Episode 60. How to Legally Accept Payments | bonniegalam.com

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Episode 60. How to Legally Accept Payments

August 22, 2022

In this episode, you’ll hear: Landlords Violate Venmo Terms of Use When Collecting Rent Legal Consequences of Landlords Using Payment Apps to Collect Rent Rent Collection Best Practices for Landlords If you’d like a shoutout (and a chance to win a $20 Home Depot gift card), leave a review on Apple Podcasts and send a […]

In this episode, you’ll hear:

  • Landlords Violate Venmo Terms of Use When Collecting Rent
  • Legal Consequences of Landlords Using Payment Apps to Collect Rent
  • Rent Collection Best Practices for Landlords

If you’d like a shoutout (and a chance to win a $20 Home Depot gift card), leave a review on Apple Podcasts and send a screenshot of it to me on Instagram via DMs!


Landlords Violate Venmo Terms of Use When Collecting Rent

So for all the payment apps like Venmo, Zelle, and Cash app – the free version is designed for personal money transfers. And – say it with me – real estate investing is a business. So guess what, those payments aren’t in the same category as venmoing your friend at happy hour. 🍹

In theory, you COULD use these apps to collect rent under the business version but they carry pretty hefty transaction fees that don’t make them worth it. And in these apps, there isn’t a way to do fee-shifting where the money sender pays that transaction fee. I know some property management software allows you to accept card payments and shift that cost to the tenant but these apps don’t


Legal Consequences of Landlords Using Payment Apps to Collect Rent

I get it. Violating the terms of use of these apps doesn’t feel like the crime of the century. 

But these apps can put a serious wrinkle in your landlord game. For one, there’s no protection for either side. Send the money to the wrong Venmo user by mistake? Well, that’s money you’ll never see again. 

But most importantly payment apps like Venmo, Cash, and Zelle provide automatic payment. That might mean sound appealing but as a landlord, chances are you don’t want to accept partial payments of rent. Imagine this situation. It’s the day before an eviction trial for a tenant who hasn’t paid rent in months. They learn from a buddy that if they make a partial payment and you accept it, they can hold off their eviction. They Venmo you $1 and bam. Eviction court tomorrow isn’t gonna do a thing.

⬆️ That situation right there fellow landlords is why I would never use a payment app like Zelle or Venmo to collect rent no matter how free it feels.


Along those lines, if you have a tenant who pays rent and separately makes a payment to you for utilities or parking or late fees. It can also be tough to track what payments are coming in. Is that $25 payment a partial rent payment? Is it for the electric bill? Was it last month’s late fee? Emojis are gonna cut it in court.


Rent Collection Best Practices for Landlords

  1. Landlords shouldn’t accept partial rent payments.

 You can put this in your lease and in some property management software you can set that up as a limitation as well. I know some tenants like to pay rent biweekly but I don’t really see that as a benefit to you the landlord so I don’t suggest making that an option. They are grownups they can budget.

  1. Landlords should keep a paper trail of payments due and paid.

Whether it’s rent receipts for tenants who pay in cold hard cash, a ledger created by your property management software, an Excel spreadsheet, or, to some extent, bookkeeping software like QuickBooks. Real estate investors should keep track of rents, late fees, utility payments, and of course security deposits or other escrow funds you are holding for the tenant. 

  1. Real estate investors should include their rent collection policies in their lease

If you don’t accept personal checks put that in your lease. If you only accept payment through your pm software put that in your lease. What’s the penalty for late rent payment? What about bounced checks? What incidentals like utilities or attorneys fees are considered rent for eviction purposes?

  1. Landlords should have a uniform payment process

You should have just one payment process accepted across your business. I wouldn’t use checks for some tenants and a payment portal in pm software for others. It may take a few months until all the existing leases are up for renewal to get all tenants on board but simplicity around rent collection is best for everyone. 

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Resources Discussed in This Episode


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Episode Transcript

Bonnie Galam 0:00
Did you know that if you’re using your Venmo Cash App or PayPal to collect your rent, you might be setting yourself up for some legal trouble. Yeah, you might already know that you’re probably violating the terms of use, but you could actually be eliminating some of your really valuable landlord rights too, so let’s talk about it. If you’re not using one of these apps, though, stick around, because I’m going to give you a good refresher on legal rent collection best practices, no matter the intermediary through which it gets into your bank account. But if you aren’t currently collecting rent using one of these payment apps, you’re going to want to hear this episode as well, because you’re going to learn why you’re probably using these apps improperly, and why it should really matter to you beyond just risking getting your account shut down, because I realized that’s not much of a threat for most people. But we’ll talk about some free and low-cost alternatives. That sounds good. All right, let’s dive in, guys.

Bonnie Galam 1:22
Hey, there, it’s Bonnie. It is a crazy turnover season for us right now. We’ve got about 20 units turning over on September 1, and I’m recording this now in mid August. And let me tell you, the wheels are already in motion. We’re a few weeks out from the, you know, the big day, if you will. And I’ll definitely be sharing an episode with you guys, probably in September, about our top turnover tips. So make sure you’re subscribed. so you don’t miss it when that episode drops. But we’ve basically gotten it down to a science, and yes, that science also includes a lot of wiggle room and gray space, because things go wrong. And we can’t always plan, you know, for exactly what that’s going to be. And so, having a little bit of wiggle room definitely makes the pressure go down during a high pressure period. But we’ve been doing this for over a decade now. And in some sense, it’s become a lot like second nature. And a lot of things have changed as a real estate investor over the years. I mean, we’ve got a lot more competition now. And you know, unfortunately, there’s a lot more red tape. It seems like we have to deal with it on a local level. And, you know, we’ve dealt with more tenant friendly markets. And I mean, this from the economic sense, where it seemed like there was more housing than there were tenants. And so we had more vacancies. And then more recently, somewhat thankfully, we have had higher tenant demand. And so we’ve had fewer turnover seasons, but the management and the systems and the processes that we created around turnovers have been something that we’ve been able to carry with us throughout the years. Thankfully, there’s something, and you know, I love the Japanese concept of kaizen, or continuous improvement. And so everything, of course, is always a work in progress. We’re always, you know, trying to make things more efficient, easier, and more seamless, not just for us, but also for our tenants. And, you know, when it comes to turnovers, I’ve found at least the fundamentals of things that, you know, we keep in our leases, and that we, you know, strive to have happen during turnover season have really, you know, held steady, it’s remained the same. However, one thing that has changed dramatically over the last 10 years or so that we’ve been investing in real estate is the way that we collect rent. And in a way, I am really thankful that we got started like in the stone age’s for like the proliferation of property management software and these payment apps and like, yeah, there was some property management software, but it was really like for commercial property managers. It wasn’t designed for Joe Schmo, small time landlords like, you know, I consider myself right now, where, you know, I’m not managing thousands or ten thousands of doors, um, you know, I’ve got a hundred. And so we collected rent for many years, the good old fashioned way, with paper checks and occasionally $20 bills. And through that process, we learned a lot of nuance around the legalities of rent collection that I think right now is kind of lost to a lot of newer landlords, because I never just went through that process of depositing checks and, you know, depositing cash and things like that. And so I think some best practices got lost in the shuffle. And let me tell you, we collected rent the old fashioned way until we had well over 50 doors. And at that point, we switched over to that folio, so we kind of like skipped right over that intermediary step that I think a lot of landlords go through right now, where they’re collecting rent through a payment app before they have, you know, a bigger, perhaps more expensive property management software that can do additional things like, you know, handling repair requests. lists or, you know, be a communication portal with your tenants. And so a lot of newer landlords aren’t using, you know, these programs like, I sound like my grandmother, apps like, you know, Venmo or Zelle, or Cash App. But when we went from, you know, checks to AppFolio, our decision making process and selecting a property management software was not just to find something that could, you know, handle, you know, the volume of tenant communications we were getting, or repair requests, but we wanted something that could collect rent. And as close to a process as paper checks the old fashioned way as possible, because we at least knew the legal importance of doing so. And something that’s important to keep in mind is that the laws around rent collection are like 40, 50, 60, sometimes even older. And so they are not taking these newer apps into consideration. And I can tell you right now, by and large, until there’s like some sort of crisis on, you know, the tenant side, these laws aren’t going anywhere, they’re very broad.

Bonnie Galam 5:59
But in the age of technology, there are some more nuances and question marks that I think these apps leave open in terms of the legalities around recollection. And that’s really what I want to talk to you guys about today. Because yeah, there is this convenience factor when it comes to the rent collection that you want to have. You don’t want this to be an overly tedious process. But that convenience should not come at the expense of your rights as a landlord. And that’s really what we’re going to talk about today. But before I dive in, I want to take a moment to talk to the to-do-list people. The people who love that dopamine hit by crossing out tasks, and maybe even the people who will put completed tasks on their to do list just so they can cross them out and get that hit. If you are looking for a rundown of the legalities, you need to be thinking about your investing business. And I want to invite you to download my ultimate legal checklist for real estate investors. Because let me tell you, I am that To-Do-List girl. Mama loves a good checklist. And these are checklists that I use in my own business and back up my firm to handle things like property acquisitions, tenant turnovers, and a lot more. And so you can download that checklist at Bonnie galam.com/checklist. And if you’re anything like me, where you love a good mix of analog and digital, what I’ve actually done in my business is I’ve created this as a checklist in my asana and then I just duplicate that task for each property or each tenant turnover, whatever. And so, from one checklist of the giant to another, I seal, and hopefully I can serve you as well. Again, you can download my ultimate legal checklist for real estate investors at bonniegalam.com/checklists. Now let’s talk about payment apps, shall we? I’ve actually got this question from Sarah from Nerd’s Guide to FYI. She DM’d me a few weeks ago and said, “Bonnie, I know I shouldn’t be using Venmo to collect rent.” But I don’t know why I thought to myself, this is way more than I can break down in an Instagram DM. So let me just get enough scheduled for the podcast. And I’ll do a deep dive into it. And so here we are, guys. And let’s start with the basic Shami, which is straight up. Why is it usually illegal to use payment apps? And let me just back up by saying that there’s two general types of illegal. It’s like, illegal, you’re going to jail. And it’s illegal in the sense that you’ve breached a contract or responsibility or a duty that you have. And we’re talking about the second type of illegal here. And that’s because I think pretty much every investor who’s using, you know, Paypal, or Cash App, or Zelle, or Venmo to collect rent is doing so in violation of the app’s Terms of Use, you know, that pesky thing that you, you know, check off as agreed to, but you never actually read in order to sign up and open up your account. That’s the thing I’m talking about. Because of all of those payment apps that Venmo sells, the free version is designed only for personal money transfers. And yes, say it with me, guys. Real estate investing is a business. And so, guess what? Those payment apps aren’t in the same category as saving Venmo for your friend at happy hour for your spicy Margarita. Okay. And in theory, you could use these apps to collect rent under the business version, but they carry with them a pretty hefty transaction fee, like they’re in the realm of 3%, which is really high even for a credit card processor. and so that really just doesn’t make it worth it. And in these apps, there also isn’t really a way to do fee shifting where the money sender pays that transaction fee, and I know that some property management software out there allows you to accept credit card payments and then ship that cost to the tenant, but these apps don’t. And so you may be thinking to yourself, like okay, how are they going to know are they going to know? And gosh, that makes me think of the viral audio thing. You know what I’m talking about all right. Nobody’s going to know. They’re going to know. How would they know?

Bonnie Galam 10:05
How would they know? How would they know? Again, I just can’t. Oh, my God. And let me tell you, I don’t know how they know. But they didn’t know that I could tell you with two hands. So more than five less than 10 people I know personally, who got their app shut down for improperly using it for business purposes. And let me tell you, it is not a fun experience when that shutdown happens, like on the 30th of the month, and you’re about to have all your rent payments come through, and your tenants have no way to do so. It’s not fun to go through that scramble. And it may feel like, you know, just another one of these real estate investing boogeymen like the due on sale clause or the FHA police, but it happens. And it happens in these situations. And I think it probably happens more frequently with these apps than it does, you know, in the lending context, but all of these situations can happen. And it definitely happens a lot more. I think these apps have a really big financial incentive to push you off if you’re not making money from them. But let’s just say you do want to take a walk on the wild side, you want to play a little risky. Let’s say you’re inclined to ride this, you know, Venmo, Cash App, Zelle, Wave for as long as they will let you, well, let me just rain all over their brains for you guys. Because there are other legal downsides to using these apps other than just getting your account shut down. And I get it, I get that violating the terms of these apps does not feel like the crime of the century. But these apps can also put a serious wrinkle in your landlord game. For one, there’s no protection for either side. If you send the money to the wrong Venmo user by mistake, well, that money is gone, and you will never see it again. Venmo does not insure it, there’s no like refunds, there’s no you know, ACH system that you could try to put a freeze on the transfer. It is, but most importantly, the payment apps like Venmo and Cash App provide automatic payment. And that may sound appealing. That may seem really appealing to you right now as a landlord. And chances are, you don’t want to accept partial payments of rent, either. So imagine this situation, guys. Imagine it’s the day before an eviction trial for a tenant who hasn’t paid rent in months. And they learn from a buddy that if they make a partial payment and you accept it, they thought that they could hold off their eviction. And so they Venmo you $1 and bam, eviction court tomorrow isn’t going to do a thing. Oh, could you imagine that because you don’t have a way to decline payments from someone? and that situation, right? This is why I personally would never ever, ever use a payment app to collect rent, no matter how free it feels. And read along those lines. Guys, if you have a tenant who pays rent and perhaps separately pays a payment to you for, you know, like utilities, or a parking space, or late fees, it can be really tough to track what payments are coming in. For what it’s like, is that $25 payment a partial rent payment? Is that a $25 payment for the electricity bill? Was it last month’s late fee? And, look, emojis are not going to cut it in court, when you know the money comes through. And it has an emoji of like a house or a key or just says like their address, but that’s not going to cut it. No one knows what that payment is for. And so let’s talk a little bit about how we should be properly collecting rent, guys. And so you now know, while these apps may feel like a really easy way to collect rent as a landlord, they can be at a really high cost to you. And so let’s talk a little bit about rent collection best practices. And that starts with not accepting partial rent payments. You can put this in your lease and in some property management software, you can set that up as a limitation as well. And I know that, you know, sometimes tenants like to pay rent bi weekly, but really don’t see that as a benefit to you the landlord, and so I don’t suggest making that an option. They are grownups, and they can budget if the money is there in two weeks. It’ll be there in four weeks.

Bonnie Galam 14:13
And right along those lines, I always suggest keeping a paper trail, whether it is rent receipts for tenants who pay in cold hard cash, a ledger created by your property management software, or even an Excel sheet, or to some extent, even bookkeeping software like QuickBooks, so you can keep track of things not just like rent but also late fees, utility payments, and, of course, security deposits or other escrow funds that you’re holding for the tenants. You want to have a paper trail, you don’t want to be playing any sort of guessing game when it comes to money, and you want to be doing this contemporaneously. Meaning, you want to be documenting the money as it is due and as it is paid out constantly. This is a great task for a VA if you’re doing this through something like an Excel sheet. If you have some sort of property management software, make sure that it stays updated and that the tenants are actually utilizing it for all their payments. So, being up to date is crucial. Next, you want to include all of your rent collection policies in your lease. I see a lot of times where leases will just say something like “rent is this much, and it’s due on this date,” but it doesn’t really talk about the how. And so, whether you know, you want to say you don’t accept personal checks, put that in the lease; if you only accept payment through your property management software, put that in the lease. What about penalties for late fees? What about, you know, bounced check policy is about incidentals like utilities or attorneys’ fees, which are considered rent for eviction purposes. You want to get really fleshed out language in your lease when it comes to your rent collection policies. And then finally, I suggest having one payment process accepted across the board for your real estate investing business, I would not use checks for some tenants, and then a payment portal and your property management software for others. And yeah, it may take a few months until, you know, all the existing leases are up for renewal to get all the tenants on board. But simplicity around rent collection is best for everyone. And simplicity, you know, really is a core value in our personal investing business. And we carry that through most of our property management philosophy, because when things get confusing for us, you better believe that they’re confusing for tenants. And a gray area is not something that you want to have in your business. You don’t want there to be room for interpretation, you want it to be crystal clear. This is how things are expected to go. And this is what we hold, not just YouTube, but the rest of our business and our tenants and the rest of the people who we deal with too, because you know, I won’t go into the whole, you know, evidentiary rules around that. But that is something that can be considered evidence in court regarding business policies. And so you want to make sure that you’ve got them consistent and consistently applied. And so, as a recap, if you’re using a payment app, like Venmo, or Zelle, or Cash App to collect your rent, and it costs you $0 to $2, I’m going to put myself out there and say that you are in violation of that app’s Terms of Use. However, even if you feel like these basic tech companies don’t deserve a cent of your hard earned money, send up your rent. You know, no, it’s really not in your benefit as a landlord to collect rent using these apps anyway. Plus, we’ve covered some rent collection best practices for landlords, no matter if they’re using an app, a property management software, or still collecting rent in the mail. Now, if you liked this episode, please let me know by subscribing and leaving me a five star review on Apple podcast each month I pick over viewer to get a $25 Home Depot gift card as a thank you to them as a thank you to you guys, my listeners, you can continue the conversation about payment apps with me and my free Facebook community, that good bones real estate investing group, which I’ll link in the show notes along with the rest of the resources that I’ve mentioned today. And now that you know exactly why Zelle and Venmo are not your friends as a landlord, what should you do next? Let’s clean up the back end of your house a little bit more, and I can help you do that with my free Ultimate Legal Checklist. You can download it at bonniegalam.com/checklist. That’s it for this week, guys. I’ll see you here at the same time, same place next week. Bye for now. Thanks so much for listening to the House of Horrors podcast. Make sure to follow us on Apple Podcasts, Spotify, or wherever you like to listen to podcasts. You can also check out all of our podcast episodes, show notes, links, and more at bonniegalam.com/podcast. You can learn more about legally protecting your portfolio and take my free legal workshop on the 3 Legal Myths Preventing you from Securing and Scaling Your Portfolio and, of course, what to do instead at bonniegalam.com.

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