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I have been thinking that it might be a good idea to give my tenants deposit slips to my checking account and have them deposit their rents directly into my account on a monthly basis. I was also thinking that perhaps I could open a separate checking account for each tenant so that they could deposit their rent into an account that I used for nothing else, then I would just transfer the funds. Do you think this is a good idea?
Seems kind of roundabout to me, and has a couple of downsides. Also, there are some much better ways to accomplish the same thing.
First, I think it is a bad idea to let tenants (or anyone else, for that matter) have any kind of access to any of your accounts. Think about it. The tenant goes to the same teller at the same branch and makes deposits against your account for months. The teller gets to know the tenant and doesn't realize that the tenant doesn't own the account. Then one day the tenant shows up and cashes a check against the account. The teller shouldn't permit that, of course, and ultimately you might (or might not) get the money back, but why take the risk and deal with the hassle? Also, of course, the tenant has all the information needed to use your checking account over the internet or by mail.
Second, let us suppose that you don't receive your payment one month and commence eviction proceedings. Or better, you give a 30 day notice to move because you want the tenant out, and the tenant doesn't move.
It is accepted in most jurisdictions that receiving and accepting payment after starting eviction stops the eviction. So you file the papers, then a few days before court, the tenant makes a deposit in your account. Tenant shows up in court and says; "I made payment. Landlord accepted payment (which you did if it is now in your account); he can't evict me." How would this play out? I don't know. I would prefer to not have to deal with it. What you have done is given up control over YOUR ability to accept or not accept payment.
Even worse, in this case YOUR bank account information becomes EVIDENCE!. Your account numbers, your transactions - in other words, a big part of YOUR financial picture - winds up in court records. Not for me, I can tell you.
A far better way, I think, is to turn it around. Get the tenant's credit card or debit card information, and automatically charge THEIR account each month for the rent. Alternatively, draft THEIR checking account each month. Our property management software program, The Property Manager, will do this for you. The result to you is the same effortless rent collection that you are trying to achieve without the attendant risks.
The downside to you of doing it this way is that you have to have a merchant account and pay transaction fees. But you can deal with this too. Think about it. Not only is this rent collection mechanism painless for you, but it is painless for the tenant too. So, what you do is tell the tenant how great this is for her ("you don't have to do anything and your rent will never be late...") and pay a "convenience fee" that, coincidentally, happens to offset your transaction fee.
And, as far as the merchant account is concerned, Just So Software will help you get that set up.
About the Author: Jim Locker is a technical guy who has done a lot of real estate investing and landlording. The experiences he writes about and advice he gives are either first hand, or in answer to specific questions posed by others. He is commonly known as jiml8 around the internet.
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