Collecting rent is one of the most important jobs you have as a landlord or owner of rental property. When I bought my fourplex in February of this year, there were three tenants already in the property. One paid rent by check and the other two paid in cash—I suspect they didn’t have bank accounts. Collecting rent was a pain in the butt.
For starters, there’s no lockbox installed at the property. The person with the check payment could theoretically mail her check to me, but that’s far from foolproof. I didn’t want to have to worry about checks getting “lost in the mail” (i.e., never sent) or actually lost in the mail. The post office that services my house is a little less than reliable, anyway.
And for the cash payers, I had no choice but to call or email them to coordinate a day and time where I could pick up the rent payment. If they didn’t respond to my calls/texts, or waited to respond until after the time when I was planning to arrive to pick up the rents, that meant multiple trips to the property.
Is it worth the 1.5 hour round trip drive to the property to collect a rent check? Sure. Is it worth finding a better way to do it so I don’t have to travel to the property 2-4 times to pick up rents from everyone? Heck yeah. So what are my realistic options?
Collecting Rent Via a Lockbox
I could install a lockbox at the property. The primary problem with lockboxes is that they can be broken into. If you see a lockbox at an apartment building, and if it’s the first of the month or just a few days after that, odds are good that a lockbox is going to contain rent payments. Even the least intelligent criminals can catch on to a concept as basic as that.
The other problem with a lockbox is that it still requires that I drive to the property at least once a month, and possibly more often, to pick up the rent checks.
Let’s say rent is due by the first, and if it’s not paid by the end of the day on the second, there’s a late fee. In that scenario, I would need to go by on the third to pick up rents. That assumes that I can make it there on the 3rd. If I’m out of town or have a full schedule that day, I might need to pick up the rents on the 4th or 5th, or even later.
The longer I wait to pick up the rent, the higher the risk is that the lockbox will be broken into. If you have tenants paying in cash, the potential consequences of that are huge. Even checks, cashier’s checks, or money orders could be taken and deposited by the wrong person. Good luck unscrewing that problem if it ever occurs. The worst part about the lockbox is that it’s not always obvious when it’s been broken into. I’ve heard horror stories online about thieves fishing single rent checks or envelopes out through the drop slot. So if you go to pick up the rent and one tenant’s payment is missing, the tenant might tell you they paid, and then you have to figure out if they’re lying, or if someone fished their payment out of the box. Odds are good that they’re lying, but how do you prove it, especially if they paid with an envelope of cash?
Also, if I can’t make it there on the morning of the 3rd, I won’t know which tenants paid on time and which were late. Hopefully none of them were late, but if you can’t pick up the rent until days later, you can’t be sure who paid by the 2nd and who didn’t. Missing out on a potential late fee isn’t a huge deal. The bigger problem is that if your tenants figure out that you’re not always coming to get the rents on the 3rd. Once they pick up on that, they might start paying later and later, thinking they can get away with it. If you sometimes pick up the rent a day or more after the due date, then there will be at least one month that you show up to collect the rents on time and some tenants will not have paid rent yet. Then you have to chase the tenants who didn’t pay. And that will require at least one more trip to the property to collect the rent that wasn’t there the first time.
If I lived at the property and could check on the dropbox at least once a day starting on the first of the month, it might be a viable option. But because I live off-site, it’s not the best option for me.
Collecting Rent Via the Mail
Another option I could use is requiring the tenants to pay rent via the mail. But as I mentioned above, this can be a challenge. If the rent doesn’t arrive, you will be stuck arguing with the tenant over whether they actually mailed the check or whether the post office misplaced it. This also makes it difficult to charge a late fee.
Plus, if you have one or more tenants who wants to pay rent in cash, they can’t mail the cash to you. (Well, they could try, but it would be colossally stupid to send cash in the mail.) You could tell the tenant to pay you via check instead, but if the tenant doesn’t have a bank account, that won’t work. They could get a cashier’s check or money order, but that costs money and it can be a pain to wait in line at a bank or post office to get that every month.
Besides, I think if the tenant insists on paying in cash, a landlord has to accept it. I couldn’t find a statute under California law that says this, but I’ve been told this and I’ve read it in several reputable sources. I think the genesis of the rule is in contract law. If a tenant is performing under the rental contract by trying to pay rent in legal tender (cash), and the landlord refuses that method, the landlord has prevented the tenant from performing under the lease, and has effectively waived the right to payment. That doesn’t mean a landlord is required to accept any method of payment that the tenant proposes, but cash is the official U.S. currency, so it seems like that would have to be accepted.
In sum, collecting rent via the mail would be okay, but it poses some significant problems.
Collecting Rent Via an In-Person Deposit at Your Bank
I know some landlords who have made their tenants pay rent by giving the tenant a stack of deposit slips in advance and requiring the tenant to go into the landlord’s bank and manually make a deposit. I can’t believe any tenants wouldn’t be completely annoyed by this. They need to take time out of their day, during normal working hours, to stand in line at a bank for this one task. It’s not even their own bank, so they can’t get any other useful things done during that bank visit.
The other thing I’m not crazy about is you’ve just given the tenants your bank account number. This increases the risk of a tenant attempting to use your bank account number to make electronic payments online with your money. It’s true that your bank account number is already printed on the back of any checks you’ve deposited into your bank account. It’s also printed on the front of your own checks if you’ve ever had to pay a tenant for anything (a returned security deposit, for example). But just because it’s technically possible for a tenant to get your bank account number some other way doesn’t mean you should give them extra opportunities to steal your money.
Because this method places a pretty large burden on the tenant and contributes to making my bank account more vulnerable, I don’t want to collect rent this way.
Next time: a couple more methods for collecting rent, and the method I ultimately chose.
Landlords and Tenants: have you used any of these rent collection/payment methods before, and if so, how did they work for you?