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The best way to collect rent as a landlord is allowing tenants to use direct deposit or bill pay services using their preferred mobile bank app especially for younger tenants who are heavily dependent on their phones. However, for older tenants, the preferred and most trusted method is paying with a physical check.

Did you know property management software caters to both younger and older tenants by allowing diverse options for: direct deposit, eCheck and even a credit or debit card? You don't even have to give tenants your bank account details. Tenants pay through a Tenant Portal which keeps everyone's information protected and secured.

Now when it comes to collecting rent, systems should be in place that handle various things such as:

After all, rent is a contractual agreement that is legally binding. Therefore, it's important that all parties involved clearly understand the rental agreement.

Popular Ways to Collect Rent

We'll discuss common ways on how to collect rent from tenants while also including a range of options to illustrate the differences between each, along with their pros and cons. This should help you make the most informed decision.

Here's common ways to collect rent:

  • Property management software
  • Direct deposit
  • Peer-to-Peer payment apps (Venmo, PayPal, etc.)
  • Property manager
  • Physical checks via mail
  • In-person collection

1. Property management software

Pros: Comprehensive tools for managing and automating leases, payments, and maintenance. Also, customize your chart of accounts, track cash flow and real-time reporting.

Cons: Premium option.

Property management software allows tenants to pay rent online via credit card, debit card, or direct bank transfer. With property management software, you have the convenience of receiving online rent payments. This makes it easy to see all your rent payments and to keep track of your accounting. You can also set up automatic payment reminders and late payment notices.

Rent Payments RapidRent

Tenants also have access to an online portal–even from their smartphone–to view their balance, payment history, and more.

2. Direct deposit

Pros: Money goes directly into your preferred account, minimal transaction fees.

Cons: Requires sharing banking account details, potential issues with transaction limits.

Have tenants set this up so that their rent payments are automatically transferred from their bank account to yours on a set day each month.

This is a simple but effective digital method that does not require you to physically visit the property. This method eliminates the hassle associated with in-person rent collection.

However, it is important to note this method may vary between banks, which could complicate the tracking and reporting of rent payments. Also, you may have to share your banking details with tenants.

3. Peer-to-Peer payment apps

Pros: Fast. No contact with banks and no in-person collection.

Cons: Hard to dispute, more prone to scams, and little documentation.

Money transfer platforms like PayPal, Zelle, Venmo are considerable options, particularly if tenants are looking for the ability to set up automated payments.

Venmo

The platforms function similarly, with the ability for tenants to set up either one-time or monthly payments that are paid from their own accounts. But they have limits (and even added fees) on how much money they can send at one time and may not be the best choice for online rent collection.

According to Zelle "if your bank or credit union does not yet offer Zelle, your weekly send limit is $500 and your weekly receive limit is $5,000 in the Zelle app"

Another potential drawback is that your tenant needs to have a PayPal account, or a Venmo account. Additionally, PayPal and Venmo don’t offer protection of any kind like a typical bank. If there’s an issue or dispute of any kind with the online payments, these platforms aren’t much help. Which means tenants can dispute their rent payment (even months later) which could cause you complications.

Further, if you are trying to evict a tenant, who hasn't paid rent in months, even a small payment can slow down the eviction process. You want an option to collect online rent payments that allows you to refuse payments from tenants you decided to evict.

4. Property manager

Pros: You don't have to do any of the work which saves you a lot of time.

Cons: Can be expensive and unattainable for a small portfolio of rental properties. Potential conflicts of interests. Reliability.

Hiring a property manager to manage a rental property is a great option to consider because it’s one of only a few that allows you to streamline this process. By streamline, we mean the ability to pass off rent collection duties to an experienced professional who manages properties for a living.

Plus, you have flexibility in how you choose to use a property manager.

You could find one to handle all or most of your property management needs. Or, you could hire one that only handles rent collection, while you retain control over your marketing and leasing.

A few disadvantages is that you may give up some control of how your properties are being managed. Sometimes finding a reliable property manager who cares as much as you do for your properties isn't always easy to find either.

5. Physical checks via mail

Pros: Preferred by older tenants. Familiar. Paper trail.

Cons: Slow. Mail delivery issues. Rent may not always arrive on time. Cannot set up recurring payments.

Collecting rent via physical checks is a traditional method that still holds favor among many older tenants due to its familiarity and the tangible record it provides. However, it comes with drawbacks such as potential delays and the absence of automatic payment options, which makes it less appealing compared to more modern, digital methods.

If you use this option, consider strategies to mitigate mail-related risks, such as providing multiple payment options or transitioning tenants towards electronic payments over time.

6. In-person collection

Pros: More interactions with tenants and timely rent payments.

Cons: Very time consuming. Inconvenient.

If you have a small or affordable housing portfolio, this may be the method you currently use. The main benefit is in the ability to check on the condition of the property while you’re collecting rent.

Also, this is helpful for tenants who do not have the means to pay digitally or don't have a primary bank or credit union. Unfortunately, collecting rent in-person is both time-consuming and inconvenient.

However, if you’re having issues collecting rent from a particular tenant or, as we mentioned previously, if your portfolio type requires you to accept rent in cash, collecting rent in person may make sense.

What Is the Safest Method to Collect Rent?

The safest method to collect rent is a method that confirms funds are available in the tenant's bank account before payment is sent and received.

Collect Rent Electronically

One of the safest and efficient methods to collect rent online is through property management software. You can accept rent payments online with ease, which is especially useful in today’s digital-first age. The software automates the process, so payments are received on time and are trackable within your portal. Plus, funds are verified before they are sent to you.

Factors That Affect Collecting Rent Payments

While many properties have unique demands and every landlord being different, there are certain universal factors that affect rent collection.

1. Number of tenants + properties

If you have a single property with just a few tenants, many options are available for rent payment collection. However, if you have multiple properties, in various locations, with multiple tenants, collecting rent payments becomes a bit more involved.

2. Lease agreement

Clearly written leases with well-defined payment terms, penalties for late payments, and conditions for lease termination are essential for reducing rent collection issues.

3. Tenant employment stability

Tenants with stable, secure jobs are more likely to make regular rent payments. Industries that are volatile or subject to frequent layoffs might pose a higher risk of rent payment issues.

4. Tenant screening

Effective tenant screening, including credit checks, employment verification, and reference checks, can help in selecting tenants who are likely to pay rent on time.

5. Legal Regulations

Landlord-tenant laws, which vary by location, can impact how and when landlords can collect rents, charge fees, or evict non-paying tenants. Understanding these laws is crucial to managing rent collection.

Ultimately, choosing the right rent collection method depends on balancing convenience, security, and legal compliance. Offering multiple payment options by leveraging property management software accommodates the diverse needs of your tenants.

Discover how DoorLoop helps to collect rent payments swiftly and securely. Schedule a call today!

Frequently Asked Questions

What should I do if a tenant consistently pays rent late?

Communicate clearly about the importance of timely payments as outlined in the lease agreement. Consider enforcing late payment fees as specified in the lease, and discuss setting up auto-pay to avoid future issues.

Can I change a tenant’s payment method during the lease term?

Any changes to the payment method should be agreed upon by both parties and reflected in an amendment to the lease. Both parties must sign this amendment for it to be enforceable.

How do I handle rent collection if I own properties in different states?

It's important to familiarize yourself with the landlord-tenant laws in each state where your properties are located. Using property management software can help streamline rent collection across different regions and ensure compliance with varying state laws.

Is it safe to accept rent payments via peer-to-peer payment apps?

While peer-to-peer payment apps offer convenience, they can have limitations like transfer limits and less protection against disputes. Ensure that you understand the risks and benefits, and consider offering these as an option alongside more secure methods like direct bank transfers.

Does rent collection count as income?

Yes, rent collection counts as income for property owners and must be reported for tax purposes. However, related expenses can often be deducted to determine taxable income.

What are the main advantages of using property management software for rent collection?

Property management software provides automation, security, and convenience. It enables landlords to receive payments electronically, manage accounting, and communicate with tenants through a single platform.

Frequently Asked Quesitons

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!

Legal Disclaimer

The information on this website is from public sources, for informational purposes only and not intended for legal or accounting advice. DoorLoop does not guarantee its accuracy and is not liable for any damages or inaccuracies.

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