What’s the best way to collect rent from your tenants? The answer to this question varies widely, depending on who you ask.
Some landlords prefer to be hands-on and like face-to-face collection. Others are hands-off and would rather use a third-party management firm or allow online options.
But one thing is clear: No matter what method of rent collection you use, you need to have a rent collection policy. Leaving it up in the air allows too much wiggle room with tenants.
Define a clear policy and let your tenants know how they need to pay the rent. Here are six options you can use to collect rent. We recommend using rent collection methods that are simple and easy for yourself and your renters.
1. Property Management
Before you rent your home, you have a lot of considerations to make. Make things easier on yourself by outsourcing tasks to professionals whenever possible.
Along those lines, using a property manager is the simplest way to solve the rental payment issue. That’s because when you hire a property management firm, they handle the rent collection for you and remove the stress and hassle associated with it.
A good property manager can also help you vet prospective renters, handle maintenance requests and tenant complaints. All you have to do is agree upon a fee, which is usually a percentage of the rent amount, and sign a contract.
2. Online Payment Options
Another convenient option for collecting rent is allowing your tenants to pay online. Note, however, that if your primary rent collection method is done online, you’ll need to allow another form of payment for those who do not have online access. For example, you may choose to accept online payments as well as mail and in-person payments.
You’ll find plenty of online rent collection services, such as RentMatic and RentMerchant, to help you facilitate your monthly rent payments. The prices for these platforms will vary depending on the site and the plan you select. Some plans simply focus on rent collection, while others offer more services, such as document uploading and tenant messaging.
PayPal and Venmo provide an easy way to pay rent from anywhere using your smartphone. Tenants can pay you instantly through Venmo so long as you are friends on social media. PayPal is another free service, but they charge 1% for instant payment.
We recommend Venmo over PayPal payments because they are simpler and less expensive. PayPal payments can take several days to process and tenants must follow the directions exactly to prevent further delays.
Another online option gaining momentum is Zelle. This platform allows your tenants to log into their bank account and send money directly to you. All they need to know is your email address or phone number.
Accepting rental payments by mail is another option that is convenient for both renters and landlords. A tenant can easily drop a check in the mail. And you don’t have to take the time to collect the payment on your own.
One downside, however, is that it may take several days before you receive the payment. In fact, the payment would not be considered late, even though you did not physically receive the payment on time.
What’s more, mail payments give tenants the timeless excuse that the check got lost in the mail. Cover yourself by requiring tenants to get a certificate of mailing from the post office which costs roughly a dollar. This small step can provide proof that the tenant mailed the rent when they said they did.
Many landlords prefer to collect rents in person as it gives them a chance to inspect the condition of the property. Most tenants will invite you inside for the transaction and you informally see the condition of the unit.
Collecting rent payments in person may be ideal if your tenant wants to pay in cash. You’ll have the chance to count the money and issue a receipt on the spot.
In-person rent collection is a fast way of getting the rent immediately. The drawback is that it can take time to coordinate a time for collection, especially if you have multiple tenants to schedule.
5. Office Drop or Drop Off Box
Do you have an office for your property investment business? If so, you might allow your tenants to leave the rent in a drop-off slot at your office. You can also install a drop-off box on the property to make things easier for your tenants.
No matter where the drop-off box is located, we do not recommend allowing cash payment. The cash can be stolen or the tenant may claim they left more in the box than you found. Instead, require tenants to place a check, money order or cashier’s check in the drop-box on or before the rental due date.
7. Direct Deposit / Auto Withdrawal
Many savvy renters like to pay their bills via automatic payments. Meet their needs by having your bank set up automatic online transfers from your tenant’s bank account or paycheck straight to your checking account.
Of course, you may need to pay your bank a monthly fee to be able to accept this form of payment. Although that fee may eat into your monthly cash flow, it may be worth it if it means getting your rent on time each month.
What Is the Best Way to Collect Rent?
Smart landlords know that the easier they make it for their tenants to make payments, the more likely they are to receive the rent on time. To that end, the best way to collect the rent may be a combination of several options.
For example, you might allow for automatic withdrawal, Venmo, and mail payments. Conversely, you might opt to outsource the rent collection process to a property manager.
Would you like help to manage your property? Check out our property management services to see how we can help you real estate investment business now.
Further Reading from Bergan & Company