How to Collect Rent from Tenants: A Guide for Landlords

Looking for the best way to collect rent? This article compares traditional and modern rent collection methods, highlighting their pros and cons for both new and seasoned landlords. You'll discover how different collection strategies can affect your property management, and you'll learn how to choose the right approach for your rental business.

By
Nichole Stohler
|
Last Updated
September 16, 2024
How to Collect Rent from Tenants: A Guide for Landlords

Are you trying to find the best way to collect rent and maximize your profits? From first-time landlords to seasoned property investors, every landlord must find an answer to this question.

This article explores various rent collection methods, from traditional checks to modern online solutions. You'll learn about the pros and cons of different approaches and how technology is changing rent collection for landlords, making it easier, faster, and more secure.

This guide helps new and experienced landlords learn how to effectively collect rent from tenants. We'll also explore how your chosen collection method can affect your overall property management strategy.

The rent collection dilemma

Collecting rent seems straightforward at first glance, but it's a topic that keeps coming up, especially for those just starting out in investing or property management.

These days, landlords have a wide array of options, from traditional cash payments to modern digital apps. The catch? Each approach to collecting rent has its own advantages and disadvantages.

A post from a new landlord on the r/realestateinvesting subreddit illustrates this common question:

"I just started being a landlord and I am collecting rent through cash, cash app, zelle, etc. What is the best way for me to collect?" —u/Sbd51

It's a familiar scenario — a landlord trying to determine the best way to collect rent, weighing options from cash to the latest payment apps. However, before jumping on the digital payment bandwagon, it's worth considering this insight from another Reddit user in the same thread:

"I read that the major problem with the 'cash send' apps like Zelle, CashApp, Venmo, etc. is that say you have a tenant that hasn't paid in months and you've started the eviction process, apparently, even a payment like $1 can halt the process or start it all over again, which is obviously a huge liability." —u/omnipeasant

This comment sheds light on an aspect of collecting rent online that's easy to overlook. It's not just about making rent payments convenient for tenants — landlords must also consider how their collection method might affect their rights in challenging situations. The same user offers another valuable perspective:

"That's why I've heard it's better to utilize websites that allow you to turn off payments altogether on delinquent renters that you're about to start the eviction process on. This way, they can't 'interrupt' the eviction process with some BS partial payment."

Choosing a rent collection method involves more than convenience or avoiding fees. Landlords need to find a balance between ease of use, protecting their interests, and considering potential legal impacts.

Rent collection methods

Here are some of the various ways you can accept rent payments from your tenants:

Online rent payment platforms

Many platforms offer easy online rent collection, but the best include additional property management capabilities. These all-in-one solutions can streamline your operational needs.

Key features to help you collect online rent payments include the following:

  • Automated payments: Say goodbye to chasing down rent checks every month. You set up recurring payments once, and the system automatically collects rent on the 1st. This means more on-time payments and less hassle for you and your tenants. Plus, you'll always know exactly when the money's hitting your bank account.
  • Multiple payment options: Flexible payment methods increase tenant satisfaction and improve collection rates. For example, a tenant low on cash can still pay rent on time using a credit card, avoiding late fees while they wait for their next paycheck.
  • Customizable rules: Tailor the system to fit your exact needs. You can block partial payments and require the full rent amount. This flexibility helps you enforce your lease terms consistently and fairly across all your properties.
  • Tenant portals: These tools give renters 24/7 access to their account information, reducing inquiries and streamlining communication. A tenant can easily check their payment history at 10 PM without needing to contact the property manager, saving time for both parties.
  • Automatic late fees: Tools to collect rent only allow you to apply fair and consistent enforcement of lease terms, reduce disputes, and increase revenue. For instance, if a tenant's rent is due on the 1st with a 5-day grace period, the system automatically adds the late fee on the 6th, eliminating human error or bias.
  • Financial reporting: Comprehensive reporting tools offer financial data at your fingertips. You can quickly generate a year-end report showing the total rent collected via direct deposit and all your expenses. This streamlines tax filing and financial planning, helping you spot trends and optimize your property's performance.
  • Property management tools: Full-featured software applications integrate all operations with rent collection. For example, you can leverage the tenant portal to allow residents to submit maintenance requests on the same platform they use to pay rent online.

Direct bank transfers

You can also collect rent online with your bank or credit union by pulling the funds directly from the tenant's bank account. While this is a faster way to collect rent than traditional methods, it doesn't provide visibility for tenants to check the status of their payments.

Payment apps

You can use payment apps for rent collection, but they lack the features you need to optimize your operations. One of the biggest drawbacks of these apps is that they don't allow you to block partial rent payments, which can create problems during the eviction process, should it come up. They also don't automatically support charge increases for late payments.

In-person rent collection

If you have fewer properties, you may physically stop by them to collect rent each month. Some landlords prefer this hands-on approach, as it allows them to keep a close eye on their properties and maintain a personal connection with their tenants. However, this rent collection process is time-consuming and requires you to coordinate schedules to meet in person.

Checks or money orders

Tenants may send rent payments via checks or money orders, which they mail or deliver by hand. This is a very traditional method that property management companies have used for years. For certain tenant demographics, this is the most comfortable way to pay rent.

Drop box or office

If you have a physical office or on-site leasing space, you might have tenants drop off rent payments in a designated box or at the office. This method of accepting rent payments works for property management companies or individual landlords with a larger portfolio.

The challenge with tenants paying rent this way is that payments could become lost or stolen if you don't monitor the drop box.

Modern rent collection with Azibo

To streamline rent collection, consider leveraging online tools to automate the process. Property management applications like Azibo offer an efficient solution, providing online rent payment capabilities and a range of additional features to help manage your rental properties. This all-in-one approach can simplify your responsibilities as a landlord.

Azibo's value extends beyond simple rent collection. As your portfolio grows, you'll find the platform's additional features increasingly useful. Let's break it down:

Collecting rent with Azibo

Azibo helps you get paid faster with online rent collection. It's easy to set up and connect to your bank accounts, so when a tenant pays rent, you receive the funds quickly and without hassle. The service is free for both landlords and tenants using ACH transfers. For credit or debit card transactions, Azibo's 2.99% fee is among the lowest in the industry.

Azibo's property management features

Besides allowing you to collect rent payments online, Azibo's complete solution for property operations includes the following:

  • Tenant screening: Reduce challenges with late rent payments or property damage with all the tools you need to screen prospective tenants and make the best choice for your property.
  • Lease agreements: Create state-specific lease agreements that protect everyone's rights and communicate all expectations upfront.
  • Maintenance requests: Azibo simplifies property maintenance by allowing tenants to submit requests online. You can then track the status of these requests and maintain digital records, making the entire process more efficient and more organized.
  • Financial management: Azibo integrates with your bank accounts and provides real-time visibility into your property's performance.

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How landlords collect rent

Selecting the right rent collection method is a balancing act. You'll want to weigh the convenience for both you and your tenants against each option's costs and potential risks. Traditional methods like checks or in-person collection might feel familiar, but they come with their own set of challenges. Online platforms offer efficiency and additional features but may require some initial setup.

As you weigh your options, consider your long-term goals as a landlord. Are you looking to expand your portfolio? If so, a scalable solution might be worth the investment. Or perhaps you value face-to-face interactions with your tenants? In that case, a more personal approach could be the way to go.

The best method for you depends on your specific situation, the number of properties you manage, and your tenants' preferences. The rental market is always evolving, and staying flexible can help you adapt to new technologies and tenant expectations.

For landlords, the goal is to find a rent collection method that saves time, reduces stress, and maintains cash flow. With the right system in place, you'll be free to focus on other aspects of property management and growing your real estate business.

How to collect rent from tenants: FAQs

Can you use Zelle to collect rent?

You can use Zelle to collect rent, but confirm that your tenant’s bank supports it. Note that Zelle doesn’t offer rent-specific protections like other payment methods.

How do I get my rent payments to show up on my credit report?

To get rent payments on your credit report, use a rent reporting service like Azibo Rent Boost, which reports to credit bureaus.

Does rent collection count as income?

Yes, you must report rent collection as income on your taxes.

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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