Rental Payment Scams And How Best To Collect Rent

THERE ARE SO MANY QUICK AND EASY OPTIONS THESE DAYS…WHY NOT USE THOSE?

It’s never, in the history of the planet, been easier to exchange money. A Nigerian prince could email me right now and I could send him $500 to help his undoubtedly worthy cause by the time you finish reading this paragraph…what a beautiful thing!!! Peer-to-peer payment through mobile phones and the internet has revolutionized the sales and business world, but like so many things that prioritize convenience, it is not without its risks.

When it comes to collecting rent payments from tenants, or anything in the realm of rental properties for that matter, convenience has a high premium. Most property management companies will nudge (or mandate where it’s legal) tenants to pay online through their electronic payment systems. Landlords who manage their own properties are more commonly seeking convenience through the use of peer-to-peer apps such as Venmo, Cash App, or Zelle. Let’s take a look at the benefits and trade offs of these more convenient avenues.

LEARN MORE: ARE MOBILE PAYMENT APPS SAFE TO USE?

RENTAL COLLECTION RULE # 1: NEVER ACCEPT CASH OR TRAVEL TO COLLECT

Let’s first take care of a basic tenet so we can take it off the table. Good old fashioned cash can be very convenient for some. Often tenants may claim this is easier for them and as a landlord you’ve got funds that you can immediately use for your own ends as soon as that rent comes in. You don’t have to wait for checks to clear or software to process. What could be better? Well, it should be obvious that accepting cash is extremely risky because it is not a trackable exchange. If you have a history of accepting cash and then the tenant doesn’t pay you one month but claims that he did, good luck proving he’s lying.

Additionally, on the convenience side of the transaction, never, never, never travel to go collect rent yourself. It is the tenant’s responsibility to pay you on time. It’s inefficient and will only lead to more work and headaches on your end because you’ve tipped your hand on how desperate you are for that rent check. The United States post office is heralded as one of the most efficient agencies in the world. Everyone can use it. Don’t go pick up rent like you’re a dog drooling to your owner for a treat.

LEARN MORE: WHY LANDLORDS SHOULD NEVER ACCEPT CASH RENTAL PAYMENTS FROM TENANTS

LIFE RULE # 1: QUICK AND EASY ALWAYS COMES WITH TRADE-OFFS

Let’s say this for the first, but not last, time in this article: technology is great. We love technology. Harnessing it can give any business an advantage and increase efficiency. From the wheel to the railroad to the world wide web, technology is wonderful. But, it’s a proven maxim that all changes (and decisions) come with trade offs. Agricultural productivity got a jolt in the middle of the 20th century so fewer people are hungry, but now we have an obesity epidemic and heart disease is the number one killer in America. Automobiles transform the modern world in terms of the growth of suburbs and speed of business but not without a drastic increase in car related deaths. The list goes on and on. We live in a world of trade offs and the quest toward quick and easy transfers of cash is certainly not immune.

LEARN MORE: MORE ON TECHNOLOGICAL TRADE-OFFS

LIFE RULE #2: TECHNOLOGY AND SCAMS

To continue on that technological trade-off track, new technologies also lead to new efforts toward exploitation. As the world transfers to the modern digital age, hacking and online scams grow like parasites. At the heart of these issues is the balance between “quick and convenient” and “safety/security”. According to the Consumer Financial Protection Bureau, “money held in [peer-to-peer] apps often lacks federal insurance protections”. On the heels of a couple notably bank failures, this warning was sent out to make sure people knew that their money in Venmo or CashApp is not insured by the F.D.I.C. as it would be in traditionally insured banks, leaving it vulnerable. In these cases, especially if you’re leaving sums of money in those apps beyond just simple transactions, you’re trading convenience for security at your own risk.

Other means of rent collection are not in the clear either. At Nexus Property Management®, like many professional property managers, we use our own software to process e-payments. Admittedly, it is not as quick as the mobile payment apps as it trades speed for security. Our payments need to be verified by banks before monies can be transferred. This is essential in ensuring payments don’t bounce, but it’s not foolproof.

THE SCAM NEXUS RECENTLY UNCOVERED

The upside of having our own software for rent collection is that we have full and easy access to tenant payment history and full documentation should legal action be needed. In a recent case at our Rhode Island office, a tenant was manually gaming the system. She was paying with a fraudulent or empty account and banking on the 3 to 5 days the system takes to process the payment with the bank. So it appeared as though she paid her rent but three days later it was apparent she did not. When she was made aware her payment didn’t process, she did the same thing (buying herself another three days), again, again, and again. Clever… but wrong. And now thanks to our tracking it and having easy to access records, she’ll be evicted.

LEARN MORE: 5 TYPES OF MORTGAGE FRAUD

RENTAL COLLECTION RULE #2: FULLY UNDERSTAND THE TRADE OFFS

There is no 100% guaranteed way to avoid risk, but maximizing speed and convenience is an easy way to invite it. Consumer Reports offers tips to ensure maximum security for digital transactions. Tip #1 is to only use these apps with friends or family you trust. When it comes to rent collection, tenants are likely trustworthy, until they’re not (And since it came up, you do not want to rent to friends or family). Tip # 4: Do NOT use peer-to-peer payments for business purposes. If you are collecting rent, you are running a business. As of 2023, you’ll need to report any transactions over $600 to the IRS. In the same way a Toyota Corolla was designed to drive most efficiently between 55 and 65 miles per hour (even if it says it can hit 120 on the dash), these platforms were designed for your friend to pay you for the lunch you covered, not to transfer $2000 monthly.

LEARN MORE: CONSUMER REPORTS FINDS PEER-TO-PEER PAYMENT APPS OFFER EASE AND CONVENIENCE BUT POSE POTENTIAL FINANCIAL AND PRIVACY RISKS FOR USERS

TYING IT ALL TOGETHER

Effective and efficient rent collection is central to success as a landlord and rental property investor. While convenience abounds in our modern lives, rental payments are too important to file into the “quick and easy” category. Make sure you have a system that is safe, secure, and ensured by the Federal Government through the use of reputable financial institutions. Avoid accepting cash at all costs and while being rooted in trust, be aware that rental payments are a major challenge for many people today. Bloated housing costs have trickled down to elevated rents and like a mother bear protecting her cubs, people will try some crazy things to try to keep a roof over their heads.

Speaking of heads, if all of this sounds like one big headache, there are professional property managers in your area that can help with rental collection services and take on these risks. If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.

LEARN MORE: THE 3 PROS AND CONS OF HIRING A PROPERTY MANAGEMENT COMPANY

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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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