How should you collect rent?

When you own a property that you’re going to rent, one of the first things you’ll need to figure out is how you’re going to collect rent from tenants.

There are many possible payment and rent collection methods, but they definitely aren’t all created equal. The last thing you want to do is handle rent in a way that’s inconvenient for either you or your tenants.

To make the process as simple as possible, here are all the ways you can collect rent from California tenants, along with the pros and cons of each.

Rent Payment Methods for California Tenants

money rent collection methods

Let’s start with the payment methods that you can accept for rent.

1. Direct Deposit

If you and your tenants don’t mind a bit of a setup process, this payment method is about as good as it gets. You’ll need to arrange this with your financial institution, and then each tenant must also arrange the direct deposit from their own bank account.

This payment method is fantastic for everyone because it’s automated, convenient and secure. No one needs to worry about rent money getting stolen, and the transactions always happen on the same date every month. You get the money in your account without any effort necessary on your part.

2. Online Payment Services

There are several sites online that can facilitate payments between landlords and tenants. You would need to sign up with the site of your choosing and provide your tenants with the URL. They can then go online and pay their rent through any of that site’s accepted payment methods.

Online payment services, like direct deposit, are also very convenient and secure. The only drawback is that service providers charge a fee, which means it will cost you a bit to use this method.

3. Money Orders

Money orders are great, but still have some flaws. Since the payment relies on a slip of paper, there’s the potential for the rent to be lost or stolen.

This is more likely if you collect rent with money orders and have your tenants send payment by mail. Money orders is not the most convenient payment method for you or your tenants. You’ll need to go through the deposit process with all your rent money orders, and your tenant will need to go to the store or bank for a money order.

4. Check

Money orders and checks have long been the traditional way to collect rent, and while they still work, they have some flaws. Like money orders, checks for rent collection are not very convenient for you or your tenants, as they will will need to write a check and you will need to worry about cashing it. If you only have one tenant, this may be easy, but with multiple tenants, it gets increasingly difficult to manage.

Checks have an additional drawback for rent collection that money orders don’t – a person could write a check for money they don’t have in their account, whereas money orders are paid for in advance. If a tenant did that, the check would bounce, and you’d need to follow up with that tenant about it. With a money order, it’s basically as good as cash.

5. Cash

Cash is undoubtedly the worst way to collect rent. It’s not secure or convenient, and there’s no record of the transaction. Your tenants need to go to the ATM or a bank to get the money, and then you’ll have a wad of cash with you until you’ve deposited it.

If you allow cash payments for rent collection, make sure you write the tenant a receipt. It’s better to simply not accept cash, though. You should also be a little cautious of any tenants who push to pay in cash only.

Rent Collection Methods for California Tenants

rent collection methods mail

Now that you know the ways tenants could pay you rent, it’s time to look at the most popular rent collection methods. Keep in mind that each method only works with certain payment methods.

1. Online

Direct deposit and online rent payment services both involve transactions over the internet. There really aren’t any drawbacks to this. The transaction will be secure, and it’s as convenient as possible for you and your tenants.

2. Mail

If you allow rent payments by check or money order, then one rent collection method is having tenants mail their rent to your address or a PO box. This works, but it’s not ideal. You run the risk of some mail getting lost or stolen. Your tenants may also end up waiting until the last minute to mail their rent, leaving you waiting longer for that money.

Mail is also a collection option for cash payments, but sending cash in the mail is a terrible idea. At least with checks and money orders, tenants can get the money back if it’s lost or stolen. With cash, when it’s gone, it’s gone.

3. In Person

For check, money order and cash payments, you could also meet with tenants in person to collect the rent. The benefit here is that there’s no risk of a lost or stolen payment. If you meet the tenant at their unit, you could also take a look at it to make sure they’re taking good care of it.

If you don’t live on site, this rent collection method can be inconvenient, though. Either you’ll need to make a trip to see your tenants every month, or they’ll need to come to you.

4. Outsourcing Rent Collection to a Property Management Company

The simplest option for collecting rent is working with a property management company. These companies take care of much more than just rent collection, as they handle just about every aspect of renting a property, including communicating with tenants and marketing your rental property. They also may do repairs, construction and accounting, if they are a full service property management company.

But as part of a property management services offering, they can also collect rent from your tenants for you. This can save you a ton of time and headache and allow you to focus on building your rental property portfolio if it is a business, or simply allow for more free time if you own one property.

How do you get tenants to pay rent on time?

clock rent payments

Getting tenants to pay their rent on time isn’t always the easiest task as a landlord. Once you’ve figured out how you’ll collect rent from tenants and what payment methods you’ll allow, it’s important to make sure that they pay you on time. Otherwise, you could find yourself short on cash because tenants are paying you several days late.

With some tenants, you won’t ever have this problem. They’ll pay you by the first of the month, often earlier, because they’re the punctual type. Unfortunately, not all tenants are like this. Sooner or later, you’re bound to get tenants who think the due date for rent is just a loose idea of when you want the money.

While it may sound harsh, the key to avoiding late rent payments is a late fee. In your lease agreement, you should clearly explain what day the rent is due every month and what the late fee will be if the rent isn’t paid by then.

It’s important to incentivize tenants to pay rent on time. No one likes to waste money on late fees, and the threat of a late fee alone will be enough to get most tenants to pay their rent on time.

Setting Up a Rent Collection System that Works

How you get rent from your tenants is ultimately up to you, and any of the methods listed above will work. The easiest is working with a property management company, which will not only save you time with your rent collection but also with everything else it takes to manage a single rental property or a rental property business.

Direct deposit and the online rental services are also sound options that you should consider if you aren’t going to work with a property management company. Checks and money orders aren’t the best way to go, but they still do the trick, and there’s also less risk with these methods if you live on site and can collect the rent in person.

Whatever you choose, make sure all the pertinent information on paying rent is explained in the lease. It’s also a good idea to go over this in person with new tenants when you’re giving them the keys, in case they’re the type to just skim through the lease when they read it.

Once you have your rent collection system in place and you’ve outlined that clearly, it’s far more likely for rent payments to come in without a hitch.

Vision Property Management
Vision Property Management offers unparalleled Property Management in Oakland, East Bay, and the Bay Area

Vision Property Management- East Bay

300 E. 18th St.

Oakland, CA 94606

Office: (510)-225-0470

CalBRE # 02022682

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