(This post is part of our “Landlord Basics” series, which seeks to help the new landlord / investor understand some of the basics of tenant relations and property management. Click here to view the entire Landlord Basics archive.)
One of the best parts of being a landlord or real estate investor is collecting the monthly rent check. Deciding what forms of payment you will accept can determine the amount of work you will have to do on the back end. Some payments are more beneficial than others, but ultimately most investors elect to use multiple methods to make the tenant’s life (as well as their own) easier.
Pre Printed Deposit Slips – Set up a deposit only account with your bank, and offer tenants pre printed deposit slips with the account number and all the information printed on them already. You can also print the tenants name and unit on the deposit slip. This method works incredibly well if your bank lets you see the scanned check or deposit slip online, because you can easily see who paid and how much. In addition, the tenant will receive a receipt from the teller at the bank.
Checks – Many tenants will want to mail you a check. The benefits of a check are numerous. The tenant will be able to see that the check has been cashed, so no receipt is necessary. Checks can be mailed to a PO Box or an office, so there is no need to meet the tenant every month. In addition, you can look at the post mark on an envelope to see if the tenant paid the rent late. One major problem with checks is the fact that if it bounces, you will incur a fee from your bank, which you will have to attempt to collect from the tenant. A tenant who is struggling to pay rent and is being hit by an additional fee by the investor is also being hit by non sufficient funds fees from their bank, and they can begin to spiral out of control.
Money Order – Money orders are very similar to checks. They can be obtained at many grocery stores, gas stations, banks, and even the post office. In addition they are time and date stamped at the time of purchase, as well as the envelope’s time stamp, so you will see when the tenant paid and if they paid late. Money orders are paid for up front by the tenant so they won’t bounce, however, the tenant may cancel the money order.
Credit or Debit Card – In today’s day and age it is becoming more and more common for people to not carry cash, and use a debit or credit card for their day to day transactions and in some cases monthly bills. The biggest pro to using credit/debit cards is the convenience to the tenant, and to the landlord. There are a few cons, however. The landlord will have to set up a merchant account to be able to accept the credit cards. If you have a physical office, you’ll want to be able to swipe cards. This generally means an equipment charge will be incured. You may also want to be able to take cards over the phone, which may cost more per transaction. In addition, every transaction will be hit by a 2% to 3% fee + $0.20 to $0.30 transaction fee. This is a decision that a landlord really has to put some thought in to, as the number of fees incured effects the bottom line.
Cash – Cold hard cash is always nice. You don’t have to wait for the funds to clear, and it’s an instant payment. Make sure to double count the funds to make sure it is all there. In addition, you need to issue a receipt to the tenant so there is proof of payment. There are a few cons to consider. For instance, carrying large sums of money can be dangerous, especially if people know that you make a monthly collection run around the same time of the month. In addition, landlords incur the expense of traveling to collect the rent, taking it to the bank for deposit, missed appointments with tenants who were supposed to be home, and more.