NEXUS PROPERTY MANAGEMENT 101:
DON’T TAKE CASH FROM TENANTS
AVOID UNNECESSARY RISK AND LIABILITY AS A LANDLORD
No disrespect to Jack Welch, or others who have made the claim “Cash Is King”; but in the world of property management and tenant rent collection, that saying couldn’t be further from the truth. When it comes to collecting rent, cash is a huge liability and risk, on top of its being inefficient. If you’re still collecting rent in the form of cash, it’s past time to change your approach for your own benefit as well as that of your tenant. While Nexus Property Management® prides ourselves on helping our clients, subscribers, and casual readers make the best possible decisions based on the variables in any given situation, there is no decision necessary here: drop the cash and move to a documentable form of payment.
ACCEPTABLE FORMS OF RENT COLLECTION:
There are four typical methods of payment a professional property manager will accept, and your policy should be no different. Personal checks are acceptable and often a most convenient form of payment for tenants, especially older ones. While personal checks could present some risk of fraud or deception for one time large purchases in retail or other sales, it’s rarely, if ever, an issue when it’s the preferred and commonly used method for a tenant. That obviously doesn’t guarantee that checks won’t bounce from time to time.
Money Orders and Cashier's Checks are also acceptable and may be preferred by some landlords because there’s no risk that they won’t clear, as could be the case with a personal check. A cashier’s check might be necessary depending on the amount of rent being paid. In general, money orders are documented payments guaranteed by the store that provides it, while a cashier’s check does the same, but with the backing of a bank. Both are documented, without risk, and far superior to cash.
And finally, our #1 preferred method is the use of Online Payment. Hands down, this is the most efficient and convenient for tenants, owners, and property managers alike. Add value to your tenants’ experience by reducing friction wherever possible. This should be an easy one.
[ Learn More: DON’T FALL VICTIM TO THIS TENANT RENTAL PAYMENT SCAM ]
RISK AND LIABILITY:
There are several big problems with accepting cash and the first is the general risk that comes from handling that much money. Depending on how many units you have (our most common property owners own a 3-unit apartment), you could be holding on to over $3,000 at a time…and your tenants, their “friends” and family, and a whole multitude of people know it. You might not own property (or have an office) in an area that is typically prone to violence, but the general idea of carrying or holding large amounts of cash should be something you avoid whenever possible. Even in the most suburban of suburbs, you can rest assured pizza delivery cars and delivery bags are covered with the wording, “Drivers carry less than $20”.
Liability and risk run hand in hand when you’re dealing with cash. As a tenant paying in cash, there is no proof, without asking for a receipt, that you paid your rent in full. As an owner, you’re fully responsible for handling and recording that cash. It’s then your responsibility to get that money into your account without flaw. If anything is lost or there is a bank error, you’ve gotta figure it out yourself…and you’ve got no documentation or records to fall back on.
[ Learn More: TOP RENT COLLECTION MISTAKES MADE BY LANDLORDS ]
BURYING THE LEAD→ CASH IS EXTREMELY INEFFICIENT!
Unnecessary risk and unneeded liability should be enough to sell even the most stubborn landlord on this one, but even more important in terms of real estate investment is how incredibly inefficient it is to handle cash transactions. Here’s a brief list of some of the time-consuming responsibilities that you take on when accepting cash:
- You have to count it and keep track of it. Should disputes arise down the road, you’ll need to take extra care when it comes to your bookkeeping.
- If accepting cash, rent can’t be mailed (legally). You’ll need to have a separate method of collection or be personally available…or GO COLLECT IT YOURSELF…don’t go collect it yourself!!!
- You’ll need to go to the bank. Unlike checks, money orders, and cashiers’ checks, cash cannot be conveniently scanned and entered into your account from home or office, so you’ll need to physically go to the bank yourself. Why should it be your responsibility to go to the bank when the tenant could’ve done it instead?
[ Learn More: BOOKKEEPING CAN MAKE OR BREAK YOUR REAL ESTATE INVESTMENT ]
Documentation and clear and easy to follow records are key to long term success. The same can be said about efficient policies and procedures. Rent collection is vital to real estate investment and there’s no room for error.
The reality is this: you’re not providing maximum value to tenants and property owners if you’re busy going to the bank or keeping track of things that technology and software can do for you much more efficiently. If you’re the property owner, you’re wasting your own time. With over a decade in the property management business, we at Nexus are confident in saying that much of the financial success we’ve brought to our clients comes from sharpening our best practices. It’s our hope that sharing some of what we’ve learned along the way will help with our goal of revolutionizing the property management landscape.
As always, reach out to our team if you have any questions or want to learn more. Nexus also offers franchise opportunities nationwide.
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Mick Lefort is 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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