Most aspects of our lives are moving digital. The rental housing market is no exception. The benefits of online rent payments are numerous, and include advantages such as recurring payments, automatic records, fewer late payments, enforceable late fees, and better use of time and money.
It should be evident that you should transition to online rent collection — if you haven’t already. Choosing how you’ll collect rent online can be a little challenging, though, with so many payment methods on the market. No property manager wants to risk the health of their cash flow just because they switched to a different collection method. To make your job easier, we go over the advantages and disadvantages of the major online payment methods. This way, you can trust that you’re making the best decisions for your real estate business.
Setting Up with Your Bank
One way to have your tenants pay rent online is to set up rent collection through your bank. Most banks offer a few different collection methods such as ACH payments, merchant services, and online bill pay.
Allowing tenants to pay rent through your bank is popular among landlords who are new to online rent collection because it’s a system with which they are already familiar. However, there are some drawbacks to working exclusively with your bank.
Pros of Setting up with Your Bank
Consolidation of accounts. Landlords already have a lot to juggle between handling finances, managing tenants, responding to maintenance requests, filling vacancies, and more. Having all of your financial transactions in one place can simplify your rent collection process.
Increased security. Banks are inherently secure institutions — that’s their whole purpose. You can rest easy knowing your information, records, and funds are safe when working with your bank.
Automated records. Banks automatically record every transaction, which you’re always able to access when needed. These automated records make for quick bookkeeping and fewer human errors.
Cons of Setting up with Your Bank
Costly services. Every bank charges differently for collection services, but they tend to come at higher price than other online payment methods. Merchant services, for example, come with fees for set-up, monthly charges, costs per transaction or flat fees, and the cost of any required hardware.
Insubstantial records. Although banks keep automated records, these records often lack some critical information that landlords rely on. This makes it especially hard to manage a large number of tenants.
Lack of control. There are a lot of features landlords miss out on when collecting rent through their banks. Your bank will not allow you to automate payments, enforce late fees, compel tenants to pay rent, or send reminders through their channels. You also aren’t able to deny payments, which can affect your ability to evict a tenant.
P2P Platforms
P2P platforms are quick and simple to use, with their intuitive interfaces. They enable friends to electronically transfer money from one account to the other when they don’t have cash. PayPal and Venmo are two of the most popular P2P platforms on the market at the moment.
These platforms are a great option for consumers as paper money is used less and less. They are not built for landlords, however. In order for your tenants to pay rent through P2P platforms, landlords must set up business accounts in order to comply with the platforms’ regulations.
Pros of P2P Platforms
Extremely convenient. Because P2P platforms continue to increase in popularity among consumers, it’s likely that your renters are already familiar with the interfaces. They’re often a favored payment method among younger renters.
Trendy. Accepting P2P platforms as a form of payment shows that you are up to date with the trends of ecommerce, which could be a selling point for prospective tenants.
Cons of P2P Platforms
Legal concerns. Landlords must set up business accounts in order to accept rent payments on these platforms. If you use a personal account to collect rent as a way of avoiding fees, you will be acting in direct violation of the platforms’ policy statements, which can result in penalties and account suspensions.
Costly fees. The fees associated with these platforms add up quickly. Business accounts incur fees that include a percent of the transaction amount for the interchange, another percent for the merchant bank, an assessment fee, and a dollar amount for every transaction processed.
Loss of control. Landlords lose control when using P2P platforms for rent collection, just as they do when collecting through their bank. Being able to deny payments is crucial for landlords, but they lose this privilege when using P2P platforms.
Property Management Software
Property management software is designed specifically for landlords. Management platforms tend to provide all of the rent collection features that a landlord might want or need in order to collect rent in accordance with their tenants’ leases.
Landlords often prefer property management software over other payment methods because it offers additional landlord-specific services such as online lease signing, tenant screening, maintenance requests, tenant management, and more.
Pros of Property Management Software
Cost-effective. Using property management software to process rent payments diminishes or even eliminates the additional fees that you incur with some methods, making it a popular option for both landlords and tenants.
Landlord-specific services. Each platform will offer different features, but most make it possible for landlords to prorate rent amounts, set and enforce late fees, create automated payments, and send out reminders to tenants.
Detailed reports. Not only are the records provided by property management software automatic, but they’re also extremely detailed. They go beyond basic transaction records and provide all of the information that landlords need to keep track of.
Advanced support. The support teams behind property management software understand how busy landlords are because they work with landlords everyday. If issues arise, you’ll be grateful to have a team that’s ready to help so your collection can go uninterrupted.
Quicker transactions. A bonus of some property management software platforms (like Innago) is that they offer express funds delivery. In the case of Innago, your funds can be delivered into your account after just one business day.
Cons of Property Management Software
A drain on resources. If you don’t perform proper research before choosing a property management software platform, you might find that the services provided don’t justify the price that you’re paying. This is why you must be sure the platform you choose is right for your business.
Time consuming. There are numerous platforms available on the market, with more being added all the time. It can be time consuming to find the perfect platform for you, especially if additional time is needed for you and your team to learn the software. The importance of intuitive interfaces goes beyond aesthetics.
Conclusion
Although figuring out how to collect rent online might seem like a lot to take on, it is certainly worth the effort. All of the payment methods discussed here come with advantages that offline collection can never provide. In fact, collecting rent online allows you to avoid some of the risks of accepting cash for rent.
All it really comes down to is picking the best payment method for your real estate business. You just have to understand your needs, and find a payment method that meets them.
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