Landlord Software 

Streamlining Your Rental Process: A Landlord's Guide to Collecting the First Month’s Rent Online

by Kris


Posted on Tuesday November 14, 2023 at 08:39AM in General


As a property manager or landlord, the initial collection of rent from new tenants is a fundamental task that sets the stage for a smooth tenancy. With the right approach and modern landlord software, this process can be seamless and secure.

Introduction to Online Rent Collection

The act of collecting the first month's rent often marks the beginning of a new landlord-tenant relationship. The first rent payment is often made with a payment that can't return for non-sufficient funds or by accepting the payment a few days early so the landlord knows if it bounces before the tenant moves in.

Understanding the First Month’s Rent

Typically, the first month's rent and a security deposit is the amount a tenant pays to secure their lease. Landlords have traditionally collected this payment upfront to establish financial security. In the digital age, landlord software platforms have made it possible to streamline this process, ensuring timely and full payments through systems designed for online rent collection.

What types of payments should a landlord accept for rent?

There are many different ways for a tenant to pay rent.  Below are some of the benefits and issues with each payment type.

  1. ACH (Bank Payments)
    • Pro: ACH rent payments are convenient and tenants can schedule them from a phone or computer from anywhere with rental management software.
    • Con: ACH rent payments can return if the tenant doesn't have enough money in their bank account or for other reasons.  Most returns (non-sufficient funds, closed bank account, frozen account, unknown account, etc.) return within two banking days.  Fraudulent options can return up to 60 calendar days later.
    • Recommendation: ACH payments work really well for normal rent payments.  When taking the very first payment, the best practice is to take this payment three or more banking days before the tenant moves in to ensure that the tenant has enough money before they move in.

  2. Credit & Debit cards
    • Pro: Credit cards are convenient for tenants and also allow a tenant to make payments over time to the credit card company if the tenant doesn't have enough money to pay right away.  While the tenant may need to pay additional fees to pay with a credit card, these fees are typically lower than lease fees for being late.  
    • Con: Tenants can contest the credit card payment for up to 180 days and try to obtain their money back.  Credit card companies usually support their cardholders and the chargeback is often debited from the landlord's bank account.  Landlords will often have to resort to collecting the rent with legal actions if a tenant contests their credit card payment, even if there is a valid lease.
    • Recommendation: While credit cards are often a good choice for normal payments, it is not recommended to take the first payment with a credit card.  It it better to ensure that the tenant has enough money to pay the first month rent without needing to borrow money on credit.

  3. Cash (Tenant hands landlord physical cash)
    • Pro: Tenants can pay landlords directly with cash, which can't return.
    • Con: Cash can be stolen or lost.  It can also be very time consuming to meet a tenant at a specific location and time, especially if someone is late or doesn't show up.
    • Recommendation: Cash is never a recommended payment type because of the risk of theft, chance of being lost, and the inconvenience of the pickup.

  4. Cash (Tenant uses cash at a retailer that accepts MoneyGram)
    • Pro: A tenant can pay with cash, via MoneyGram, at major retailers like Walmart and CVS. Tenants have the flexibility to pay whenever it is convenience since many retailers are open extended hours. Some tenants do not have a bank account and can't pay with other methods.  Cash payments can't return so landlords know the money is always good.  If you are using landlord software that supports cash via MoneyGram, a simple click is all that is required to setup this option.
    • Con: Paying with cash is often convenient for tenants, but a tenant will need to go to a retailer to make the cash payment.  There is often a small fee at the retailer, which is often less than $3.00.
    • Recommendation: Cash is a great option for the first rental payment or any other payment since the payment can't return and some tenant's don't have a bank account.

    • Money Order or Cashier's Check
      • Pro: Money orders and cashier's checks are drawn on the money order company or on the bank's account (not the tenant's bank account) and they can't bounce for non-sufficient funds.
      • Con:  There is usually a small fee for the tenant to purchase a money order.  The tenant then has to give the money order to the landlord, and the landlord then has to deposit the money order into their bank account.
      • Recommendation: Money Orders and Cashier's checks are a good choice for the first rent payment since they can't return for insufficient funds.

    • Paper Check
      • Pro: Many tenants still have paper checks and many older tenants still prefer them.
      • Con: A paper check can return.  Most checks return in 2-3 days and you can see the return if you lookup the status online instead of waiting for the return in the mail, but returns could take over 30 days with a fake check.  
      • Recommendation: Receiving a paper check is not the best option for the first rent payment since it could return.  If you take a check, it is recommended to accept it a week before the tenant moves in.

    • Venmo or Zelle
      • Pro: These payments can't bounce since the account holder validates and then "pushes" money from their bank account.
      • Con: There may be a fee, depending on the type of account being used.
      • Recommendation: Venmo and Zelle are good options for the first payment since they can't return.

    • Wire
      • Pro: Wire payments can't bounce.  Once the money is sent, the tenant can't obtain the money back through the wire system unless the landlord agrees to it.
      • Con: Depending on your bank, the process may be online or the tenant may have to go into a bank branch.  There are typically fees for the person sending a wire, with a $25 national average fee for an outgoing wire.
      • Recommendation: Wires are good choice for a landlord, but the tenant may have a higher cost and additional inconvenience.

    • FedNow
      • Pro: FedNow is a new way to push money, which is very similar to a wire.  It is available 24 hours a day and once sent, it can't bounce or return.
      • Con: The tenant's bank may have a fee and not all banks participate in the FedNow service.
      • Recommendation: FedNow is a great choice since money is received real-time and it can't return.

    The Benefits of Prorated Rent

    When a tenant moves in mid-month, prorated rent calculations are essential. This practice, easily handled by advanced landlord software, ensures fairness by charging the tenant for only the days they occupy the property within that initial month.  Property management software like Schedule My Rent allow rent to be collected weekly, bi-monthly, monthly, or quarterly and the beginning and end of each cycle can be customized.

    The Optimal Time to Collect Rent

    Best practices suggest that the first month’s rent should be collected before move-in. This assures the landlord of payment security and prevents any potential payment disputes once the tenant has taken residence.  Different payment methods require a different amount of time to make sure the funds are good.


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    Leveraging Guaranteed Funds for Rent Payments

    To ensure financial certainty, landlords should consider guaranteed funds, payments that can't return, for collecting the first month's rent. Otherwise, it is recommended to accept the first payment early enough to make sure the payments doesn't bounce before the tenant moves in.

    Is Collecting the Last Month’s Rent Necessary?

    Collecting the last month's rent upfront is a strategy some landlords employ as a safeguard against lease breaches. Review federal and state laws to fully understand the advantages and potential drawbacks of this approach.

    Additional Fees to Consider

    Beyond the first month’s rent, landlords often require a security deposit and may also include other fees such as pet rent or parking charges. Landlord software can assist in managing these transactions, ensuring clarity and compliance with state laws.

    Concluding Advice

    In conclusion, collecting the first month's rent, alongside any additional agreed-upon fees, is a vital step in establishing a firm foundation for the landlord-tenant relationship. Record-keeping is crucial, and utilizing landlord software for online rent collection can significantly ease this process, benefiting both landlords and tenants.



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