I am hearing a lot about how landlords are automating how there tenets are paying there rent each month by having there tenets directly deposit the rent into the landlords checking account. I have several questions about it and look forward to hearing your insight.
How many of you do this?
Can you explain how you set it up and how it’s working?
The pros of doing this are obvious, but are there any cons I’m not seeing?
I have seen several websites that offer to do this, but for a fee. Can’t I just do it through my own bank for free?
Are there any banks that are more investor friendly then others who might have a program like this is place?
I look forward to hearing your comments and thoughts.
I bank at Washington Mutual. They have free checking accounts for business accounts. They have locations all over. I have my main account and an account for each of my houses. I give the tenant a deposit card for his account. He deposits the check in any Washington Mutual ATM and when it clears I transfer the funds to my main account. He can wait until 11:59 the day the rent is due and be in Kalama Washington or Miami Florida and his rent is on time. The deposit card looks like a debit card but does not have the Visa logo. He can only deposit with it. He can’t check balances, he can’t move money, and he can’t withdraw. All he can do is deposit.
I have done this successfully with all of my tenants. I even had one that bounced a check to me. That bounced check was contained in that one account and didn’t affect my main account or any of the others. I called the bank and cut off his deposit card and put him on certified funds (cash, cashiers check or money order). This meant that he reverted to mailing the rent. That caused both of us a headache. He had to go to the bank and post office to mail the check instead of just stopping by an ATM on his way home from work. That meant I had to check the mail box to make sure he paid on time instead of clicking my PC.
It provides a tracking mechanism for both of us. They also don’t release the funds until they are verified. That way I don’t have to worry about bounced checks.
Paypal will also allow them to pay via credit card. It costs additional money for me, but some tenants enjoy the rewards and although I like Bluemoon’s idea, I don’t like my tenant’s having direct access to my accounts.
It just takes the tenant getting cozy with one of the tellers and they may divulge a little bit more information than they should.
I don’t and won’t have the tenants deposit the money into my account for three reasons.
The very last thing I want is for the tenants to know where I bank. Besides the obvious potential for fraud, knowing where you bank is just one more piece of information for the tenant to use in a lawsuit. I would prefer for the scumbag contingency lawyer to have to work to get this info instead of just giving it away.
Many of my low income tenants don’t have checking accounts or any bank accounts. They get a government check; cash it; and live with all cash.
I like to be a hands on landlord. I pickup every rent every month and also do a quick walkthrough of every unit every month. It let’s the tenants know that I’m involved and gives me an early alert that things are headed in a bad direction.
I have 11 tenants and have had 13. There have been only 1 that was a problem.
The tenenat does not have any access to my account. A cozy teller can get access to anybody’s account. All they have to do is look on the back of the check that they get returned after it is cashed.
I’ve done it for 9 years with no problems, but these are “upper level” tenants…With the lower level types, who knows what they might do if they have your name and bank account #?..You could be safe to have a separate account just for this, but transfer the money out just as soon as it comes in, or you can set it up with your bank that no transfers can be made out of your account unless you do it in person…
The fee is worth it to me. I would rather deal with the fee than use my gas and my time trying to meet up with them or checking mailboxes. And just like another person on the board indicated, I can refuse payment. I have actually utilized that feature before when a tenant tried to pay me after the 5 day expiration of a 5 day notice.
If you set it up as a personal account, you may not be charged any fee at all. They just can’t use credit cards, they must set it up with their bank accounts.
What happens when someone sends you money via Paypal and ends up disputing the charge? They can’t do that with a cash payment, once you have it you have it.
I don’t want to burst anyone’s bubble here, but if you use PayPal or any other form of credit card/debit card transaction, you are exposing yourself to the potential of chargebacks. If the renter leaves you, depending on how they paid you (ie. Visa, Mastercard, Amex, etc.) they have up to 6 months to dispute the transaction, and the merchant processor is 90% on the side of the consumer on this. Unless you have written agreements between you and the tenant, you are WIDE open to chargebacks which is big bucks when there is the risk they could dispute 6 months of rent payments and they just get immediately deducted from your bank account.
We use ACH processing for this, which is less likely to be exposed to risk from credit card fraud, chargebacks, etc. But I do know that the process to dispute a PayPal transaction is pretty simple for the consumer, so if you do have to evict a tenant, this is not a good thing to have hanging over your head.
Yes, its great to accept rent payments by credit card, paypal, etc. But despite the fees for processing these types of transactions, be aware of the risks associated with this.
Of course direct bank deductions are not likely to have as much of these sorts of risks, which is why is a much more popular way of handling rent payments.
The more I think about it the more I think cash or money order is the way to go. If they don’t have the cash to pay their rent they aren’t a stable tenant. When the tenant has to constantly rely on credit to survive they are eventually going to have the house of cards fall.
Yes and no. In today’s society, consumers rely more and more on credit for everything. After all its the way of the US economy, and its sold to everyone as the ‘norm’. We don’t think twice about paying off credit card debt with equity these days (not that I agree with this but…) so if a tenant has car problems and needs their car for work, and therefore decides to pay you with credit, that’s really their business. Its not up to us to judge them as landlords but it certainly is our responsibility to manage the risks associated with chargebacks.
I’ve been working with our merchant processor to find appropriately worded agreements that can be put in place between tenants and our company that will stop them from being able to make chargebacks. Of course the credit card companies consider this a ‘transaction without a card present’ which means that the consumer gets most of the benefit of scrutiny. However I believe that somewhere in this credit crazy society we live in is a way to get landlords paid with credit cards from tenants that is of no risk to the landlords. We do accept credit cards at this time, but only with an agreement in place and I’d far prefer to do a ACH transaction on their bank account if available. But if it comes down to extending a tenants stay in our properties and getting paid, without having to forceably evict them and then wear the vacancy for some time until the next one arrives, accepting credit cards is a very attractive option.
Correct. PayPal have a dispute resolution center that allows all parties to put their case forward and ultimately PayPal is responsible for a decision. They are more likely to be fair on this, however it comes down to having a good paper trail.
With a typical credit card swipe, its a different story. The consumer can go to their bank, or AMEX or whoever, and fill out a simple form. By default, the bank assumes the vendor (landlord) is wrong and immediately issues a chargeback. This means that the funds are forceably deducted from your account without warning, but you have up to 30 days to dispute the chargeback. The dispute process requires you to prove that goods were purchased, that they were delivered to the address on file as the billing address, etc. Of course with services or rental this cannot be proven. So the $5 an hour clerk who is pushing the buttons on a computer simply says, “You don’t have adequate proof to dispute the chargeback, so you lose” and that’s it. Tenant wins. Its irrelevant that you have a judgment against them in court. The credit card dispute process is not a party to that lawsuit, so they just err on the side of the tenant.
I will continue to take my chances with Paypal and the dispute resolution process. I think the presence of a signed lease and/or judgement should suffice. It is actual physical paperwork that substantiates that actual services were delivered. Quite frankly, I also pay some of my contractors via Paypal. Every sub will not wait for the check in the mail. It helps with saving both of us time. I don’t understand why a contract signed between 2 people would not be considered evidence of an agreement of payment. Especially when they paid according to the terms of the agreement. I also don’t understand why a judgement wouldn’t be considered evidence that a payment was due to somebody. Paypal just like any other service can’t just make arbitrary decisions. They can be sued and credit card companies can be sued for making arbitrary decisions. They can also be reported to government agencies. That is why it is a dispute resolution process with Paypal. It give both parties a chance.
One more thing, I notice that the tenants that enjoy using paypal to pay via credit card are actually some my better paying tenants with better incomes. They do it primarily for the points. They consider it a bonus for paying a bill they would have incurred anyway.
Unfortunately when it comes to merchant credit card processing rules, what is ‘fair’ isn’t always what is decided. Paypal dispute resolution is one thing, but if your tenant elects to, for example, pay their PayPal payment with AMEX, and then goes to AMEX to dispute the charge, you are SOL. PayPal dispute resolution will be irrelevant in this situation.
I still have to disagree. I have disputed transactions and yes, AMEX especially favors the customer, but the merchant has an opportunity to defend theirselves.
In my scenario I forgot that I made the charge and the merchant contacted me. I remembered and told them. In addition, in the dispute resolution process with a typical credit card company, the merchant also has the opportunity to send in a signed receipt. If the signature legitimately matches the customer’s signature, then all bets are off.
It is not about being fair to me. It is about providing a legitimate paper trail to the credit card company. I would have that. It may not be an easy process, even if I had to sue, I would because I have actual physical documentation that proves that payment were due to me.