The Best Way to Collect Rent as a Landlord

Are you a landlord looking for the best ways to collect rent from your tenants? Efficient and timely rent collection is key to maintaining a steady income and ensuring your properties run smoothly. 

By using the right methods, you can reduce late payments and improve financial management.

Discover how to streamline your rent collection process and create a positive experience for both you and your tenants. Let's explore the different approaches to collecting rent effectively!

What are the different ways to collect rent payments?

Let's start with an overview of the most common ways landlords collect payments today, including:

In-person rent collection

Some landlords personally collect rent. They either visit the rental property or have tenants bring payments to their office. This approach presents some issues that can harm your business.

Scheduling and coordinating these meetings can be difficult, and tenants' availability can cause delays in rent collection. Also, handling cash can be inconvenient and time-consuming, especially when handling many transactions and multiple accounts.

When collecting cash payments in person, you should also consider security: there's a risk of theft or loss of the money.

Collect rent by mail

Rent collection via mail involves tenants sending rental payment checks through the postal service. Paying rent via mail provides convenience and eliminates the need for monthly in-person visits.

However, this method has several drawbacks. First, there's the risk of payment delays or lost mail. Additionally, tenants must remember to send their payments on time, considering any potential postal delays.

Online rent collection

Online rent payments allow tenants to pay their rent electronically through various online platforms, providing convenience and reliability. It is important for landlords to ensure privacy and security when they collect online rent payments, assuring tenants of the safeguarding of their personal and financial information. This approach provides a practical and secure way to streamline the rent collection process.

According to the Zillow Consumer Housing Trends Report 2023, 60% of surveyed renters stated that they typically pay their rent online. However, 69% said that they would prefer to use online payments for rent.

Here’s a look at how online rental payments have trended since 2020.

Image: Zillow Consumer Housing Trends Report 2023.

Comparison of rent collection methods

To help you decide which rent collection method might be the best fit for your situation, here’s a quick comparison of the most common options. This table outlines the key pros and cons of each method, allowing you to see at a glance which approach might work best for your needs.

Given these insights, although there are multiple ways to collect rent, it’s clear that using an online option could be a great choice for enhancing efficiency and security. Let’s dive deeper into the options available for online rent collection.

Options for collecting online rent payments

There are five popular methods for online rent collection:

• Property management software
• Payment apps
• Money transfer platforms
• Direct deposit
• ACH payments

These options allow tenants to transfer money directly to their landlord’s account using bank accounts or credit/ debit cards. Online rent payment services offer convenience, efficiency, and the ability to automate late fees and reject partial payments.

Property management software

Using an online rent collection platform like Azibo allows for secure, easy management and tracking of rental payments, reducing the need for manual collection and minimizing potential delays. 

With many tools offering features like expense management and accounting tools, this approach simplifies rental property financial management by eliminating the need for multiple platforms and tools.

Payment applications

You can collect online payments via apps like Venmo, PayPal, Zelle, Apple Pay, or Google Pay. These services simplify rent collection, giving you instant notifications and quick access to the collected rent with a few taps on your smartphone.

One issue with this method is that payment apps may come with fees. Some apps charge extra for certain transactions, like using a credit card or expedited payment delivery. These apps also make it challenging to track rent payment status and income and expense transactions for tax purposes.

Money transfer platforms

Money transfer platforms allow tenants to quickly send money from their bank accounts to the landlord's checking account, providing a hassle-free payment process. The key benefits of using money transfer platforms include:

• Quick and secure transactions.
• The ability to set up recurring payments.
• The option for tenants to make instant transfers.

However, some money transfer platforms may charge transaction fees.

Direct deposit

Setting up automated payments and direct deposits with a tenant's bank account creates an efficient way for landlords to collect rent. This approach automatically transfers rent from the tenant's bank account to the landlord's bank account on a specified monthly date, avoiding late fees and payment delays.

Using direct deposit for rent payments can create risks. For example, tenants might make mistakes when paying rent, such as entering incorrect account information or having insufficient funds. This can cause delays or failed transactions.

Automated clearing house (ACH)

ACH payments are electronic transfers that allow you to collect rent payments on time from the tenant's bank account. This method provides security, reduces the risk of bounced checks, and streamlines the process for both parties involved. You can set up recurring payments on ACH, creating a consistent rent collection method.

ACH payments operate under National Automated Clearing House Association (NACHA) governance and follow standardized rules and regulations to facilitate the smooth flow of transactions.

This method of payment is reliable, efficient, and secure.

Best practices for collecting rent

Now that we’ve covered the various methods available for collecting rent, it’s important to consider some best practices that can help you maximize efficiency and minimize issues like late payments. 

Implementing these expert tips can ensure a smoother rent collection process, reduce stress, and maintain positive relationships with your tenants.

1. Automate where possible:

• Tip: Use automated payment systems to set up recurring rent payments. This reduces the chance of late payments and saves time.
• Pitfall: Ensure tenants understand how automation works to avoid confusion or missed payments.

2. Set clear expectations early:

• Tip: The lease agreement should clearly outline rent payment methods and due dates. Reiterate these expectations during tenant onboarding.
• Pitfall: Failing to communicate clearly can lead to misunderstandings and delayed payments.

3. Offer multiple payment options:

• Tip: Providing various payment methods (e.g., ACH, credit/debit, online platforms) accommodates different tenant preferences and increases the likelihood of on-time payments.
• Pitfall: Be cautious with methods that are difficult to track or have high fees.

4. Monitor payments regularly:

• Tip: Regularly review your rent collection system to ensure payments are processed on time and correctly recorded.
• Pitfall: Neglecting this step can lead to unnoticed late payments or accounting errors.

5. Maintain open communication:

• Tip: Encourage tenants to communicate any payment issues promptly. Be proactive in reminding them about due dates through automated reminders.
• Pitfall: Ignoring communication can escalate small issues into bigger problems.

6. Stay informed on legal requirements:

• Tip: Keep up-to-date with local and state regulations regarding rent collection methods to ensure compliance.
• Pitfall: Overlooking legal requirements can lead to disputes and legal issues.

Community insights

Beyond the various methods we’ve discussed, many landlords find valuable advice through community discussions and forums. Engaging with other landlords on platforms like Reddit or specialized landlord forums can provide practical insights that aren’t always covered in general advice articles.

For instance, on the popular subreddit r/realestateinvesting, landlords frequently discuss their experiences with different rent collection methods, sharing what has worked best for them and what pitfalls to avoid. These peer insights can be incredibly useful, especially for those dealing with unique rental situations.

By considering the collective wisdom of the landlord community, you can make more informed decisions about which rent collection methods might work best for your specific needs.

Can landlords refuse specific rent payment methods? 

Generally, you have the right to choose the form(s) of your tenants’ rent payments. For example, if you only accept online payments and a tenant pays you in cash, you may have the right to refuse the cash payment. This depends, however, on your local and state laws and regulations.

For example, in California, landlords are required to allow tenants to pay rent by at least one form other than electronic funds transfers or cash, such as a personal or certified check.

To avoid any misunderstandings with your tenants, clearly outline all accepted forms of rent payment in your lease agreements and other tenant communications.

Determining the best way to collect rent as a landlord

When deciding how to collect rent as a landlord, you should consider a few essential points. First, consider if you’re comfortable using technology and online platforms. Online rent payment services offer convenience, efficiency, and the ability to automate late fees and reject partial payments. If you are, options like leveraging a property management software or ACH payments can be good choices.

Next, think about what your tenants prefer. If most of them like to pay their rent online, offering that option makes sense. Make sure that all of your tenants have access to your chosen payment method. Also, consider any costs involved. Keep in mind that some methods charge fees or require additional services.

Finally, consider security and record-keeping. Look for methods that offer secure transactions and easy payment tracking.

Policies to collect rent payments online

Establish clear policies around online rent collection for a smooth and efficient process. Consider these guidelines:

Preferred online payment method

Specify the preferred online payment method(s) tenants should use to pay rent. This could include online payment portals, apps, ACH, or direct deposit. Providing specific instructions makes it easier for tenants to understand how to pay.

Payment due date

Clearly define the due date for rent payments. This helps tenants know when their payment is expected. Communicating the due date aids in timely rent collection and prevents any misunderstandings or delays in payments.

Late payment policy

Create a policy for late rent payments. Clearly define the grace period, if any, and specify the applied penalties or late fees. This encourages tenants to pay on time and indicates that they will experience consequences for delayed payments.

Accepted forms of payment

Outline the acceptable forms of payment for rent collection. This may include specifying whether you accept rent payments via credit or debit card or bank transfer. Be clear about any transaction fees associated with specific payment methods.

Payment confirmation

Communicate how tenants will receive confirmation of their rent payment. This could be an automated email receipt, a confirmation message through the payment platform, or any other method that provides tenants with proof of payment.

Privacy and Security

Highlight the significance of privacy and security when collecting rent online. Assure tenants that you will safeguard their personal and financial information, and explain the security measures you have in place, such as encryption or secure payment gateways.

Communication channels

Specify the preferred method of communication for any rent payment-related queries or concerns. This could be via email, phone, or a designated online portal. By clearly stating the communication channels, you streamline the process and ensure that both parties are on the same page.

How using Azibo can simplify your rent collection processes

Azibo’s free online rent collection tool simplifies the rent collection process for landlords by offering multiple payment options and automated tools. With zero transaction fees and no transaction limits, Azibo enables landlords to collect rent through various methods, including ACH/bank transfer, Cash App, cash, or credit/debit cards. 

The platform supports automated reminders via email or SMS, notifying tenants of due dates and late payments, which helps ensure timely rent collection. Rent payments are deposited directly into your bank account within two business days, and Azibo's robust encryption safeguards sensitive information. 

Additionally, Azibo provides automated bookkeeping by tagging and categorizing payments, which streamlines financial management. With features like real-time payment tracking, automated late fees, and the ability to block partial payments, Azibo allows landlords to focus on building their business while efficiently managing rent collection.

Rent collection doesn’t always work out how you want it to, but Azibo offers tools to ensure your time is spent on building a business, not managing rent collection.

Azibo is a rent collection tool built for landlords. Sign up for Azibo for free, today.

Streamlined rent collection for landlords

Collecting rent efficiently is important for maintaining a steady income and ensuring the smooth operation of your rental properties. By exploring various methods, from traditional in-person and mail options to innovative online solutions, landlords can find the best fit for their needs. 

Online rent collection, particularly through platforms like Azibo, offers numerous advantages, including zero transaction fees, multiple payment options, automated reminders, and robust security measures. 

These features not only enhance efficiency but also reduce late payments and simplify financial management. By clearly outlining rent payment expectations in lease agreements and establishing clear policies for online payments, landlords can create a positive and streamlined rental experience for both themselves and their tenants. 

Sign up for Azibo today to take advantage of these benefits and simplify your rent collection process.

Ways to collect and pay rent FAQs

Do online rent payments collected get reported to the IRS?

Yes, rent payment collection via online services like Venmo, PayPal, and Zelle is subject to reporting to the IRS. The IRS considers rent payments as taxable income and requires proper reporting. Landlords must report rental income exceeding $600 through a 1099 form.

What is the safest method to collect rent online?

Bank transfers or automated clearing house (ACH) payments are two of the safest methods to collect rent online. This method involves tenants transferring funds directly from their bank account to the landlord's account.

Landlords and tenants can use bank transfers as a secure and traceable way to receive payments without relying on third-party online payment processing services or apps.

Can I use Zelle to collect rent?

Yes, you can use Zelle to collect rent. This app is a popular way to send and receive money – easily and quickly. Zelle’s convenience benefits both landlords and tenants.

Zelle has a couple of drawbacks to keep in mind. First, your bank or credit union might add fees for using it. Second, once you make a payment on Zelle, you can't undo it. So, if you or a tenant encounters a problem with the rent payment, it might be tricky to sort it out using Zelle. It's also challenging to track rent payments throughout the year or for multiple properties on Zelle, which complicates things during tax season. during tax season.