Whether you're new to the property management game or a tenured expert, collecting rent and other property-related payments is likely your #1 priority. Going door-to-door is always an option, though it's far from the best one and The easier you make it for your tenants or residents to pay, the more likely you are to receive payments in-full and on-time.
here are 9 different ways that we've seen owners / managers collect payments:
1. traditional Mail
Believe it or not, the most widespread rent collection practice is still via snail-mail, A.K.A. conventional postal services. Provide tenants with a mailing address and to whom the check should be written, then just watch the paper checks flow in.
Be aware that this method has a significant set of risks: bounced checks, letters "lost in the mail," long transit times, and the need to process checks / take them to the bank are all significant and potentially expensive downsides to this method, but it's still a good option to offer along with other alternatives.
Fun fact: It's estimated that the cost of accepting checks as payment is equal to about $1.22 per check, mostly made up of the cost of labor to accept, register, and process.
2. invoices with pre-addressed / pre-stamped envelopes
One way to leverage the traditional mail method (while making it a little bit easier for tenants) is to provide pre-addressed & pre-stamped envelopes. According to Brad Z. at BiggerPockets, a social network for real estate investors, “For my tenants that are not comfortable with direct debit, I simply mail an invoice with a self-addressed envelope one week before the due date.” Another BiggerPockets member sends invoices on the first day of each month, reminding tenants to pay the rent.
The downside to providing envelopes is the additional work required by the manager, as well as the cost of materials such as paper, envelopes, and stamps (these things add up!). You'd need to prepare and print invoices, purchase and pay for envelopes / stamps, and then actually send everything. That said, there are ways to automate these things, too (at an additional cost, of course). For example, Bixby offers automated invoices for as little as $0.99 per letter.
3. Dropbox / Drop-off Location
One way to collect payments without dealing with the USPS is through a dropbox. Place a lockable box on the property and ask tenants to place checks into it. Then stop by to collect the contents.
The key risk to be aware of here is that you're leaving tenant checks and potentially even cash in a box for days at a time. You're going to want to make sure that cube is as secure as humanly possible.
Alternatively, if you have an office near the property, ask them to bring it to you directly. Careful not to use your home address, though, for various (and obvious) reasons.
4. Direct bank deposit
Here's how Robert S., a real estate investor from Texas, collects his rent payments: “Give residents deposit slips, pre-filled if necessary, point them to the nearest local bank, and have them deposit payment in a designated account”.
This is certainly one way to do it, particularly for tenants who pay with cash or money order because they receive a receipt on the spot. On the other hand, there can be a lot of challenges, such as keeping track of who paid on time, who paid in full, and who paid in general, as well as the time involved in preparing these deposit slips as well. Overall, this is probably not the best way for most people.
5. Advance Payment
Advance payment is always nice, but not always possible. One property owner we spoke with asks his tenants to sign their lease with 12 post-dated checks and then deposits the checks each month over the next 12 months. A relatively effective solution, though you take on the risk of securing & managing the checks and probably deter a large subset of potential tenants who don't feel comfortable providing those checks up front.
The internet has certainly made things easier, faster, and more convenient in a lot of ways, but property owners & managers have been known to be somewhat "old-school," taking longer to adopt new online solutions for collecting payments and facilitating the lease process. We get it - we're talking about large sums of money here!
However, things seem to be changing rapidly as more of the leading property managers have begun to adopt online payments.
There are a number of ways to collect payments with online or mobile solutions and they all have certain benefits and drawbacks. One way, for example, is to suggest to tenants that they setup automatic bill pay directly from their bank accounts. Another way is to utilize a third-party processor app, like Bixby. Here's a quick rundown of 5 different websites/apps that you can use to collect rent or common charge payments online.
7. Peer-to-peer payment apps
You may have heard of (and have probably used) one of the many peer-to-peer web and mobile payment apps. These include companies like Paypal, Venmo, Square, and even Chase QuickPay. All of these products are fair game for collecting rent and common charge payments, but most aren't a great fit. The biggest issue with these apps is transaction limits, constraining how much your tenants or residents can send at once and how much you can collect in any given week. If you only have a few tenants, this may be a great solution, but it's not a great way to scale your operation.
If you do decide to go this route, you probably want to choose just one of these solutions; otherwise you'll have to maintain and manage payments coming in through multiple sources, which could get complicated quickly.
8. property management apps
There are a lot of property management apps on the market... more than 50... and growing. They vary in functionality, price, the type of property they focus on, and things like web-based versus mobile-first. When it comes to collecting payments, some let you reject / refund, some let you automate invoices, some let tenants set recurring payments, and some do it all. For a list of our favorite rent payment apps (starting with Bixby, of course), check out our post, Five Notable Apps For Collecting Rent & Other Property-Related Payments.
Keep in mind, some tenants may not be the most tech-savvy and may not appreciate a payment app, so try to be flexible and offer a more traditional option in addition to the app or website you choose.
9. hire a property management company
If you're a passive property owner looking to outsource all your property management activities, then a property management company might be the perfect solution. They generally cost between 4-10% of rent roll / maintenance, which is often worth the pains associated with managing properties if it's not your full time job. They'll handle everything from collecting payments to filling vacant units to conducting background checks and signing leases. Do your research on the managers in your area as they can vary greatly in price and quality.
A few quick things to consider...
The best way to collect rent often depends on your management operation. Here are some things to consider when choosing the option that works best for you:
- Number of tenants & units: Everyone has to start somewhere, but collecting rent/common charge payments is very different when you have 5 tenants versus 500 tenants. Choose the option that's right for your portfolio size.
- Distance to your property: If you live far from your property, going door-to-door may not be an option and checks in the mail might take too long. Digital payments may be the right solution for you.
- How much you want to interact with your tenants: If you’d rather keep your distance, go the electronic route. If you want a reason to visit the property once a month, consider a collection box or door-to-door.
- You and your tenants' comfort with technology: Some find technology a breeze, others aim to avoid technology at all costs. Consider providing options for both!
Don't forget, we're experts on all things property management, so if you have any questions, reach out to us at firstname.lastname@example.org and we'll gladly answer your questions.