Landlords should never use Venmo or PayPal to collect rent from Section 8 tenants due to the legal, financial, and security risks involved. These payment platforms lack the necessary paper trail and security features required by the Department of Housing and Urban Development (HUD) regulations, putting both landlords and tenants at risk.
In this blog, we will discuss the risks of using Venmo or PayPal to collect rent from Section 8 tenants and explore alternative payment methods that are safer and more appropriate for this purpose.
Using Venmo to Collect Rent
Venmo is a digital wallet for making instant transfers. With Venmo, all your tenant needs to do is transfer the rent payment to your account, and it arrives instantly. In addition, the app allows the tenant to use their debit card, credit card, or bank balance. Unfortunately, Venmo is not the best option for collecting rental payments. Not only is there no protection, but Venmo lacks essential features that many rent collection apps come with standard.
The pros of using Venmo to collect rent
- Easy to use: Once you download the Venmo app, you can start sending and receiving payments.
- The money transfer is free: A tenant can make transfers from their Venmo account to your account for free.
- Allows tenants to split rent: With Venmo, a tenant can split the rent between roommates. They can send an instant payment to the tenant responsible for paying the landlord.
- Venmo offers credit and debit card payments: The app provides credit and debit cards without charging annual fees. However, it can add 3% to the tenant’s credit card rent payment.
- Social media features: Venmo incorporates popular social media features like comments, likes, and messages on payments. This switches up the user experience, enhancing the experience and allowing parties to communicate.
The cons of using Venmo to collect rent
- Charges fees for business transactions and “cash a check” features: Though person-to-person fees are free on Venmo, rent payments are categorized as a business transaction with a 1.9% processing fee plus $0.10. Also, if you use the “Cash a Check” feature to deposit a check directly to your Venmo account, you will be charged 1% and a minimum of $5.
- Charges fees for instant payments: There is a 1.5% fee (with a minimum fee of $0.25 and a maximum fee of $15) for instant transfers on Venmo.
- No recurring payments option: Tenants can’t set up automatic rental payments. Therefore, late rent payments become more likely, causing disrupted cash flow.
- Impossible to cancel a Venmo payment: Venmo’s policies do not allow a refund to the renter or transfer to the landlord if a tenant pays the wrong amount due to incorrect details. The “no cancellation policy” makes it impossible to cancel a Venmo payment.
- No automatic late fee calculations: Unlike rent payment apps, there is no way to charge late fees automatically. So, this means more paperwork and administration for you.
- Venmo’s dispute policies: Generally, Venmo won’t get involved in payment disputes. However, if they do, the company will often favor the buyer (tenant) over the seller (landlord).
- Venmo can’t block a partial payment: You can’t decline or stop a rent payment made via Venmo. Nor can you block partial payments. The eviction process halts once the landlord accepts payment in some states, depending on the conditions of your situation. Therefore, you may find it difficult to evict a tenant.
- No option for credit bureau reporting: With Venmo, you cannot report rent payments to credit bureaus, which affects the tenant’s credit score. When credit reporting is out of the picture, there would be no means of incentivizing or penalizing late rent payments.
It’s easy to see how these cons outweigh the pros. No doubt, Venmo works perfectly for sending money to family and friends. It could even be helpful to split the rent between roommates. However, it is a bad idea for landlords to use it for rent collection. It offers neither protection nor incentive to you as a landlord.
Using PayPal to Collect Rent
PayPal is an online payment platform that allows users to send and receive money electronically. Many landlords have started using PayPal as a method to collect rent from tenants due to its convenience and ease of use. One of the main benefits of using PayPal is that it enables tenants to make payments from anywhere at any time, making it a convenient option for both landlords and tenants. Additionally, landlords can easily track their rent payments, view payment history, and automate rent payments using PayPal.
However, it’s important to be aware of the potential fees associated with using PayPal to collect rent. PayPal charges a transaction fee of 2.9% plus $0.30 for each transaction, which can add up over time. Furthermore, if the tenant is paying in a different currency, PayPal may charge a currency conversion fee, which could result in the landlord receiving less money than anticipated. It’s important to take these fees into account when setting rent prices to ensure that the landlord is not losing money in the process.
The pros of using PayPal to collect rent
- User friendly: The app is easy to use and provides robust security that helps to prevent fraud. It keeps your bank and credit card info safe by encrypting them.
- Offers multiple payment methods: Rent payments can be made with a debit card, a credit card, a bank account, or a PayPal balance.
- Business accounts: A PayPal business account helps you keep track of your invoices. It offers payment protection plans for accounting purposes. However, there is no protection for real estate transactions.
- PayPal sending limits: With a verified PayPal account, there are only a few limits to how much you can send. PayPal sending limits offer an option of sending up to $60,000 in a single transaction. However, these can sometimes be limited to $10,000. Also, remember that rent payment goes to your PayPal account, not your bank.
The cons of using PayPal to collect rent
- Limited features for landlords: You can’t apply and enforce late fees automatically; neither can you block payments. This makes it challenging to go through an eviction process successfully.
- PayPal charges for rent payments: Although friends and family transactions are free on PayPal, business fees range from 1.9% to 3.5%, including a fixed rate of up to $0.49 commission. PayPal classifies rent as “goods and services,” qualifying it as a commercial transaction. However, there is no payment protection for “real estate transactions.”
- Charges for instant transfers: PayPal charges 1% on instant access to your funds, while a free bank transfer will take a few days.
- Insufficient protection for landlords: When payment disputes arise, PayPal often takes sides with the payer, in this case, the tenant. Just like Venmo, landlords are offered little to no protection.
- Inability to report payments to credit bureau reporting: PayPal’s features do not include an option to report rent payments to credit bureaus. Late payments showing up on a credit report can motivate tenants to pay rent on time. With PayPal and Venmo, you miss out on this incentive.
- Rent reminders: PayPal doesn’t send rent reminders before the due date. It only does when invoices are overdue.
Landlords should never use Venmo or PayPal to collect rent from Section 8 tenants due to the risks associated with these payment platforms. Instead, they should opt for more secure and appropriate methods such as electronic rent payments or automatic payment systems. These options provide better protection and features, making it easier for landlords to properly manage their rental properties.
Risks of Using Venmo or PayPal for Rent Collection
Venmo and PayPal are popular digital payment platforms that offer a quick and convenient way for landlords to collect rent payments. However, when it comes to renting collection from Section 8 tenants, these payment platforms can pose significant risks. In this section, we will discuss the potential risks associated with using Venmo or PayPal for rent collection.
Risks of Using Venmo or PayPal for Rent Collection:
- HUD Regulations: The Department of Housing and Urban Development (HUD) requires landlords to maintain detailed records of rent payments received from Section 8 tenants. However, Venmo and PayPal lack the necessary paper trail and tracking features to meet these requirements.
- Fair Housing Act: Using Venmo or PayPal for rent collection can raise fair housing concerns, as some tenants may not have access to these payment platforms due to financial or technological limitations, leading to discrimination allegations.
Lack of Paper Trail
- Difficulty tracking payments: Venmo and PayPal offer a limited paper trail, making it challenging for landlords to track and reconcile rent payments received from tenants.
- Difficulty proving payment in court: Without a proper paper trail, it can be challenging for landlords to prove rent payment in court, leaving them vulnerable to legal disputes.
- Risk of fraud: Venmo and PayPal are not immune to fraud, and landlords can fall victim to scams, chargebacks, and other forms of fraudulent activities.
- Risk of unauthorized access to bank account information: By using Venmo or PayPal to collect rent, landlords risk exposing sensitive bank account information, putting them at risk of unauthorized access and potential financial losses.
While Venmo and PayPal may offer a convenient way to collect rent payments, the potential legal, financial, and security risks associated with their use should not be ignored. Landlords should explore alternative payment methods that offer a greater paper trail and security features to ensure compliance with HUD regulations and protect themselves and their tenants from potential legal disputes and security breaches.
Alternatives to Venmo or PayPal for Rent Collection
Using Venmo or PayPal to collect rent payments from Section 8 tenants can pose significant risks, including legal issues, lack of paper trail, and security concerns. In this section, we will explore alternative payment methods that landlords can use to collect rent from Section 8 tenants that offer greater security and paper trail.
Alternatives to Venmo or PayPal for Rent Collection:
Money Order or Certified Check
- Security and paper trail: Money orders and certified checks offer a secure payment option that provides a clear paper trail, making it easy for landlords to track and reconcile payments received from tenants.
- Convenience: Tenants can purchase money orders or certified checks from their bank or a nearby convenience store, making it a convenient payment method for them.
Direct Deposit or ACH Transfer:
- Security and paper trail: Direct deposit and ACH transfer are electronic payment methods that offer a secure way to transfer funds from tenants’ bank accounts directly to landlords’ accounts, providing a clear paper trail.
- Convenience: Direct deposit and ACH transfer offer a convenient payment method for tenants, allowing them to schedule automatic rent payments and avoid the hassle of writing and mailing checks.
When it comes to renting collection from Section 8 tenants, it’s crucial for landlords to use payment methods that offer a greater paper trail and security features. Money orders, certified checks, direct deposits, and ACH transfers are excellent alternatives to Venmo and PayPal, providing secure and trackable payment options that comply with HUD regulations and protect both landlords and tenants from potential legal disputes and security breaches.
Using Venmo or PayPal to collect rent from Section 8 tenants can pose significant risks, including legal issues, lack of paper trail, and security concerns. These risks can leave landlords vulnerable to legal disputes and potential financial losses. It’s crucial for landlords to use secure and trackable payment methods that comply with HUD regulations and protect both landlords and tenants.
Money orders, certified checks, direct deposit, and ACH transfers are excellent alternatives to Venmo and PayPal, providing secure and trackable payment options that offer greater peace of mind for landlords and tenants. By using these payment methods, landlords can ensure compliance with HUD regulations, reduce the risk of fraud and legal disputes, and provide a convenient and hassle-free payment option for their tenants.
In summary, we strongly recommend that landlords avoid using Venmo or PayPal for rent collection from Section 8 tenants and instead use the alternative payment methods mentioned above. By doing so, landlords can minimize their risks and ensure a secure and reliable rent collection process.