This is a guest post from Landlord Gurus, an online destination for landlords and property managers that provides expert advice on the complex and important issues we face everyday running our rental business.
Traditionally, rent payments came in two forms: Cash or check. This meant that landlords either had to wait for rent to arrive in the mail or go to their properties and pick them up in person. Quite often, that meant late payments (“the check is in the mail”) or multiple trips to the property to knock on doors and make awkward requests for payment. Every month, landlords would have to try to predict when and whether rent would be received, and from whom. Of course, this had a major impact on whether they would be able to pay their mortgage, utilities, and other expenses on time as well.
This lack of predictability into their rental property finances made planning, budgeting, and forecasting incredibly difficult.
Fortunately, technology today allows us to receive payments online and automate our rent collection processes. Providing options for your tenants to pay rent online has many benefits, including: Collecting rent electronically saves time and energy spent tracking down tenants; cuts down on late or missed payments; and makes it easy to integrate income receipts directly into your bookkeeping and accounting tools.
Choosing the right online rent payment method for you takes careful consideration, as you’ll want a system that works well for your tenants and also properly protects yourself and your assets.
Three (3) reasons why landlords should collect rent online
Two of the most compelling reasons for busy landlords to collect rent online is the time and labor savings you can achieve.
#1: Time spent at your rental can be better used to inspect and maintain the property and improve relationships with your tenants rather than tracking down rent checks.
#2: Labor: Instead of logging each received payment into a ledger or spreadsheet and then going to the bank to make a deposit, you can focus on other aspects of your rental property business to increase efficiency and profitability.
Forget about billing for late fees, bounced checks, and constantly reminding tenants when rent is due: Automated rent collection software will do all those tasks for you! Furthermore, many of these apps allow tenants to set up automatic, recurring rent payments, so you know that rent will deposit directly into your bank account on time, in the correct amount (you can even include utility charge-backs and other fees), every single month. Online rent collection has become invaluable in helping to eliminate late and missed rent payments.
On top of the time and labor savings, online rent collection also allows landlords to be smarter with their financial management by:
#3: Automating their bookkeeping by integrating income receipts directly into their bookkeeping and accounting tools. Most rent payment systems show records of rent paid as well as rent that is late or outstanding. Other common features will include automatic late fees, payment status notifications and ongoing payment history. More robust rent collection tools can also sync to your bank accounts as well as provide income statements, cash flow, rent rolls, rental property metrics, and even tax worksheets and reports.
Experienced investors know that this kind of transparency into their portfolios helps make better decisions regarding their rental property assets.
Three (3) ways to collect rent online
Once you have decided to move to an online rent collection system, there are a variety of important factors to consider. Here are the common ways landlords are collecting rent as well as some of the advantages and pitfalls to keep in mind.
#1: Bank transfers
With a direct bank transfer, tenants can send rent payments through their online banking app to your bank account simply by using your bank’s routing number and your account number. However, this does present security concerns.
In the hands of the wrong people, your account and routing numbers may be all that is needed to perpetrate banking identity theft. While you may trust your tenant – you did run a tenant screening after all – you won’t know how securely they keep this information and away from others.
Additionally, landlords are not able to block partial payments. In the event you have started eviction proceedings against your tenant, they may be able to send a partial payment. In some jurisdictions, by accepting this payment, your eviction clock resets, delaying any action you may be able to take against them.
#2: Peer-to-Peer payment services
Peer-to-Peer (P2P) payment services like PayPal, CashApp, and Zelle are becoming ubiquitous in today’s contactless, no-touch world. While they make the transfer of money across parties quick and usually painless, there are definite risks when it comes to problem resolution, payment security, and privacy.
For instance, you may not get much assistance from any of these apps if payment is sent incorrectly, or if you never receive rent at all when your tenant claims they sent it. Additionally, a lost or misplaced phone without proper security measures can result in unwanted access to your financial accounts. And many of these free services may use your data for advertising or other unrelated purposes.
Each of these services has other unique limitations as well. Zelle has daily transfer limits, CashApp has weekly maximums, and PayPal charges for commercial transactions.
Finally, like with direct bank transfers, these P2P methods may not allow landlords to block partial payments in the event that an eviction process has been started.
#3: Property management software
Many independent landlords and their younger tech-savvy tenants often see the above P2P and direct deposit options as cheap, simple, and easy to use. However, none of them are designed specifically for rent payments. And after considering the limitations, rental property management software may be the better option for you. These apps will provide you with rent collection and other property management features that can help manage your rentals. Landlords can also block partial payments, add late fees, and link income and expenses straight into their accounting process.
Furthermore, you can gain access to other valuable features such as advertising and listing, tenant screening, lease signing, and more. These services are safe and secure, designed to protect both you and your tenants.
Our favorite online rent payment services and apps
At Landlord Gurus, we have reviewed several of the best online rent payment services for independent landlords. If you are looking to utilize a rent collection app or property management software to complement your existing accounting processes, the following are a good place to start:
This specific feature from Stessa (smart money management for real estate investors with rental properties) hasn’t yet been released, but—as it integrates seamlessly with the already-robust Stessa accounting system that automates your bookkeeping for you—when it’s live you’ll save hours each month keeping track of your rental finances. In the meantime, Stessa does monitor rent collection via your sync’d bank accounts; alerts you when a digital payment clears; then auto-categorizes it so you know your cash flow stats in real-time. Get up-to-the-minute updates about this new feature here.
PayRent helps property owners and managers collect rent online quickly, safely, and securely. In just a few clicks, you can add your properties, get your tenants enrolled, and start receiving rent payments. There are no subscription fees, and it is always free to sign up. Tenants simply pay a small transaction fee for ACH payments.
Avail is an online property management software program that offers features such as rent collection, advertising, tenant screening, and more. Tenants can pay rent directly through their platform by setting up their bank account information or credit card and scheduling one-time or recurring payments. Avail will also send reminders and automatically collect late fees. Subscribers to Avail’s premium level can receive rent payments as quickly as one business day.
Like Avail, Cozy is an online property management platform that caters to the independent or DIY landlord. Rent payments are free for both landlords and tenants, making it a compelling option if speed is not a concern.
There is a good chance you may already be using Zillow Rental Manager for your property listings. While you may be aware that they are now charging fees to list a rental on Zillow, you may not know that you can also screen tenants and collect rent on Zillow as well. Rent payments are free for landlords and tenants, and payments are deposited directly into landlord bank accounts 3-5 business days after payment.
Buildium is designed to support the larger DIY landlord and property managers. They offer end-to-end property management software, including automated online rent payments. Buildium offers multiple payment options for your tenants and provides the flexibility for landlords to offer a choice of recurring payment dates, making it easier for tenants to pay rent on time.
ClearNow is an easy-to-use and reliable service focusing on tenant screening and online rent collection. They have automated rent payment since 2000 and serve landlords and property managers of all sizes.Rent is automatically debited on pre-scheduled days from your tenant’s bank account and directly deposited to your bank account. ClearNow also offers tenant screening and electronic lease signing services.
Take the stress out of your monthly rent collection process by moving to an online rent payment system. We think you are sure to see time and labor savings as well as better integration and transparency with your bookkeeping and accounting systems. Your tenants will thank you and so will your accountant.
About Landlord Gurus
At Landlord Gurus, our commitment is to provide expert advice on the complex and important issues faced by landlords and property managers. Together we have over 30 years of experience in residential property ownership and management. In addition to sharing our own expertise and experiences, we call on specialists in fields including maintenance, law, tenant management, and more. Where we see topics that require more in-depth discussion, we create insightful articles that provide valuable information and guidance.