Bitcoins, litecoins, peercoins, Linden dollars… virtual currencies are either a great way to anonymize transactions, or to lose a lot of money fast. Many tech-savvy millennials, speculators and money launderers are chomping at the bit to use them, urging businesses to start accepting them like cash.
But should landlords consider taking the plunge?
There are surprisingly few landlords that accept any type of online payment. Credit cards? Nope, the tenant could dispute the charges, and the fees are too high. What about an online bill payment through our bank’s website? I can’t force all of my tenants to pay their rent that way, so it just creates more work for me. What's more, some tenants don’t even have a computer. PayPal and email money transfers? More headaches for my bookkeeping. I don’t want to offer five different ways for tenants to pay their rent!
Throw in the tenants’ fear – or landlords’ fear for that matter – of being hacked or defrauded. No wonder so many tenants still prefer to send a good ol’ fashioned check or money order, and landlords still accept them.
With the lack of interest in taking our rent transactions online, are there any advantages to accepting rent through virtual currencies? Is it the way of the future, or just the way to make our business more complicated and risky?
There are pros to going virtual. Once your account is set up, using or receiving bitcoins is quick and easy. There are no such things as holds on the money like when depositing checks. They can’t bounce either. Transactions can be done instantly. For those who want a confirmation of available funds, the money is still in your account within a few minutes.
Surprisingly, even though virtual currencies are all, well, virtual, they can be more secure than credit cards or other online payment methods (provided the exchange platform is secure). While Mt. Gox famously collapsed in scandal last year, there is little to no personal information that can be stolen, copied or hacked the same way credit cards can.
But that brings us to the major drawbacks to using a virtual currency like bitcoin. One big risk is the constant currency fluctuations. At the time of writing this article, one bitcoin is worth $237.41. This morning, its opening value was $241.19. Back in late 2013, a bitcoin was worth over $1,100!
If you receive rent in bitcoin, you will need to deal with the constant change in value. If you convert to American dollars, the value will never be the same from one month to the next. It’s like accepting rent in a foreign – and volatile – currency. A constantly changing value creates quite the bookkeeping nightmare. If the value drops too much, it can throw a wrench into your automatic mortgage or utility payments.
Another drawback is the fees for using virtual currencies. Although lower than credit card fees, expect to pay about 1 percent of all transactions in fees.
Lastly, virtual currency exchanges can be hacked, or worse, defrauded by administrators (like the Mt. Gox fiasco). Because virtual currencies are meant to be anonymous and similar to cash, they are difficult to trace, and leave little paper trail.
For landlords looking to grow their real estate portfolio, you might run into an additional problem. Lenders require proof of income in order to qualify you for new financing. If your tenants pay in bitcoins, it may be difficult to convince your bank that you have a safe source of income.
So is it being done? It’s pretty rare, but some large rental companies are starting to allow virtual currency payments. So are a few larger property managers.
Instead of accepting bitcoins for rent, some investors are using them to invest in real estate. Described as “LendingClub for real estate”, RealtyShares is now accepting bitcoins as payment. The virtual currency makes it easier for international investors to use the crowdfunding-style website to invest in both residential and commercial real estate.
Perhaps if virtual currencies become mainstream, paying rent in bitcoins will become the new normal. Or, failing that, perhaps more traditional online payment services (such as PayPal) will become more popular among landlords and renters. Until then, bounced checks will continue plaguing landlords.
Landlords, would you accept virtual currency from your tenants? Has a tenant ever asked to pay with bitcoins for example?