Accepting cash for a rent payment is tempting: there’s no waiting for electronic funds transfers or checks to clear. What could possibly go wrong?
Ask Josh Bond, manager of the Princess Eugenia, an apartment building in the Los Angeles suburb of Santa Monica. The management company Bond worked for routinely skipped tenant credit checks and accepted cash rent payments from several residents, including an elderly couple who lived in Apartment 303, right next to Bond’s unit.
Nothing about the couple raised eyebrows until the afternoon of June 22, 2011. After knocking off a bit early and plopping onto his couch for a nap, Bond got a call. From the FBI.
Bond met FBI agent Scott Gariola at the Embassy Hotel, the location of the property’s management office across the street from the Princess Eugenia. The agent revealed that the couple in 303 were none other than mobster James “Whitey” Bulger, second only to Osama Bin Laden on the FBI’s Ten Most Wanted List, and his girlfriend, Catherine Greig.
The couple had been on the run for 16 years. But it took only a few minutes for the FBI’s sting involving a “burglary” of Bulger’s storage unit to fool and arrest the former crime kingpin without firing a gunshot. (For all the details on the arrest and the events leading up to it, read the page-turner Whitey Bulger: America’s Most Wanted Gangster and the Manhunt That Brought Him to Justice by Kevin Cullen and Shelley Murphy.)
Protect your business, your money—and your back
OK, most tenants offering you cash for a rent payment won’t have a history of murder and mayhem. But that doesn’t mean taking an envelope of dollar bills from a tenant is a low-risk proposition.
“By making sure there’s no cash onsite, property managers increase the safety and security of their businesses,” says Jo-Anne Oliveri, an industry strategist, author, and managing director of ireviloution intelligence in East Brisbane, Australia. “For one, not accepting cash for rent payments dramatically reduces the possibility of theft.”
Theft is exactly what happened at — wait for it — the Princess Eugenia. An employee of the management company was caught absconding with some of the very same cash Whitey Bulger plunked down for his rent. (Crime-boss cash must carry a scent that makes it irresistible to other morally challenged souls.)
Another great reason not to take cash for rent payments? Oliveri says, “By refusing cash, you mitigate the possibility of injury to your team.”
Does injury sound far-fetched? Well, consider that some tenants who pay in cash may decide to deliver the payment to your office, or, if you’re a landlord, to your home. Sadly, some tenant-landlord confrontations turn into tragedies, as in May, 2013, when a man in Hialeah, Florida showed up with a baseball bat at the home of his landlord, who shot and killed him, claiming self defense.
The potential for run-ins is why most property managers use a post office box, electronic funds transfer, or online rent payment services when collecting rent, late fees, and other charges from residents.
Just saying “no” to cash for rent payments is just good business
OK, you’ve heard about the dangerous repercussions of accepting cash for rent. If they aren’t daunting enough, there are other practical reasons to rethink your policy for collecting payments from tenants. Many center on the physical nature of the transaction. Accounting with cash is a manual process, and, therefore, time-consuming and prone to human error.
These reasons include:
- You have to store the cash at the management office and ensure its safekeeping.
- Traveling to the bank is inconvenient and entails obvious risks. (Of course, you always can hire an armored car service, but that’s an expense that can eat away at your profits.)
- Taking cash means you have to write the resident a receipt and log the transaction in the system you use for bookkeeping, whether it’s property management software, a spreadsheet, or a ledger.
What happens should you forget to write a tenant a receipt or log the transaction in your accounting system? It could lead to a dispute about non-payment of rent resulting in a he-said-she-said situation in court, a scenario you want to avoid because it will waste your time, and you could lose.
” Accepting cash for rent or other fees disturbs the paper trail and is not best practice,” says James M. Murphy, a real estate attorney with the Boston-based law firm Bletzer & Bletzer, PC. “A successful landlord-tenant relationship is based on a clear paper, or even better, electronic trail.”
Clearly, taking cash for rent payments has its downsides. Not only can it hurt your business, but it can be harmful to you and your colleagues’ health.
Do you have experience with tenants who pay their rent with cash? What are your best practices? Leave a comment below, and tell us all about it.Read more on Accounting & Taxes