In this episode, you’ll hear:
- Legal Consequences of Landlords Using Payment Apps to Collect Rent
- Rent Collection Best Practices for Landlords
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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
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
- 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.
- 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.
- 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?
- 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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Bonnie Galam 0:00
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
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
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