In real estate investment, there are endless ways to run your business. Because yes, it’s a business. Ultimately, deciding how you want to run it is down to what you prefer and what you enjoy. One of the most important elements is how you handle rent money. If you’re landlording, you deal with this directly—if you have a property manager, they handle it, but you should still be in the know about the process.
After all, certain ways of taking and processing your rent payment may be more efficient and can even increase the chance of your tenants paying on time. They may also have negative effects you may not have considered…
The Pros and Cons of 3 Rent Payment Methods
Cash
Why?
It’s Quick
There’s some allure to a cash payment. It’s quick, it’s right there, it’s in your hand. Done. No waiting for a payment to clear, no transferring from Paypal into a bank account. It’s money literally in your pocket.
No Transaction Fees
Both credit, debit, and online payments usually have some kind of transaction fees associated with them. Cash obviously does not! What you get paid is the full amount that you get paid, and that’s pretty nice.
But that said, cash brings the highest risks with it:
Why Not?
You Can Lose It
Cash and checks are easily misplaced. Unlike a digital transaction, they can get lost in the shuffle. If you’re an owner with a property manager, there’s also the extra step of their having to send the money to you—either through making a bank deposit or physically mailing the money to you, which carries its own risks. It’s not as convenient as it sounds, and even having a cash box around doesn’t guarantee it’s all going to be kept track of. Records can get lost and, come tax time, it gets even more complicated.
It Can Be Disputed
If you cash as a payment, a tenant can claim that they actually paid their rent and there is not receipt or financial transaction as a record. Tenants may claim to have left the envelope with full pyament in a drop box or given it to the front desk clerk. They can claim to have paid but were not given a receipt. Right or wrong, it is a way to delay getting paid as an owner and one more way for a tenant to dispute your business practices.
It Can Be Stolen
If you keep cash in your property management office, that office can suddenly be a target for theft. Why take that risk? Keeping cash, even just for a little while, is not a risk worth taking. There are too many opportunities for income to be lost in transit or taken from you.
It Can Be Disreputable
Taking cash and paying in cash doesn’t send a very good message. People who insist on paying only in cash typically do so for less-than-legitimate reasons. Always? No. But it’s definitely a red flag! They may be up to something illegal if they want to pay for their rent in cash. By the same token, if you encourage taking cash, you might attract the wrong types of tenants and send the wrong message. It’s better to accept payments that can be traced.
Credit and Debit Card, In-Person
Why?
You Can’t Lose It
These transactions can’t be lost or stolen. Plus, you can easily acquire a card reader and have it installed in the property management office, or even have a mobile chip reader through companies like Square.
Chance to Check in With Tenants
If your tenants have to come to a single location to pay their rent, rather than sending a check or paying online, the manager has a chance to talk and check in on things rather than waiting for a problem to arise. It’s a chance for some personal interaction.
Why Not?
It Can Be Inconvenient
A card reader is going to be best suited for an apartment complex, not for scattered single-family properties. Your tenants don’t have a centralized location in the case of the latter, and driving to your property manager’s office may be a hassle that leads to late payments due to inconvenience. If you demand tenants pay in person without options to pay otherwise, be prepared for some issues to arise.
Transaction Fees
Most card readers and debit cards have payment processing fees. The percentage sounds low (2-3%), but when it’s tacked on to a payment of a grand or more, that can take a nice chunk out of your income over time!
The Equipment Can Cost You
While the basic phone-connected Square reader is free, commercial models are not. The equipment needed to take credit and debit cards, regardless of the provider, is a cost you’ll have to factor in—plus the potential for repairs and replacements down the line.
Potential for Chargebacks
Remember, too, that tenants can potentially dispute their rent payments if they’re charged to a card. Though their dispute might not be honored, it could result in a hold on your money. Chargebacks in general are a hassle to deal with it. Though rare, they are a possibility.
Online Payments
Why?
Convenience
Online payments are pretty easy to take and set up. Through Paypal or property management platforms like Cozy, managers can accept payments directly from a bank account transfer or debit and credit cards. Some payment systems even allow for automatic withdrawals, so that you don’t have to worry about late or missed payments from tenants.
You don’t have to fool with physical documents or mail, and your tenants don’t have to go anywhere or mail anything. It’s the ultimate in convenience for you and your tenants.
Digital Record-keeping
Taking payments online streamlines your record-keeping process. By taking payments online, you can easily monitor and track your income.
Why Not?
Transaction Fees
Like credit and debit transactions, most online payments systems will come with some kind of small transactions fees. The convenience may be worth it at the end of the day, but it’s a cost worth considering.
Ways to Get Paid Online
Here are just a few online platforms for rent collections:
There are many other platforms out there, some solely designed for rent collection, others designed as full property management systems.
For owners, keeping your options open on how to receive rent so that late payments are minimized and records are organized is the ideal solution. That may mean adopting one payment system or having several options for your tenants. It’s really about weighing your options and seeing what works best for your business!
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