Hi, Todd Ortscheid here with GTL Real Estate. This week I wanted to talk to you about how we process your rent payments into your bank account, which is how we usually do it. Or by check for a few of you. But for most you we do direct deposit. If you’re not getting your direct deposit right now, if you get a paper check and would like to switch over to direct deposit, we recommend that. So just let us know. We would just need your banking information.
But I wanted to talk just about the timing of these payments, why they come on the dates that they do, and what our reasoning for all of that is.
So, first of all, this has always been a priority for us. It’s been one of our points of difference from other management companies that we compete against. To the best of my knowledge, we are the quickest company to get owners their money, in the Atlanta market. And I believe in the Daytona, Northern Orlando market also. I’m not aware of another company that processes owner payments quicker than we do.
We process them basically every week. Most companies have one or two days a month that they process owner payments. And if your tenant pays late and it misses that date, then you’re waiting either till the next month or till two, three weeks later when they do their next payment. That’s not how we do it.
We process owner payments every Thursday. Or the next business day if Thursday happens to be a holiday. But generally every Thursday we’re processing owner payments.
So, what we do on that Thursday is we take every payment we receive from a tenant the prior week. And we pay them on that Thursday. And the reason we have to do it from the prior week is because Georgia law, Trust Account Law, requires that we make sure that a tenant payment clears the bank, actually settles to our account before we can send that to an owner.
So, in order to do that, we have to make sure there’s enough days in there to make sure that that payment has actually settled. Because tenants are usually paying with either a check or an electronic check, an ACH as it’s called, which is just basically an electronic, internet version of a check. It’s all handled electronically.
So, when that happens, it usually takes about three to five days for that payment to actually clear, for the money to actually hit our account. Until then, it shows in the bank as pending. Which means we don’t actually have the money. So the state doesn’t allow us to take that money and send it to you yet, because we don’t technically have it. Even though we’ve received the check or the e-payment is processing, it’s technically not in our account yet. So, we’re required to wait until it actually is.
So, what that means is, say we get a payment on Friday, or even let’s say Wednesday. Let’s say I get a payment on Wednesday. If I tried to send that money to you on that Thursday instead of waiting for the next week, that payment wouldn’t have cleared yet. So, that tenant’s check could bounce. And then the escrow account would go negative, which the state, it’s a big no-no. We’re not allowed to do that. We have to make sure that the trust account always has all the money in it that we are required to account for. So, every security deposit, every portfolio minimum for owners, every pre-paid rent, all of that has to be accounted for at all times. It can never go below that amount of money.
So, if we sent an owner money before it had cleared, the account would go negative. So, for that reason, we have to wait until the next week to make sure that the tenant’s payment has cleared. But we do pay every week.
So, our biggest competitor in Atlanta pays two days a month. They pay usually on the 21st, is their standard day. That’s when they pay almost all their owners. So, by the time the 21st rolls around, we’ve usually sent payments three times that month. So, that kind of shows you how much more of an effort we make to try to get owners their money.
Now, that same company will send you your money, I think it’s on the 10th, if i remember right. But you have to pay them more money every month to do that. Their management fee is higher if you want to receive that money earlier in the month. And they still have the same requirements that the money has to clear the bank.
So, that’s something that we don’t do. We don’t up-charge to try to get you your money quicker. We just send the money every single week on Thursday. Any money that we receive from your tenant the prior week, we send out. And to the best of my knowledge, we’re the only company, or at least the only company of any significant size, in our markets that’s doing that.
But we do still occasionally get some complaints from owners that, “My tenant made payment last Wednesday, it’s Tuesday the following week. I still haven’t gotten my money.” I understand it’s frustrating. But we do have to follow state law. We do have to make sure those payments have cleared. So, that’s why we have to put it on that schedule of weekly payments every Thursday for the money we received the prior week. So, that’s the reasoning behind that.
The other thing to remember is, it takes about three business days after we actually hit “Send,” on the computer, for the money to actually hit your bank account. That’s just a function of how long it takes our payment processor to send it all through the system. Some banks are also quicker than others.
So, Bank of America, if we send payments to Bank of America account and a Wells Fargo account and a PNC Bank account, and we process those all on the same day, sometimes they’ll hit those three owners’ accounts on different days. Some of them might be three days. Some of them might be four. So, some of it is also your bank. It depends on how their process works for handling when they actually settle those deposits.
But we are, like I said, sending them weekly, which helps with that. If you do have a slower bank, at least you’re not waiting for us to process it until later in the month. We’re doing it throughout the month, every single week.
The other thing I want to go over on this is, it’s always important to make sure you’re not counting on your current month’s rent to pay this month’s bills. We hear this all the time, “My tenant paid late, my tenant didn’t pay until the 7th of the month. So I’m not going to get my rent until the 15th or whatever it ends up being, when that Thursday rolls around to send that payment. How am I supposed to pay my mortgage?”
Well, it’s always a good idea, what we tell every landlord, if you’re gonna be in the landlording business, if you’re going to rent out property, you need to have at least three months of expenses set aside, preferably six months, put aside in a savings account or a money market account, or wherever you can get to it relatively quickly, to cover your bills.
Because it’s not just the matter of when the tenant’s payment comes in that month. It’s also a matter of what would happen if the HVAC system had to be replaced? It’s a few thousand dollars you have to pay there. If you’re depending upon that rent, the current month’s rent from that tenant to pay your mortgage, if you have that big repair, what are you going to do then? So you always want to make sure that you have several months’ rent set aside, ready to go, in case a tenant does pay late, or there’s a big repair, or your tax bill comes in and it’s higher than you expected.
For example, for our Florida clients, there’s a Constitutional amendment that’s on the ballot down there right now that would allow the state to basically jack up your tax rate at any level. Right now there’s a 10% cap on it. So, they could change that and make it to where they could jack up your taxes 50% in the year. So you could get a bill. Surprise bill comes in, my taxes have gone up 50%. How am I gonna pay this bill?
So, you want to have money set aside in case something like that happens. You don’t want to always be depending upon this month’s rent for this month’s bills. That’s never a good idea as a landlord. Always have that money set aside so that if the tenant does pay on the 7th, and then we aren’t able to get the money to you until the next Thursday, that that’s not a problem for you being able to pay your mortgage. You never want to be depending upon that. You always want to have some set aside.
If you have any questions on any of this, feel free to give us a call or send us an email at firstname.lastname@example.org. Or check out our website at www.gtlrealestate.com. Thanks.