It’s the first of the month and rent is due. How do you get it? There are many options and it’s hard to go wrong. So try a couple different ones that make the most sense to you and see how it goes because you can always change it later.
I broke this into 3 different groups. Face-to-Face is the hardest, but helps set the stage for the other two. Semi-automated is where a lot of landlords start out. It does require some effort, but if you don’t have many rentals, it’s definitely OK. The third group is all about online services which can be fully automated. Definitely experiment with this group with a friend/spouse to make sure you understand how it works. Here they are:
Face-to-Face
- Knock on their door and ask for it
- The good:
- You get to see the outside of the property regularly.
- It’s harder for them not to pay and come up with excuses when you’re standing right there.
- If they don’t have the rent, you can appeal to them easier in person instead of escalating right to an eviction notice.
- The bad:
- You need to time it for when they’re home. If you live on the same property (like in a duplex), it’s not too bad, but it’s still a pain.
- You could potentially come across as harassing, which isn’t good.
- This takes a lot of time and isn’t scalable once you start to get more rentals.
- Bottom line: If you live right next door, this is probably OK, but I would recommend trying something else unless one of the other options didn’t work. Then get face-to-face with them as soon as possible.
- The good:
- Have them come to your house and give it to you.
- The good:
- You’re not the one driving around to track them down.
- The bad:
- They know where you live which increases the likely hood of unwanted guests at unwanted times.
- It also opens you up to excuses: “I wanted to pay my rent, but you were not home for me to give it to you.”
- Sometimes they’ll leave a check under you mat which isn’t very secure.
- Bottom line: If you’re onsite and they already know where you live, this isn’t so bad. I would look into also having a dropbox for them to put their rent money in.
- The good:
Semi-Automated
- Have them mail you a check. Optional: provide a self-addressed stamp envelope. Also optional: use a PO Box.
- The good:
- If you provide an envelop, you get to check out your property each month when you drop it off. I usually just stuck it in the door if they were not home.
- The bad:
- If you provide an envelop, you need to run it over to them each month which takes time.
- You pay for a stamp & an envelop & a PO box, and/or they know where you live because of the address on the envelop.
- They get an extra grace period of 3 days for the mail to be delivered. Though, this probably isn’t too bad because you’re rental agreement grace period is most likely slightly longer.
- Bottom line: I do this with two of my rentals because I like having an excuse to go by the rental.
- The good:
- Provide a checking account they can deposit money into. The idea is to open a checking account with your bank and provide the account number to the tenant. Then they can deposit the money directly to the account without being able to see the balance. Once you receive the money, transfer it into your account. If you feel really nervous about it, use a different bank than for your personal banking.
- The good:
- You just need to check your account summary to see if they paid.
- They won’t be coming by your house all the time.
- The bad:
- You could potentially get hit with a fee for not having a high enough balance or number of transactions per month. Read your bank’s requirements very carefully!
- They could pay a partial payment or make a payment while being evicted. You can return the money, but you’re starting to get into a gray area of “did you accept the rent or not?”
- If you have more than one tenant you won’t know who paid when.
- Bottom line: I know many landlords who use this very effectively. It can be a small issue with bank hours around holidays, but communicating openly with tenants should overcome this.
- The good:
- Put a locked dropbox where they pay rent or at the rental.
- The good:
- You don’t need to coordinate with them
- The bad:
- You need to check it regularly for payments.
- Bottom line: This might be weird attached to a house. Unless it’s a place with lots of units, it makes more sense to pick another option.
- The good:
Online Services
This isn’t a comprehensive list, but covers the broad options.
- Paypal (paypal.com)
- The good:
- Everyone recognizes and trusts the service.
- You can get notifications when a payment comes in, which also acts as a receipt for everyone.
- The bad:
- There is a fairly hefty fee ~ 2.5% for each transaction, which is $25 per every $1,000.
- Bottom line: Given the high cost per transaction, I have trouble recommending this service.
- The good:
- Dwolla (dwolla.com)
- The good:
- You can get notifications when a payment comes in, which also acts as a receipt for everyone.
- Tenants can set up monthly automatic payments.
- You can request money, and set that up to occur monthly.
- You get a webpage you can direct tenants to for making a payment.
- The bad:
- There is a $0.25 fee per transaction, but that’s still cheaper than mailing an envelop.
- From the day they send you the money to when it’s in your account takes 7 days. On the plus side, it takes that long because it’s making sure they actually have the money in their account.
- Setting up an account takes 3 days because you have to verify ownership of your account by depositing some money in it.
- Bottom line: This is what I use and prefer my tenants use. The amount of time it takes to transfer the money is annoying, but I love getting notifications, and a record, when someone pays.
- The good:
- Square Cash (square.com/cash)
- The good:
- Setting up an account is really easy.
- Transfers complete in 2-3 days.
- Transfers are free!
- The bad:
- Both parties need debit cards… That may not be a problem for you, but you’d be surprised by the number of tenants that don’t use debit cards.
- The receipt could be a little more clear and easy to access. Just don’t trash the emails.
- There is no automatic monthly payment option. Plus, you need to accept the payment each time.
- Bottom line: I have no idea how Square makes money with this service or how they can transfer the money so quickly. I use it all the time for personal transfers, but have yet to adopt it for receiving rent. Dwolla seems to cater better to landlords whereas Square isn’t quite polished enough. Still, if $0.25 bothers you or the long transfer time is an issue, Square Cash is a great choice.
- The good:
- Landlord specific rent collection services. There are many proprietary services for receiving rent that are designed for landlords. Many times they’re also connected to accounting software for landlords as well.
- The good:
- If you like their accounting software, this is perfect compliment.
- The bad:
- The expense can be a little high, around $5/month, compared to other options.
- Usually, these software packages are designed for someone with 10+ units.
- Bottom line: As you grow, this will become a great option. I recommend asking them to demo their service before signing up to use it.
- The good:
- Other money transfer services
- Snapcash, or any really new service: I would avoid new services because you don’t know if it’s going to stay around. Thinking of Snapcash specifically, there’s no record of the transfer which is a requirement for any landlord to use..
- Bitcoin: stick with receiving rent in your country’s regular currency. Also, don’t trade rent for services, unless their is a record of the transaction.
For all of these, try them out to see how the experiences match up. Are they easy to set up? How do you know if a transaction happened? How much work is it to pay each month? What is the cost? You’ll quickly get a feel for how you like receiving your rent. Once you find the one you like, inform your current tenants and start using it.