and hits our checking account next day, if… You do have to manually transfer funds to your account but as soon as I get a notification that we’ve received funds, I go into the app and immediately transfer it to our bank account. there is no option for automatic transfer so if you had a lot of tenants this could get tedious. but for a handful, it’s super convenient and fast.

  4. Cindy Larsen

    I used to use DWOLLA until they changed their business model,for $0.25/transaction, to a fee nearly as expensive as paypal. So I changed to google wallet, wallet.google.com which has an app that works on phones, ipad, etc. google wallet is totally free. It does an ACH transaction (just like paypal, dwolla, etc)!from your tenant’s bank account to your bank account. You get an email when the money is sent bynthe tenant, and another one when it is deposited in your account. NO one has anyone else’s bank account info. It works great, but transactions clear faster if everyone uses their debit card instead of a bank account number. I also use it to pay house cleaners, maintenance guys, etc who do not take credit cards.

  5. John Adams

    I use Buildium to manage my rentals. Great web-based software, and while some might squawk about the price, it is a pittance compared to the many hassles and hours saved (I have 11 units, so automating and streamlining procedures is a big help; I’d use Buildium if I had fewer units, and would certainly use it if I had more!).

    Anyway, Buildium has a “tenant portal” where tenants can do things like submit maintenance requests — and notably, make online payments. The fee (which I absorb for my tenants) is a paltry $.50 (yes, 50 cents) for ACH payments. Of course, the tenants need to have a checking account, etc. so this might not work for some types of tenants. But works for me. Money goes straight into my checking account, and the accounting records in Buildium are automatically updated. Eliminate slots of steps. My lease now stipulates that if the tenant doesn’t pay via the “tenant portal”, then there is a $25 handling fee.

  6. John Teachout

    We require first month’s rent and the security deposit to be paid in cash. (green stuff) It’s the only method of payment we’ll accept for this first transaction. Almost impossible to commit fraud with it. After that, any method of payment is fine but we prefer and most tenants utilize direct deposits into our local bank account.

  7. Matt M.

    +1 for Venmo here. Super easy and free. Most people have a smartphone connected to an AppStore so it isn’t difficult to get set up for tenants even if they don’t use it currently. We have even had tenants who have thanked us because they now use Venmo for other things in their life too. Right now we have 6 accounts connected to it including business accounts.

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