Category: Income Property

Rent Payments

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.

Dramatization

Thankfully, nobody really does that anymore. Winter climates make this practice 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 need to make unnecessary trips.

Ways to Pay Rent:

Direct Payments
Wire transfers are ideal for sending the initial Move In funds- they aren’t so great for regular monthly rent payments because of the cost. There is no limit on the amount of the transfer and as long as you get the WIRE out before 2:00-2:30 PM Pacific Standard Time, the money will be transferred the same day. If you miss the wire cutoff deadline, it will be sent out the next day. The wire cutoff time is set by the East Coast, which is 3 hours ahead, New York wire cut off time is 5:30pm. WIREs cost $20-$30 each time. WIREs can be sent internationally as well. For Domestic WIRE transfer, all you need is the recipients name, bank name and their account number. Their Bank’s routing number can be helpful as well, but usually it is pretty easy to look it up. 

ACH Transfer or Direct Deposit (Free)

My favorite rent 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 typically free to just a few dollars, 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, 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. 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.

Online Payments

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.

ZELLE (Free)

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 bank 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 in LA is much more than $2,500. For initial move in funds, I usually recommend to do a WIRE for $30, Cashier’s Check or ACH- all of which have unlimited transfer amounts. 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 (FREE)

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 Venmo. 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 transfer.

Paypal

 

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 here is a great list

Pay Rent Online: List of Online Rent Payment Tools

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 easily 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, login, and pay rent. Management Companies can accept credit cards- usually a 3% convenience fee for this payment method.

Personal Check

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 to their mailing address. 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 doesn’t work for out of 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 on 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 within grace period. A downside for tenant’s 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: Don’t want your tenant to know where you live? You can open a PO Box at your local post office to keep you home address confidential.

Cashier Check


Cashier’s checks work great for Move In Funds. There is no limit to Cashier Check amount, except that you need that much money in your account. Cashiers Checks work a little differently than personal checks- when I personal check is deposited by the receiver that is when the funds leave the senders account. This is why sometimes personal checks can bounce. Unlike a personal check, for Cashiers Checks, the money leaves the senders account as soon as they make the Cashier’s Check out. There is no bounce risk with Cashier Check.  

Money Order

Money Orders and Western Union are better than cashier’s checks for rent under $1,000/mo. because they have lower fees- just $5-$10 dollars.You can do a money order at Walmart.

Cash

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.

Crypto Currency

A lot have news has been covering Crypto Currency in recent years. This is a new form of payment. Most traditional landlords won’t accept it because they don’t know what cryptocurrency is, or how to receive and store it. Since Cryptocurrency technology is still developing and the market has such high volatility it makes it very difficult to use as a payment method at this time. 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%.

 

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Los Angeles Income Property Utilities

When renting Condos and Single Family Homes landlords usually don’t pay for any of the utilities (except for condos, which the Landlord pays the HOA dues which cover some utilities).

For Residential Income Properties (2-4 units) and Apartment buildings (5U+) it’s a different story. Landlords usually pay at least a few of the utilities with these properties. Water + Trash are the most common utilities paid by the landlord since most income properties in Los Angeles are on a Master Water Meter and not separately metered. The cost to install a water submeter is quite prohibitive at about 20K, and water is cheap, so most landlords never bother to upgrade to separate water meters.

Advice from experience:  I recommend to put a stop service request on all utilities that are to be paid by the tenant prior to their move in. That way, you ensure that the utilities are put under the tenant’s name (at least if they want to use them) and you don’t have to pay for them.

Expert Tip: Most public utility companies have a “Landlord Account” you can set up. You should consider setting up a Landlord Account for all your investment properties. The two main utilities to set up landlord accounts in Los Angeles are Electricity and Gas. Landlord accounts save time and effort. When a tenant turns off their utility service, instead of disconnecting the Electricity or Gas, the service is left on and automatically transferred back to your landlord account- so you don’t have to start service again.

One last point I’d like to mention about utilities is that there is a lot of research that shows when a tenant pays their own utilities, they use about 20% less than when the landlord is pays for them. So if you can have the tenant pay for their own utilities that is always best.

Utilities Expenses:

WATER

ELECTRICITY & GAS

TRASH

SEWER

Water

Fresh Water is one of our planet’s most abundant resources. Los Angeles has low rainfall and has to import about 70% of the water it needs, so water here is more expensive than wetter parts of the country- even if water is cheap (750 Gallons public water is ~$5- a lot cheaper than at the supermarket!).

Most of the income properties in Los Angeles are on a master water meter. I think this is because water is very inexpensive and the cost to install a meter is cost prohibitive ($20,000). Since there are no separate water meters, landlords usually pay water.  

The average person uses 100-120 Gallons of water per day and about 36,000 gallons of water per year. I would estimate about $200-$300 a year per person for water cost. If you have a 2 Bedroom unit, assume 3 occupants 3X$250 = $750 water cost per year. For 1 person in a 1bedroom $250 per year.

Some typical things people use water for: Showers (15-30 Gallons), Cooking (2 Gallons), Laundry (15-30 gallons), Gardening (8.5 Gallons/100sqft), Dishwashers (10 gallons) Bathroom – Toilet and sink (10 Gallons). A Bath is about 36 gallons. Showers are 2 gallons a minute.

For properties that have extensive landscaping- especially grass, this can really skyrocket the water bill. Figure about $30/year per 100 SQFT of grass.

Los Angeles Water Companies? Beverly Hills Water covers BH and westhollywood??
DWP for LA

Electricity & Gas

Electricity and Gas are commonly separately metered in Los Angeles- so tenants almost always pay for their own electricity and gas. Landlords for 2-4 units usually don’t have common area electricity (Lights in the front, the parking garage, Laundry room, and hallways) or common area gas charges (shared boiler, or laundry room gas dryers for example) for smaller size buildings. Apartment building owners, on the other hands, will probably have some common area electricity and gas bills for larger properties.

Electricity can be quite expensive @ 12 cents per Kilowatt Hour. The average American houshold spends $1,200 a year on Electricity Bill or about $100/mo. Since people spend about 5x more on electricity than water- this is a much more desirable utility to separately meter- paying the 20k to install a separate meter can recoup investment on a 15 year timeline.

For electricity, I would just like to specifically mention HVAC- which can be a huge power sucker. Especially if the HVAC system is old and functioning with less effectiveness. If the property has common area cooling system that is going to affect utility cost a lot.

Trash

The City of Los Angeles provides collections services for Residential customers. Residential Service is for properties of (up to how many units?). The city only offers Trash bins, if you need a dumpster you will need to hire a commercial trash company and the cost is much higher (about +3K/mo per dumpter). 

Residential is Le expensive- for Single family dwellings it is $36/month or $432 a year. 

and for Duplexes and Multi-Family Dwellings $24/mo. per unit or  $288 per year per unit.

SEWER

Sewer is one of the little bills  $20/mo or $250 a year.

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