Brian Gianelli says he used to earn travel rewards from a credit card simply by flying a certain number of miles every year. But to hang onto those benefits, now he says he’s also required to charge more than a certain amount to the card.
That’s one reason why Gianelli, a TV blogger who lives in Los Angeles, started using the card to pay his rent.
“I love the flexibility it gives me, and I need to hit a certain spending level to hit my mile status with United [Airlines],” said Gianelli, who uses a third-party payment app powered by RadPad to make payments with a credit card to his landlord.
New online payment services are offering unprecedented economic flexibility to a growing number of renters like Gianelli, providing trickle-down benefits to real estate agents and landlords.
But some industry insiders say technology that makes it easier to finance rental costs also creates risks for both real estate professionals and consumers.
Online payment systems that let tenants pay rent using credit cards and electronic funds transfers, such as direct deposits and direct debits, first began to emerge in the late ’90s. Some landlords and property managers have gradually adopted those systems over the years.
But rent payment services that don’t require landlords to sign up have emerged more recently.
A new type of middleman
These middlemen accept debit and credit card payments from tenants, convert those payments into checks and then mail the checks to landlords on the tenants’ behalf. Landlords are often unaware that some of the checks they receive from such services are funded using credit cards.
Providers like RadPad and RentShare generally charge a processing fee of around 3 percent for the credit card payment option. According to the startups, half of people who use RadPad’s rent payment service and a quarter of people who use RentShare take advantage of their credit card payment option.
Some real estate agents and leasing managers are presenting RentShare to apartment hunters as a tool they can use to reduce upfront housing costs so they can afford more expensive apartments, said Christopher Toppino, co-founder of RentShare.
Financing for security deposits, real estate agent fees
Another up-and-coming breed of online payment service is geared towards helping renters acquire apartments in the first place.
Historically, some renters have been able to avoid handing over a security deposit by paying a one-time fee for what is essentially an insurance policy. The policy would cover any damages made to an apartment during the renter’s tenancy up to an amount equal to or greater than a typical security deposit.
But renters who use TimePay, which was launched by relocation service Trotter in June, can avoid paying any fee at all. TimePay finances a renter’s real estate agent fees and full security deposit upfront. The renter then pays back the loan at an interest rate in the “higher single digits” over a 12-month period, according to Trotter co-founder Clara Arroyave.
Trotter encourages the real estate agents in its network to present TimePay as a tool that empowers renters to secure their apartment of choice.
If a Trotter-vetted agent and landlord approve a renter, the renter is automatically eligible for TimePay. TimePay ultimately decides whether to make a loan based on an analysis of the renter’s LinkedIn and Facebook profiles.
Real estate agents whose clients use TimePay are “free and encouraged to disclose that with the landlord,” but they are not required to disclose, Arroyave said.
Trotter said it expects to eventually offer TimePay to renters who don’t work with its relocation service. RadPad has considered launching a similar service but has no plans to do so in the near future, said RadPad CEO Jonathan Eppers.
Not your average guarantor
TimePay caters to renters who want help with the upfront costs of getting a new rental, but another type of rent payment service is geared towards renters who have cash to spare but still might not be able to qualify for an apartment due to factors like poor credit.
In exchange for a one-time fee worth a little over a month’s rent, LeaseLock will guarantee a renter applicant’s rent through the term of a lease.
Renters must still fork over a security deposit to a landlord. LeaseLock tells landlords it “guarantees your leases so you can approve conditional applicants without risk.”
Emerging rent payment services provide new ways for consumers to cope with high rents and help consumers secure the apartments they want. RadPad has even helped a number of tenants stave off eviction, Eppers said.
Besides enjoying additional financial flexibility, renters like Gianelli can also benefit from paying rent with a credit card by earning rewards that might outweigh the fee they must pay to use the payment option.
Some landlords and property managers say they don’t mind if a tenant pays rent with a credit card or if an applicant uses a financing service to cover a security deposit or to guarantee their rent.
Should a landlord know if their tenant pays with debt?
But Eppers acknowledged that there may be a “stigma attached to covering rent with debt.” That’s one reason why RadPad doesn’t disclose whether a check it sends is funded by a credit card, he said.
“We don’t really think it’s the landlord’s prerogative to know that information,” he said.
Bill Lublin is CEO of Century 21 Advantage Gold, a Philadelphia-based brokerage whose property management affiliate oversees 550 units. And he said that he would like to know if a prospective or current tenant of a building under his management pays rent with a credit card.
Tenants who use debt to cover housing costs are more likely to be financially unstable, Lublin said. Even renters who use the payment option responsibly, he added, still could spiral into sudden debt if things took a turn for the worse.
“What if my car dies and it’s expensive?” Lublin said. “Now what do I do? I already banged my credit card on the first for my rent.”
The property management arm of Henderson, Nevada-based Re/Max Advantage, which oversees more than 1,800 rental units, offers tenants the option to pay rent online through electronic funds transfers, according to the company’s owner, Tim Kuptz.
But Kuptz has chosen not to offer tenants a credit card payment option.
That’s for two reasons.
First, it would mean that his firm would have to pay a processing fee — and likely pass that cost on to the tenant, he said.
Second, it would allow a tenant to issue a chargeback. In that situation, the tenant’s credit card company could claw back a rent payment, putting Kuptz’s company in a fix.
RentShare addresses both of those concerns, said RentShare’s Toppino. It requires credit card users to pay the processing fee, not the landlord, and it protects landlords against chargebacks.
“In the rare case that a tenant issues a chargeback on a rent payment, we file the dispute on the landlord’s behalf and cover any fees,” he said.
But, he added, while RentShare doesn’t need to pull funds back from a landlord in most cases, “We cannot assume total liability in all cases.”
Some landlords and property managers also are uncomfortable with the thought that a renter could pay a security deposit with borrowed money from a service like TimePay without their knowledge.
But that’s not to say rent financing services like TimePay want to fly off the radar of landlords. At least one has marketed itself directly to landlords on the basis that they can help enlarge their pool of qualified rental applicants.
When Kuptz was approached by one such firm, he told them to take a hike. “I just did not like the idea,” he said. “If you had to borrow money for a security deposit, that wasn’t a good tenant candidate for us.”
Trotter’s Arroyave said she knows TimePay “can be perceived by the landlord as a moral hazard at first sight.”
But she maintains that’s not the case. Trotter’s diligence process, she says, “precisely centers around determining how strong is the bond of the TimePay customer with the city and school or job that they are attending over that 12-month window” when the loan is paid off.
Lublin thinks startups that guarantee leases, like LeaseLock, could provide a valuable service. He’s mentioned that type of service as an option to rental applicants in the past, but he said none have been willing to pay the cost of the guarantee (a little over a month’s rent).
He won’t be recommending that tenants use debt to cover housing costs anytime soon.
“Maybe I’m old-school,” he said. “But I think that food, clothing and shelter should be paid first, from your regular income.”
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