For any property manager or landlord, it is obvious that one of the most important things in the job is to collect rent.
Collecting rent is the backbone of any rental property management business. This is very commonly known information.
Rent is arguably what keeps property managers afloat as the rent is the only thing that makes an investment property profitable.
However, before collecting rent, not a lot of people think about the various methods that exist. This may cause some property managers to be missing out on some more effective rent collection methods.
If you are yet to decide your rent collection method, or want to change things up, you have come to the right place.
In this guide, we will be going over some of the best, and the worst, rent collection methods that exist. At the end, we have also included some property management software to completely streamline rent collection.
So, to begin, let's go over the process of choosing a rent collection method.
Choosing a Rent Collection Method
As mentioned before, collecting rent is essential in any property management business. If the tenants don't pay rent, the responsibility falls to the property manager or the landlord. This is a problem because this means that the property will no longer be profitable. It will be quite the opposite, actually.
Since collecting rent is so important, it is even more important to have an effective form of collecting the rent payments. This may not seem like a pressing issue, but there are actually a lot of complications that can possibly occur.
In order to get the full amount for the rent, and on time, it is vital that the rent collection method you choose is sufficient. This means that the method should protect against situations like missing money, late payments, or missing payments. Some collection methods easily achieve this while some carry a higher risk.
However, there are many other factors that one must consider before choosing one of these methods. In the section below, we will be going over some of the factors that heavily affect the way that a landlord collects the rent.
Considerations for Collecting Rent
Below, we have listed some of the things that landlords and property managers must consider before making their decision about which rent collection method to go with.
One of the most important factors to consider when making this decision is the location of the rental properties that are paying rent. If the properties are very close by then it might not be too much of a hassle to stop by and collect the rent personally. However, if the properties are very far apart from each other, you may want to collect rent online.
Number of Properties
Another factor that is important to consider is the number of properties that you will be collecting rent from. This is important because, if you only have one or two properties, you can stop by each one and collect the rent personally. However, when you have more properties, this obviously becomes a problem.
Desire to Interact
Even if you have a small number of properties that are close by, you still may not want to personally collect rent. This is important to acknowledge because some landlords simply do not have an interest in forming a personal connection with the tenant. If this is the case, a more technical solution may be the best.
The next factor that should be considered when choosing how to collect rent payments is how tech-savvy you are. If you are not very tech-savvy, it may not be the wisest choice to choose a solution that requires the use of technology. However, if you are more knowledgeable in tech, you may want a more technology-oriented solution.
Now that you know more about all the different factors to consider, we can move on. In the next section, we will be going over some of the most common methods to collect your tenant's rent payments.
Rent Collection Methods
Below, we have outlined the best rent collection methods that you can use to collect rent from your tenants quickly and effectively. All of these methods have their drawbacks, however, which will also be discussed.
Online Rent Payments
Out of all the methods in this list, collecting your tenants' rent payment through an online system is the easiest. Using this method, there is little to no interaction between the tenant and the landlord. This means that your tenant can send their rental payments straight from their house and you can receive them from yours.
Also, if you are renting out to younger generations, this is the method that they will be expecting to use. This way to collect rent also allows the landlord to set up reminders so that the tenant will never miss a payment.
This method is also very convenient for the tenant as it usually allows them to set up recurring payments. These online payments allow the tenant and the landlord to completely automate the rent payment process.
The second method of collecting rent is to collect it in person. This method has its benefits but it also has many drawbacks.
One of the main benefits is that you get a chance to visit the property every month. This means that, during your visit, you can perform a short inspection and do routine maintenance. This also gives the tenant a chance to talk to you about any issues they may be experiencing. They are also much less likely to make late rent payments if they know that you are going to be showing up in person.
However, there are some drawbacks. One of the main drawbacks applies if you have a large number of properties. Having a large number of properties means that you have to do a lot of travel to collect the rent. This could get very cumbersome. There could also be problems if the tenant is not home and you show up.
Another thing to note is that you should always go to the tenant to collect rent, not the other way around. There is a general rule of thumb that the landlord should never reveal their home address to the tenants. This is because there are some situations in property management that can lead to unpleasant altercations. In these cases, you don't want the tenant to have your address and show up at your door.
Setting Up a Dropbox
This method only applies if you have multi-unit properties housing multiple tenants. This method consists of setting up a deposit box, or a dropbox, where each tenant deposits their rent every month. This method allows for cash payments or checks since it has to be physically deposited.
This is one of the only ways to collect rent where you risk losing all of the rent money in one instant. to protect from this happening, it is important to set up some security around the deposit box to make sure that the tenants do not steal from the box.
Another way to collect rent payments is by collecting rent online via ACH payments. ACH uses online payment services to easily send money from one bank to another. This method requires a one-time setup with the tenant and they must authorize bank information.
This method is also very convenient because of how secure and easy it is. Since they go straight from one bank account to the other, there is no human interaction whatsoever. The only drawback is that the payment typically takes around 3 days to arrive after being sent.
Online Payment Apps
The next way to collect your tenant's rent is to utilize an online payment app. Online payment apps include Zelle, Venmo, and PayPal. The most popular one of these is PayPal since most people already have a PayPal account. All it takes is simply getting the account information from your tenant and everything is set.
However, there are also some drawbacks to consider. One drawback is that there are fees associated with these services. For example, if you open a PayPal business account, you will be charged a 2.9% + $30 fee for every transaction. Another drawback is that there are not necessarily the most buyer and seller protections with these services. This is because they were designed to be used to send money in between friends and family.
Property Management Software
The last method that we will be discussing is to use property management software. Using property management software not only allows you to quickly and easily collect rent from the tenants but also allows you to streamline various other aspects of your business.
By paying for property management software, you can facilitate electronic payment via bank transfer, credit card, debit card, or ACH. The software will also grant the tenant their own tenant portal, equipped with automatic payments, payment reminders, and much more.
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Some of DoorLoop's best features include:
- Maintenance Management System: DoorLoop's maintenance request management allows you to create and track maintenance requests.
- Tenant Portal: DoorLoop's full tenant portal allows for quick and seamless communication between the tenant and the property manager. The tenants can also pay rent and other fees from this same place.
- Full Accounting Suite: Manage all of your property accounting from one place, even with QuickBooks integration.
- Stellar Customer Support: Around-the-clock customer service available to assist with any issues or concerns with the software.
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