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Your Landlord Resource Podcast
Your Landlord Resource Podcast
The Hidden Dangers of Using Cash Apps to Collect Rent
Accepting physical checks for payment is becoming a thing of the past. Many landlords looking to replace this method without increasing expenses have considered using cash apps such as Zelle, Venmo, or Paypal. However, where these apps make receiving rent very cost effective and convenient, they are risky.
In this episode we are discussing these risks and why landlords should NOT accept cash apps for rent payments.
Of course, we do advise you on what the better options are for you to operate a secure, professional rental property business.
LINKS
👉 Rent Reporters: According to TransUnion, 70% of tenants are more likely to pay rent on time if their payments are being reported to the credit bureaus.
👉QuickBooks Online Accounting Software We use QuickBooks daily in our rental property business!
Take advantage of 30% off your first 6 months of QuickBooks Online using our exclusive Business Affiliate link.
👉 TurboTenant: Is a great option for landlords with just a few doors or for those who may be new to using rental property software.
👉 DoorLoop: Founded by property managers and landlords who wanted to save time, make more money, and grow their portfolio’s.
👉 Hemlane The software that is built to grow with your needs as a landlord.
👉 Avail: A great alternative when searching for a rental property management software. Use this link to receive a $50 credit towards your fees!
👉 BiggerPockets: Pro members get the use of RentRedi landlords software for FREE.
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So the downfalls of allowing a tenant to pay rent using cash apps runs the gamut. And it is our opinion and the opinion of most real estate professionals that landlord should not accept rent payments from cash apps. From the lack of security or protection and no way to automate rental payments, to increase costs, there are much better options to choose from.
Welcome to your Landlord Resource Podcast. Many moons ago, when I started as a landlord, I was as green as it gets. I may have had my real estate license, but I lacked confidence and the hands on experience needed when it came to dealing with tenants, leases, maintenance, and bookkeeping. After many failed attempts, fast forward to today, Kevin and I have doubled our doors and created an organized, professionally operated rental property business. Want to go from overwhelmed to confident? If you're an ambitious landlord or maybe one in the making, join us as we provide strategies and teach actionable steps to help you reach your goals and the lifestyle you desire. All while building a streamlined and profitable rental property business. This is your Landlord Resource Podcast.
Stacie:Hello there. And thank you for listening to the, Your Landlord Resource Podcast, where we give tips and guidance to rental property owners. My name is Stacie, and I'm here with Kevin.
Kevin:Hey there, landlords. As Stacie mentioned, our focus is to teach and help real estate investors who may or may not self manage the rentals.
Stacie:I do have to say most of our content and those who listen, is directed towards DIY landlords. However in no way, are we saying that you must self manage to understand everything that we talk about here. It's important to know and understand all that goes on into managing rental properties, whether you do it yourself or not. If you start off managing rental properties with the goal of eventually handing them over to a property manager. That's awesome. The information that you learned from us is going to help you when you're looking to find a property manager who has, I don't know, like a, a similar management style and outlook that you do.
Kevin:So you guys, Stacie and I are realtors and property managers, as well as rental property owners, ourselves. We manage for others, we manage our own, and we also have some units managed by a property manager. We have over 20 years of experience here in California. And to be perfectly honest, California is so strict on their landlord tenant laws, that we think we are able to give you insight and tactics on managing rentals and things you'd never think about because by law we have to abide by them here in California.
Stacie:Yeah, and I, I think. I can say that being in California, we are pretty tech heavy, too. And one technology that we've experienced for many, many years now is the option to use cash apps to receive your rent payments. So think of apps like PayPal, Venmo CashApp, and Zelle, and there's more coming on the market all the time. And where are these apps make receiving rent very convenient. They are super risky.
Kevin:Yeah, that's for sure. And it seems accepting physical checks for payment is becoming a thing of the past. So peer-to-peer services such as Venmo and CashApp and most gateway services like Zelle. were designed to give end-users an easy way to exchange money between themselves. For example, you can send money electronically as a gift to a relative or a group of friends can split the bill at a restaurant, and each pay their portion without the need for cash. Peer to peer apps, have the funds sent and delivered from person to person through an app that acts like a digital wallet. Now a gateway service is different in that it is connected to our financial institution to allow that institution to send and receive those funds. Many landlords are looking to replace this method without increasing expenses. And we're using cash app seems like a good choice, it really isn't. But first let's start with rent payments through physical checks. This method is familiar for most of us, but has its own set of issues too. And we get it. Many landlords look forward to the beginning of the month when the rent checks arrive in the mail. They liked the physical nature of holding the rent payment in their hands and taking a ride to deposited into their bank. Some issues we have found with physical checks are often there are delays through the mail. Tenants will not mail it until the first, and then we do not receive it until the third or fourth of the month. And that's to our PO box. Now we, and this is our policy, I then take the rent checks back to the office, photocopy them for proof, and then have to head back over to the bank. So when you consider all of that, and then you think about how, when a tenant pays electronically, you get the money deposited directly into your checking account without having to do anything at all. It's a good thing, right? Yeah, it absolutely is. Technology has allowed us conveniences that add time back into our day. Unfortunately, usually for a fee or with risk. And that risk is what we're here to talk about today.
Stacie:So before we discuss that, I have a couple of things I want to talk about first. And the first thing is accepting cash for rent payments. Believe it or not, a lot of landlords still accept cash for rent payments. And let me tell you accepting rent payments and cash is really not advised for either the landlord nor the tenant. Often tenants are going to try to make a partial payment and the landlord, who was just happy to get any funds that they can get, we'll take it. And this acceptance constitutes and effort from the tenant. So should the landlord try to evict, they have to wait until the next month. And unfortunately, by this time, there's is another entire month of rent that's late. And on the tenant side of things, you need proof that the landlord will apply the cash properly. Cash payments are a perfect storm of, he said, she said, complications. Because it's not traceable. And we won't even discuss how unprofessional it is to accept large cash payments for rent in advance. Just don't do that.
Kevin:Didn't that eight plex you manage used to do that?
Stacie:Yep. It was a messy situation where the stepdad, who was supposed to be managing it, but his son took over. And then he would go around on the first of the month and collect rent from all the tenants. And some paid in cash, so there was no record of them paying and it was an absolute mess. So when we took over the tenants were upset that I wouldn't go down and walk around door to door and do the same thing. Like they had no idea what to do. And I think until the day it was sold, every tenant drove to the office and physically dropped their checkoff. And I don't know if they just didn't trust the mailing system or they didn't know how to do it. But it was definitely an eyeopening management experience with that
Kevin:building. Yeah, that's for sure. Well, if anything, it gave us a different perspective on property management.
Stacie:Yeah, and it gave us some good content too. Okay. The next thing I want to touch on is that technology has also helped with executing late payments. With the physical check payment method, it can be hard to prove that it did not come on time. USPS has delays and nicer landlords are going to give longer grace periods to account for them. But typically more traditional landlords will ask a late paying tenant just to include it on the following month with their next rent payment. So now with some technology, usually included with landlord or accounting software, late payments can be automatically calculated and added to the amount due. So when the tenant goes into pay that late payment is already there. But let's get to talking about all the different cash apps and why you as landlords should not accept rent payments through them.
Kevin:Okay, let's start off with Venmo. Now it's a very popular cash app that makes it easy to send funds between two people. But this app is not ideal for receiving rent payments. Tenants like it because they can use any form of payment to process the rent with bank accounts and credit cards being the top options..Venmo is free to use for basic transactions, like repaying a friend when they cover the lunch tab. So its intended use is more peer to peer. But rent payments are considered a business transaction, so Venmo deducts between a 1.9% and a 3% fee, plus 10 cents for each deposited amount. There is no option to add this fee to the rent rate. You'd have to have a written in the leases and additional fee to use the service so that the tenant can cover that fee. You want your funds deposited instantly? Add another 1.75% plus an additional charge of up to$25 per transaction. And Venmo has no protection for its users. That's why the app asked to send you to confirm they have the correct recipient and amount before sending. Once the tenant transfers an amount, there's no getting it back. If the tenant sends the wrong amount, you have no recourse to cancel the payment. Additionally, like cash, a landlord may find themselves in the predicament when filing eviction papers if the tenant only pays what they can afford. If a tenant has access to the landlord's Venmo account they can simply send a hundred dollars or any amount, and that effort would cancel the eviction in any court. Now Venmo has an initial transfer limit of$299 and then once the verification process is completed, it's$3,000 a week. Also when someone pays you to Venmo, it does not go directly into your bank account. It goes to your Venmo holding account and you must manually transfer it over to your business bank account. And lastly, you cannot use invoices that can automatically add late payments on Venmo. So if a tenant pays late, the landlord's going to have to calculate and then track the funds down from the tenant. Venmo is a great app for splitting cost for food or rideshares, but unfortunately it's not good for rent payments.
Stacie:Okay, I'm going to take PayPal. And I'm going to start by saying we love PayPal. We use it to buy items online, we send money to our kids, everything. It's a great cash app. That takes security seriously. And has features to avoid fraudulent transactions, which is why we like to use it. Like Venmo, PayPal allows you to make payments directly from your bank account, or even through a credit card that you have registered with their service. And for business users it can track invoices and payments against those invoices. So that's a little upside. And additionally PayPal allows large transfer limits, like up to$60,000 per transaction, depending on your usage level. Unfortunately, rental payments are real estate transactions that, in the eyes of PayPal, are not considered business dealings. So this means that rent payments are not protected under their business transactions umbrella. If used for business, PayPal charges hefty fees between 1.9 and 3.5%, plus a flat fee of 49 cents per transaction. They charged this fee to the recipient, not the sender. So even if rent payments were protected, accepting payments through this cash app would really cut into your bottom line. Oh, and if you want your money faster, add another 1% for an instant deposit to your PayPal account. Again, not your bank account, your PayPal account. Because like Venmo, PayPal deposits all payments to a cash account under their app, not your bank account. This means that you must manually transfer the funds to your business bank account to use it for your general business purposes. And also like Venmo, PayPal does not have a way to allow you to add late fees to invoices that are paid after the due date. And there's no way to stop or block payment from being made once it's sent. Same issue with regards to creating problems when filing evictions as well. Any amount sent is considered effort and in the eyes of a judge, grounds to toss eviction case out, causing a landlord a lot of frustration of lost time and money. And lastly, if there is an issue with the funds, PayPal tends to lean on the side of the sender, not the recipient. So as you can see, venmo and PayPal have really similar discrepancies when you use them for rental payments.
Kevin:Yeah. And Zelle is not really much different. But where Zelle is awesome to use is because they do not charge any fees and the payments are pretty much instant. Zelle does have some strict limits on how much can be transferred per day. Usually around a thousand dollars per day with a max of$5,000 in a month. So if your rent is over a thousand dollars, This would mean your tenant would have to split their payment, which is a pain for bookkeeping. Another issue is that Zelle doesn't partner with all banks or credit unions, and if they don't the transfer limit is down to$500 per week. It's also important to note that Zelle is not business oriented and not designed for rent collection. So when you use PayPal or Venmo under their business umbrella, they'll send you a 1099 for all your transactions. Zelle does not do this, and you can get in trouble with the IRS if you do not report income from one person in excess of$600. And like Venmo, Zelle lacks the functionality to set up automatic late payments or prevent partial payments from tenants. Let me give you some other reasons why cash apps are not your best option for rent payments. Okay, so these days tenants can apply their rent payments toward their credit scores. Unfortunately cash apps don't have a way for landlords to report on time rent payments to credit bureaus and help improve a tenant's credit rating. If tenants know there late payments won't affect their credit score, they might not be motivated to pay on time. And where landlords can report it themselves to a different app most property management apps now offer this service for free. We'll have a podcast on this subject coming up soon, but if you're interested in learning more about it now you can check out Rent Reporters. They're are service to use for helping your tenants raise their credit score by the landlord reporting if their rent is paid on time or not. They are linked to the credit agencies and their on-time rent, or not on time rent, will affect their credit score much like any line of credit you take out. We will link them in the show notes so you can learn more about them.
Stacie:Yeah, we use them when we owned a rental in a college town and it is great for students. It's also good for section eight and low-income housing where the tenants might need some help with their credit rating. All right, a few more items to note on why cash apps are not a landlord's best option is that some of these apps, the tenant can issue chargebacks for up to six months, and there's no recourse for you when accepting personal payments from these platforms. So can you imagine all of a sudden losing six months worth of rent all in one fell swoop. Uh, if you noticed, I just said personal payments. If you have your rental property structured in an LLC or any other entity. Accepting rep payments into your personal Venmo or your PayPal account can be considered commingling of funds and open you up to liability on your rentals. Yup. That's right. So let's say you hold your property in The Best Rental LLC, and you accept your rent payments paid to yourself personally. You could potentially lose all the work and purpose of personal asset protection that an LLC or other entity offers you. This also can increase your audit risk with the IRS if you're caught and not reporting all that income earn because of this commingling of funds between your personal and your business accounts. So the last thing about using cash apps is it removes the ability for automatic rent payment reminders. However, most accounting software and property management apps can send automated reminder notices to the tenant if their rent has yet to be paid two to three days before the due date and then again on the due date and then after if it becomes late. And we love this. This reminder has helped us countless times when a tenant is struggling with being organized from time to time. So the downfalls of allowing a tenant to pay rent using cash apps runs the gamut. And it is our opinion and the opinion of most real estate professionals that landlord should not accept rent payments from cash apps. From the lack of security or protection and no way to automate rental payments, to increase costs, there are much better options to choose from. So if you are still taking checks or using cash apps for rent payments, what are your alternatives? So let's go over a few. Now Kevin and I use QuickBooks accounting software. And we've discussed them in the past, and they're online or web based software is awesome. We can set it up to be able to break down the income and the expenses by property. And if it's a multifamily, we can even do that by unit. So if cost segregation is something that you're interested in, setting up your properties with QuickBooks and knowing where every penny went in that property can really help with this process. You can send out invoices to your tenants for rent and set it up to automatically charge them a late fee if it's not paid on time. You get the funds deposited directly to your bank account within 48 hours of the tenant paying. And it's already coded so you don't have any journal entries that you have to do. Your CPA can be allowed access during tax time to go into your QuickBooks account and upload all the information that they need to prepare your tax returns. And often if our CPA sees an error, they're going to create a journal entry to correct it and when he completes our taxes, he puts in the year end journal entries and for depreciation. So the only thing that is a bummer, is that QuickBooks charges 1% or a maximum of$15 for each direct deposit. Is this something you can pass on to your tenants? Absolutely. Just make sure it's included in the lease, that if they choose to pay electronically, they're going to be charged X amount of fee. Of course they can pay by check to avoid fees if they so choose. But we're going to link QuickBooks in the show notes for you to check out. I believe right now they are offering 30% off your first six months when you use our link.
Kevin:So If you're not ready for QuickBooks yet, and you want to use something more than your trusty old Excel spreadsheet, then consider using a landlord management software. All right, the data shows that applications for online rent payment services from landlords and property managers increased by almost 20% in 2021 compared to pre pandemic data. At its peak, this number spiked as high as 40% in February of 2021. And is and slated to continue to grow at around 5% a year for the next four years. So I'm going to start off with Turbo Tenant. We've been partners with Turbo Tenant for a while now. And we love them for newer rental property owners, because many of their services are free. Collecting rent is always free for landlords. Only tenants will pay if they choose to use a credit card for payment, otherwise ACH, that's our recommended method, is no charge. These would be expenses that a lot of landlords do not include in their budget, like some of the costs associated with finding a new tenant. Advertising your rental property is completely free and goes out to dozens of rental property sites like Rent.com, Apartments.com, Redfin Craigslist, many more. So create one ad and Turbo Tenant gets it out to all those sites, once again for free. The handle tenant applications and screening also no cost to the landlord. They have an option where you can have the tenant pay for the service, so you never have to handle reporting or recording the receipt of these fees. You can upgrade to a premium account and they provide unlimited personalized leases for less than$10 a month. And I believe it goes to eight and a quarter if you pay annually. This is huge for DIY rental property owners. And regardless of the state where your property is located, you're covered by state specific leases and addendums. Rather use them on a as needed basis? Custom leases are only$29 each. You can manage your rentals and organize all your documents just in one place. Efficiency is key, and you'll be able to streamline your rental property business with features such as in-app messaging with tenants, handle maintenance requests, plus upload and store their rental insurance information. And that's available for the premium upgrade noted earlier. And once again, it's$8.25 a month if you sign up for their annual plan. Now, if you're looking for a straightforward, easy to navigate, and low cost option to help you manage your rental properties, really look no further. Turbo Tenant is our go-to recommendation of property management software for newer landlords or for ones that presently only own a few doors.
Stacie:Yep. And we have set up several of our rental property owners with this service and they love how easy it is to use. Now, if you're looking for a software that offers all of what turbo tenant offers plus more, you might consider using Door Loop. This is a company that was founded by property managers and landlords who wanted to save time and make more money and grow their portfolios. They help you simplify property management by automating tenant and lease tracking, rent and fee collection, accounting and reporting that can sync with QuickBooks, which is a huge plus, maintenance requests and more through their easy to use software or mobile app. So Door Loop is perfect for landlords just starting out or fully established with hundreds or thousands of units. Basically they can help you manage any kind of rental property. So if you own both residential and commercial or a mobile home park or affordable housing, and work with the government Door Loop can help you manage all that. But wait, there's more. You can manage properties located worldwide. We have several friends with rentals in the U S as well as in Croatia, Italy, Greece, and Canada. So if this is something you also have, or considering buying a rental in another country Door Loop can handle it. They want you to succeed, so they give you one hour of training to help you navigate their site and migrate your properties from any other software. Pricing is 29 bucks a month for the basic, which is fine for most of you guys who are self-managing landlords. If you want to integrate QuickBooks, you have to upgrade to the pro membership, which is$59 a month, and that's if you use the 20% off annual billing, which is still a deal. But there's a lot that comes with the pro membership that many of you are not going to need just yet. But it's good to know that the options are there for those of you who are ready, and for those of you who are still growing.
Kevin:And, you know what I really like about them. Their prices don't increase until you exceed 21 units. I mean, that's a great feature. Most of these landlord management software companies, either charge a bundle and you get a lot of functions you may not need just yet, or they charge you a nominal fee plus a per unit fee on top of it. And that's okay, but I just like how there's no increase for Door Loop until unit 21. Okay. Now I want to talk a little bit about the landlord software that Stacie and I are considering transitioning into. For new owners, Turbo Tenant, is a great place to start and learn the ropes. For owners who need a little more, Door Loop.. is perfect. But Hemlane offers the ability to add on or transition to full-time property management at some point when you use their software. Now this hybrid software company has multiple tiers of property management to choose from. So let's start off with their basic level, which is their lowest level and that's to use their software only. The cost is$28 per month plus two bucks a unit. This option gets you pretty much the same functions as Door Loop, like marketing syndication, that's advertising and over 30 rental listing websites. You have application and tenant screening, which is lead in applicant tracking nationwide credit, criminal and eviction reports. There's lease tracking and management, that's document storage, lease renewal reminders, tenant communication, and the option for e-signatures is coming soon. Financials and online rent. You get online rent payments, automatic late fees and income and expense tracking. As well as maintenance and repair. Repair request submission, tracking, and assignment. But check this out for an additional$10 more per unit per month, you can upgrade to Hemlane's essential package. And this is where you might go hmmmm.. This package includes all of the basic plus you get, 24/7 maintenance that diagnose and troubleshoot requests. Work order management with your service professionals. Scheduling with tenants. 24/7 emergency support. No markups. Full visibility and control at all times. You also get state-specific leases. That's online leases, amendments, notices, other legal documents, e-signature, and discounted legal advice. So say you become ill or a family member needs your full-time attention. Or you decided to take several weeks off for a vacation. You can upgrade from your Hemlane basic account to the essential package for one month and have your maintenance calls covered for all your units. Then let Hemlane worry about the leaky sinks and backed up toilets while you take the time you need. Now Hemlane's complete package has full service property management for$28 base fee and$32 per unit. So think about it. For a duplex, your costs for full-time property management is only$92 a month. At a minimum a property management company will be a hundred dollars a door, so that's more than 50% less and you don't need to go out and find a property manager. Hemlane has property managers who they've already vetted and you can choose from their sources. We love how you can start self managing your rental properties and using Hemlane's service to receive rent payments. And a bonus is that the offer credit reporting to the credit bureau too.. Then as your rental property business scales, you can budget for and implement any level of management you want without having to change software companies. Simply upgrade your account and move on. We're getting ready to start using the software soon, but let's keep it real, there is a catch.
Stacie:Yeah, one small snafu.
Kevin:And this kind of surprised us, but they don't have a mobile app. Now for some, no big deal. But for people on the go, this might make a difference.
Stacie:Yeah, my guess is, is that they're working on it and, but they should have it because, I mean, even if just for messaging.
Kevin:Yeah, a hundred percent agree. So those are the three main landlord management software we highly recommend. Another great one would be Avail, and if you're a Bigger Pockets pro member, you can get Rent Ready for free. We're going to link all these software at our show notes so you can check them out yourself. I think with Hemlane they're often your first month free to try them out. And what's really nice is you don't need to enter a credit card until you decide if you want to continue. Plus they'll do a free demo with a live agent to walk you through how to use their system and all the perks they offer. They really have a good setup over there.
Stacie:Actually, I just got an email uh, this week from Henlane saying that they are going to be offering 20% off, I believe the first year for anybody who signs up with our link. So I'm not sure how long that will last, but we will put it in the show notes if we have any information on the dates for that, but that is a killer deal. Alrighty you guys, that is our show for today. We hope that you learned something new from us here at Your Landlord Resource. Thank you so much for tuning in and listening to all we have to say. We are very grateful and humbled that you take the time out of your busy day for us. If you love what you hear, would you do us a huge favor and leave us a kind review so that we can continue to reach other rental property owners? We really need other listeners to know how our podcast has helped you and what you love about listening to us each week. You can find a link in the show notes for your review. And while you're at it, would you also follow or subscribe on your favorite podcast platform? Because your downloads each week allow us to grow and reach other rental property investors. And lastly, we'd love to connect with you. We have a great newsletter Landlord Weekly, it's free and it has all kinds of tips and articles for rental property owners. It has our favorite products that we use in our business every day. As well as links to listen to the podcast when you sign up. We will link it in the show notes, along with the links to our private Facebook group and our social media sites. And until next time. You've got this landlords.
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