It’s the first of the month and rent is due. How do I pay rent?
Before the internet, tenants most commonly paid rent in cash. Landlords would go door to door, knocking on their tenant’s doors, and collect rent on the first of the month.
Thankfully, nobody really does that anymore. Winter climates make collecting rent a chilly endeavor, especially in January and February. For myself, knocking on the tenant’s door is a last resort. I only knock on a tenant’s door when ALL OTHER attempts to collect rent have failed. There are a variety of better ways to pay rent now, so tenants can be left in peace, and landlords don’t have to make unnecessary trips.
Ways to Pay Rent
Most Tenants and Landlords agree that Online rental payments are best. With the advent of online banking, paying/collecting rent is now simpler and easier than ever- you can pay rent by clicking a button! Imagine paying rent while lying in bed in your pajamas with your morning cup of coffee and your laptop or paying rent while hand gliding in the clouds in South America on your cell phone. You get the point- paying online is very convenient. You can pay anytime, anywhere you have a connection to the internet- and payment arrives instantly. There are a variety of free and low-cost online payment options. One advantage with online payments is that you can schedule recurring payments or automatic payments, so you don’t even to think about it.
Direct Online Payments
ACH Transfer or Direct Deposit (Free)
My favorite online payments option is ACH Transfer. ACH stands for “Automated Clearing House”. This is the system that US banks use to transfer money between each other. It was set up in the 1960s, so it has been around forever, and every US bank is part of the system. These transfers are free, and you can set up recurring payments. Funds become available to the landlord within 3-5 days. It uses the same network as WIRE Transfers but doesn’t cost $20-$30 to send. I think of ACH like a slow and cheap WIRE. Similar to a WIRE, you will need the Person’s name, Bank Name, Bank Account Number, Routing Number, Do you need owner address? Bank Address? To set up ACH Payments.
ACCOUNT SETUP: To set up ACH you can set it up yourself online on your bank’s website. If that’s too confusing- just go into your local bank branch and speak to a banker or call your bank’s customer service phone number, and a customer service representative will assist you to set up ACH payments.
WIRE FRAUD ADVISORY- Email is not a secure way to transmit Banking Account Numbers (only 40bit encryption). If you do email your bank Account Number to your tenant, make sure to have them verify the account number with you over the phone. Make sure the bank account number wasn’t hacked. Once the money is transferred- it is gone, if the tenant sends money to the wrong account number- it cannot be returned.
Zelle launched in 2017, so it is a newer online transfer method. Zelle is owned by the banks and allows for mobile banking. Since Zelle is relatively new, not every bank is part of the system yet- they add more banks Daily. You can check if your bank is a member on Zelle’s website: https://www.zellepay.com/get-started
If your bank is not a member yet, Sorry! You will just have to wait until they are added. All of the major US banks are already members.
Zelle Limits the first transfer to a new sender to $500. After the first transfer, the amount automatically increases to $2,500/mo. per transfer. if the monthly rent is more than $2,500, You can call your bank to raise your transfer limit for Zelle or send more than one transfer. Zelle is Free. Zelle does not work for international Transfers.
Zelle is not great for the initial move-in funds. Zelle’s transfer limits can be an issue with the move-in funds for 2 months security plus 1-month rent. For initial move in funds, I usually recommend doing a WIRE for $30, or ACH which for both transfer amounts are unlimited. You might have to send 3 or 4 Zelle transfers to send all of the move-in funds. Participating Banks will have a link to Zelle in their online website, or on their mobile app.
ACCOUNT SET UP: All you need to do is log onto your bank’s website or download your bank’s mobile app, and register your mobile number and email address with your bank account. You will need your landlord’s name + email or phone that they have registered with their Zelle.
Venmo is owned by Paypal. Venmo was launched in 2009 and was the first mobile banking app. They have a website too, Venmo is an independent Mobile Banking App and Zelle is owned by the major banks. When you open up a Venmo account- you need to verify your identity. This is more difficult for initial set up then Zelle. It’s free. $3,000 max weekly limit, it cannot be raised higher. Not good for leases over $3,000 per month or for move in the transfers.
Paypal was started in 2002. It was the first online bank. eBay bought it before selling it in 2015. It has been around a long time and a lot of people have used it and have accounts. There is no fee to send money, however, there is a 3% fee to receive money. Paypal has a maximum transfer limit of 10K per transaction. All you need to send money is the users: Name, email, phone number, or Paypal Username.
Third Party Online Services (3% Fee)
You can hire companies to handle billing, they usually charge 3% fee. If you want to hire a 3rd Party Vendor service Bigger Pockets made a great list:
Property Management Company
One of the reasons to hire a property management company is to have them handle rent collecting for you. Since Rent Collection is one of Property Management Company’s main services (Their management fee comes from the rent), they will have several different payment options set up for tenants to choose from to make paying rent as easy as possible. I always recommend to Hire local property Management Company. If they are Local, they will have an office location where tenants can drop off rent. In addition, Property Management Companies usually have their own online portals from their websites where tenants can create an account, log in, and pay rent. Management Companies can accept credit cards- usually a 3% convenience fee for this payment method.
Personal Checks still work OK if the landlord is local or In State. Tenant’s can drop a personal check at the Landlord’s rent collection box or send it US Mail. Personal Checks are safe to send regular US Mail. The only issue with mailing a personal check is that the US Post office sometimes will lose it, and a lot of the times it can take anywhere from 3-7 days for the check to arrive depending on how far it is traveling within the continental US. One downside of personal checks is they don’t work for out of the country or overseas landlords (Your London Landlord might be waiting a bloody long time for the rent check to clear customs at Heathrow International Airport).
Sometimes tenants and landlords can get into disagreements with mailing personal checks, because the lease will have a 3-5 Grace period to pay rent before the tenant is charged a late fee, and if the check is sent in the mail on the 3rd – 5th day of the month and takes 3 or more days to arrive, by the time it gets to the landlord it is already late. Then there is a question, is the rent late if it is not sent by the grace period, or not received by the landlord by the grace period? If you will be mailing checks, it might be better to clarify this beforehand, or just switch to online payments which are instant.
If you are mailing a check, I recommend getting it in the mail on the first, or better yet, even a few days earlier than the first to make sure it arrives on time. A downside for tenants is you need envelopes and stamps which are a small cost. A downside of personal checks for the landlord is once it arrives, they need to make a trip to the bank to deposit it, and a check can bounce of course.
Expert Landlord Tip: Want to keep your home address private? You can open a PO Box at your local post office to receive mail.
Cashier Check/Money Order
I prefer Cashier Checks as a payment method over cash. If you are in town you can hand deliver the cashiers check to the landlord, and there is no limit on the amount a cashier check can be made out for. Cashiers checks are great for move-in funds – they are a bit of a hassle for the tenant for regular rent payments. Cashiers checks can be mailed. However, if you are sending a large amount of money- anything over a few thousand dollars, I would highly recommend sending it with FedEx, UPS, or some other paid delivery service that offers tracking numbers. When you are sending a large amount of money it is good to know where it is and when it arrives. Your bank can make a cashier check for you. Banks charge $10 fee for the check. There is a big difference between Cashier Check and Personal Checks- with Cashiers checks, the second the check is made the money leaves the sender’s account- whereas with personal checks, the money leaves their account once the personal check is cashed. Because of this, Cashiers Checks can’t bounce like personal checks can. Sometimes landlords will refuse to accept personal checks for rent payments if a tenant’s check has bounced, and require cashier checks every month. Since you don’t have to go to the bank each month to make a out a personal check, it is more convenient.
Money Orders are best for small transfers- rent under $1,000/mo. Money orders are handled by third party companies. Cashier’s checks are better for the amount over $1,000 because most money order services do not go above that limit. You can do a money order at Walmart or Western Union, Money Gram.
As a general policy for both landlords and tenants, I DO NOT recommend accepting/making rent payments in cash. First, cash is not easy to send securely and second, there is no record of payments received in cash (which might be why some landlords like it, so they don’t have to report it on their taxes). For rent payments made in cash, always ask the landlord or Manager to give you a receipt to prove that you paid. That way, no one can come back later and say you didn’t pay, and then you are responsible for paying rent twice.
Another downside of cash is there is a real risk of robbery if you carry large amounts of cash on you. Back in the 1980s in LA, I heard some real estate stories of Vietnamese and Korean Landlords walking to the bank with an ex-military escort toting an AK 47. Cash is very popular form of rent payment for Asian landlords.
I think this is common knowledge, but never hurts to restate- Never send cash in the mail. Someone at the post office will probably open the package and steal it. If the cash is stolen, you are still responsible to pay rent- so you will have to pay twice. Cash requires hand delivery (which usually means time restrictions to during normal business hours Monday through Friday), which is very inconvenient, or impossible if landlord lives far away, which is why many landlords refuse to accept it as a form of payment.
Cash does have some advantages- cash can’t bounce like a personal check. Also, there is no transaction fees to pay rent with cash. And there is something visceral about holding cold hard cash in your hands that you don’t get with an electronic transfer.
If you insist on cash, I strongly recommend considering cashier’s checks or Money Orders– for a small fee, they are as good as cash, however, they can only be cashed by the intended recipient and are safe to send, and create a record of payment.
A lot have news has been covering this in recent years. This is a new payment method. Most landlords don’t accept it because they don’t know what cryptocurrency is, let alone have an account set up to receive and store it. Unfortunately, since Cryptocurrency has such high volatility it makes it very difficult to use as a payment method. If you wait a few days after receiving the CryptoCurrency payment to convert it into fiat currency, the value could have changed plus or minus 20%. Which is great if it goes up 20%, but horrible if it goes down 20%. Most landlords just want the rent to stay the same.
What is an E-Check? Electronic Check