Would you put your rent on a credit card?
As more landlords offer the option, having the option to
charge your rent also opens other doors. Racking up rewards, for instance, is a pleasant upgrade. Others, such as paying extra fees and falling into debt, are far worse than a noisy neighbor.
Shift from checks underway
70 percent of renters still pay by check, credit cards are gaining traction,
says Ben Trueheart, vice president of product management for PayLease, a company that
partners with property
managers to electronically collect
"There is a rapid
decline in paper checks," says Trueheart. "They will go away,
no doubt. Some property management companies are adamant -- you must pay online
with a card," says Trueheart. "It's a growing
from the Federal Reserve Payment Study back that up: Payments
made via paper check have dropped by more than half since 2000, from 41.9 billion in
2000 to 18.3 billion in 2012.
In the place of checks, rent payment processing businesses are stepping in to facilitate
account transactions between renters and landlords. Some are sweetening the
pie to boost credit card participation. RentMoola, for example, offers a rewards
program to tenants, allowing them to accrue points for charging their rent. The
points can be exchanged for travel deals and discounts on upscale transportation
services and local restaurants.
are feeling the pressure to switch to electronic payments," says Andrew McLeod,
vice president of global strategy for RentMoola. "Most renters are young and have never
used checks. They're fresh out of
college, and this is the way they want to pay. It's a shift."
pay rent with plastic?
Not all electronic
rental payment systems are set up to accept credit cards. eRentPayment, for
example, arranges to have money withdrawn from funds in a checking account. A property
owner can also set up a PayPal account, allowing renters to pay online.
McLeod, the major advantage for consumers to charge their rent is the ability
to earn points or claim cash back from their credit card's rewards program.
"If you have a credit card with
rewards, some let you earn up to 5 percent back for travel or cash to go into a
savings plan," says McLeod. "Students can really benefit because, depending on the credit card,
they can use points for tuition." Various banks
and financial institutions offer higher education credit card rewards
programs. State Employees Federal Credit Union, for instance, grants points for
purchases that can be used toward tuition.
cardholders who pay off balances every month, charging for rewards can
make sense. As of April 2014, the median rental
price of a studio or
one-bedroom apartment in the U.S. is $769, and depending on where you live, that
cost can be substantially higher. So a direct benefit of such sizable and
frequent expenditures is that points accumulate quickly and regularly.
The points I'm getting on my American Express card make whatever [fees charged] more
than worth it.
New York renter
credit card payments help tenants in other ways, too, asserts McLeod: "The convenience of being able to pay with your card is awesome. You
can pay from anywhere. You don't need to have all the money in your
So far, many renters
using the electronic system agree. Marc Philobos, a New York City-based
salesman who uses RentMoola, is enthusiastic about the service. "I get the points on my card, but also like the relationship they
have with other companies." The company offers "Moolaperks" through partnerships with other companies.
is often the biggest outlay people make every month, and control over tight
funds can be very attractive. "Putting a check in
the mail, you don't know when it will
be cashed," says Trueheart. "This way there is
no delay, no confusion."
landlords are letting renters pay weekly via credit card, so they can ease into
the large expense. For roommate situations, it bypasses the need to collect
from multiple people, and instead have everyone pay their own portion.
charging when you don't have all the cash
can prevent bounced check fees in the event that you don't have sufficient
funds in your checking account. Penalties commonly include a $25 fee from the
landlord, another (frequently larger) fee from the bank, and sometimes a revocation
of checking accounts. The ability to charge rent can even act as a temporary
stop-gap measure to avert an eviction for nonpayment when funds run
problem, of course, when using credit cards this way is that the relief can be
temporary and the cure costly. Charging three $1,500 rent payments, for
instance, can present an insurmountable bill for someone already struggling.
At an interest rate of 15 percent, they would still have to make at least the
of around $100,
while interest compounds on the remainder.
Even if you don't fall into debt, there's another catch: transaction fees. The companies that set up electronic payments charge for the
service, and the property manager or landlord decides who pays the fees.
costs for these card transactions are around 2.75 percent of the amount sent,
as it is with RentMoola. That translates to $27.50 for a $1,000 rent payment.
As for who absorbs that cost, "It's much better if it's
assumed by the property manager, but a lot of time profits are so low that they
push it off to the tenant," says McLeod.
Such is the
case for Oliver Overton-Morgan, who owns Absolut Realty, a medium-sized property management
firm in Orlando, Florida. His company
passes the cost of credit card payments to the resident, though a flat fee is
charged depending on the rent. For instance, tenants pay $17 for rents of less than
$900, $27 for rents between $900-$1,250,
and $37 for rents up to $3,000.
Scott Androvic, a real estate broker for Patriot Properties
& Higgins Group out of Stamford, Connecticut, who also has invested in
several rental units, picks up the fee for his renters, seeing it as a simple
way to keep good tenants happy.
ease the pain of paying a transaction fee, RentMoola tried to ease the pain. "The reason we offer
perks and discounts is to offset the cost. We have partnerships with Zipcar, Uber,
Amazon, all the cable and Internet phone providers," says McLeod. "Our system is all
about giving back to the tenant. We want to make it a tenant-friendly solution."
Paper checks in the mail can come late. My tenants are super excited about it. For the few dollars it costs me, it makes sense. The reward is that I get paid on time.
|-- Scott Androvic
Real estate broker, rental property owner
he doesn't even know who is paying the credit card transaction fee. "I'll have to check," he
laughs. "But the points I'm getting on my American Express card make whatever it could be more
than worth it."
landlords have to gain
advantages for landlords are multifold. "They
know in real time whether the funds are there, and it saves a lot of
administrative effort," says McLeod, who
cites a property management company that owns 50,000 units. "Imagine the
truckload of checks they have to go through every month. Electronic transfers
are much more efficient."
emphasizes the time-saving angle, too. Paper checks require landlords to go to
the bank to make deposits, often multiple times a month. Also, says Trueheart, "They are manually updating software. That's an accounting nightmare!" With
integrated software, books are instantly updated.
payments reduce common security troubles. Property owners and managers don't have to deal with broken-into mail boxes, stolen mail and checks
rewritten to cash, all of which cause headaches and delays.
Absolut Realty decided to accept credit cards because it helps the renter
remain in positive standing: "We feel that sometimes if a tenant
has a tight month and needs to move funds around temporarily, it is convenient
to be able make a timely payment by using their credit card."
"I only have three properties and it
made my life easier," says rental unit owner Androvic. "Paper checks in the mail can come late. My tenants are super excited
about it. For the few dollars it costs me, it makes sense. The reward is that I
get paid on time."
then there's debt
everyone praises the trend. One doubter is Anthony Kirlew, founder of personal finance
blog FiscallySound.com. "As a personal
finance consultant and former real estate professional, I cannot advise paying
rent with a credit card, nor can I endorse the practice," says
Kirlew. "Sadly, the pattern for many is to
charge with good intentions, fail to plan for unexpected life events, then take
the easy way out with a bankruptcy and start the cycle over again."
So who does
Kirlew believe might be an appropriate candidate for charging rent? "The rare exception to the rule would be the person who maintains a
budget well, carries no debt, has reserves for emergencies, and only uses the
card to amass rewards such as cash-back or travel incentives."
spokeswoman for the National Foundation for Credit Counseling, also has
words of warning: "If a person is charging their rent
because they don't have the cash available, that's a red flag that needs
Card balances can spiral out of control, particularly with
such important charges as rent. "By not facing
reality, a person potentially creates a debt beyond which they can recover.
Since a roof over your head is a priority, instead of hoping things will get
better and putting Band-Aids on the problem, reach out immediately for help." Many
of the agencies working under the NFCC umbrella are certified to conduct
housing counseling, including landlord-tenant assistance.
Still, not everyone
is bound for trouble. For some tenants, amassing unpayable debt this way isn't a concern. Philobos, who sends the full balance of the bill right away, says, "I'm going to pay for it anyway."
See related: How to rent property when you have bad credit
, Figuring out how much rent you can afford