There are quite a few options for collecting rent these days, but there’s only one best way to collect rent for you! There’s no point in owning property, fixing the boiler, or mowing the lawn if your tenant’s not going to pay you for the privilege of occupying the premises. That’s why it’s important to make paying the rent easy and seamless for your tenants with minimal to no fees.
While technology has created many new options for rent collection, not all technologies are created equal. Some take longer than others, cost more than they should, or create entirely new risks for property owners. No method is perfect, but we’ve done our best to rank quite a few popular rent collection methods.
Here are our recommendations, from most preferred to most reviled.
The Best Way to Collect Rent
We love Zelle because it’s friction free. There’s no fee to send or receive money, the upper bound on transaction size is plenty high, and the funds arrive within minutes. Nearly all banks participate in Zelle’s network so if your tenant has a bank account, it’s likely they can pay with Zelle.
There are really only three downsides to using Zelle:
1) If your tenant messes up your email address or mobile phone number, the rent could end up in someone else’s account. There’s no recourse. Your tenant is out the money AND they still owe you rent!
2) Since the tenant is sending money directly into your bank account you don’t have the option of refusing to accept payment. A creative tenant could exploit this vulnerability by sending partial payments to delay or derail eviction proceedings.
3) There’s no automatic way to assess late fees since the tenant controls how much money to send.
Zelle now has a stand-alone app that both you and your tenant can download and then connect to your respective bank accounts. You’ll need to provide your email or mobile phone number to your tenant so they can be sure to send the money to the right person.
If your tenants are reliable and diligent, it’s hard to find a more seamless way to accept rent payments than Zelle.
The Automated Clearinghouse Network (ACH) is one of the biggest US-based payment networks and nearly all banks participate. Like Zelle, ACH is usually free and fast, but the initial setup can be a hassle. The good news is that once it’s setup, your tenant can put the recurring monthly payment on auto-pilot and forget about it. You can’t do that with Zelle (yet). Sometimes payments can take an extra day or two to arrive, so some patience is required when using ACH to collect rent.
To setup a recurring ACH payment, your tenant will need your bank account and routing numbers so they can tell their bank where to send the money.
Checks have been around a long time, and there’s a reason: no fees! When the dollar amounts are large, there’s a strong incentive to make sure there’s no middleman. There’s also a certain symmetry in checks: the tenant controls how much and when to pay and the landlord has total control over accepting or refusing payment, depending on the circumstances.
The biggest downside to accepting rent payment by check is the proverbial, “the check’s in the mail.” It’s hard to know if your tenant’s late again or if the Postal Service is up to its usual tricks.
There’s no denying Venmo is popular with the younger folks, but it’s actually against their terms of service to do business transactions over the platform. Rent payments are officially on the wrong side of the line, and it can be difficult to send large dollar amounts reliably.
If you’re accepting rent payments via Venmo and all seems well, you’ll probably get away with it for a while. But it may not prove to be viable in the long run and if something goes wrong Venmo’s not likely to make it right.
Cozy.co has some very useful features, including tenant screening, background checks, and expense tracking, but ultimately we think you’d be wise to maintain a healthy suspicion of anyone who tries to get between you and your tenant. They’ll set up an ACH transfer for you for “free,” but then it takes almost a week to process, unless of course you pay for the “express payment” option. That’s not really free in our book.
If the extras that Cozy.co offers are worth something to you, and you don’t mind the ACH processing delay, then this might be a good rent collection option. Just don’t let your tenants pay with a credit card because that 2.75% fee is just crazy when you’re talking monthly rental payments of hundreds (or thousands) of dollars.
If your tenant sends the rent as “friends and family” without fees, PayPal isn’t a terrible way to collect rent. But if they send it for “goods and services,” which is technically how they should send rent payments, the fees are killer.
PayPal’s interface is better these days, but it was so wonky for so long that we just can’t in good conscience recommend that anyone use PayPal unless it’s an absolute necessity.
Once you’ve made the decision to outsource property management, you don’t have much choice but to rely on your property manager’s preferred method of rent collection. That’s what you’re paying them to do, often to the tune of 5-10% of revenue. And that’s exactly why this particular rent collection method is so far down the list. It’s expensive, you give up a lot of control, and you don’t build a personal relationship with your tenants (for better or worse).
That said, once your portfolio has achieved a certain size, you just can’t do it all yourself. And that’s a good thing!
Sometimes cash is the best option simply because your tenant doesn’t have a bank account or only seems to be reachable via a knock on the door. But allowing tenants to pay in cash should always be your last resort. It’s a security risk for you to be walking around knocking on doors with that much cash on hand. There’s also no paper trail or record of the transaction, which makes keeping track of who’s paid and who hasn’t that much harder.