Navigating the Rise of Dispute Chargebacks: A Landlord’s Guide to Managing Risk

Managing rental properties comes with its challenges, and one growing concern for landlords and property managers is the rise of dispute chargebacks. These can significantly impact financial stability and operational efficiency. This guide will help you understand chargebacks, their implications, and how to manage and minimize them effectively.

What are Chargebacks?

Chargebacks occur when a renter disputes a payment made via credit card or direct debit, resulting in the reversal of funds to the renter. These disputes can arise for various reasons, from fraudulent claims to genuine misunderstandings. 

Impact on Landlords

Financial Strain 

Mastercard approximates that every time a card dispute arises, merchants face operational expenses ranging from $15 to $70. Chargebacks can be particularly harmful to landlords because they result in lost revenue and additional fees that erode profitability. When a renter successfully disputes a charge, the landlord must refund the payment and pay chargeback fees imposed by card processors. A higher number of chargebacks can lead to increased credit card processing fees and penalties. While chargebacks are meant to protect consumers, they can sometimes be misused, leading to unfair financial consequences for landlords. Understanding both parties' rights and the correct dispute resolution procedures is crucial.

Cash Flow Disruption

Consistent cash flow is vital for landlords to manage property expenses such as maintenance, utilities, and mortgage payments. Chargebacks disrupt this flow, forcing landlords to dip into reserves or seek alternative funding sources, which can be both inconvenient and costly.

Reputational Damage

A striking 69% of prospective renters consider ratings and reviews when choosing an apartment, according to a 2022 survey conducted by National Multifamily Housing Council (NMHC). Frequent chargebacks may indicate to banks and payment processors that a landlord's business practices are questionable, potentially leading to higher processing fees or stricter conditions. Additionally, it could damage the landlord's reputation among renters and other stakeholders, making it harder to attract and retain reliable renters.

Best Practices for Minimizing Chargebacks

Clear Communication

Effective communication is the cornerstone of any successful landlord-renter relationship. Clarity and consistency in communication can make a significant difference when it comes to minimizing chargebacks. Here’s how landlords can ensure clear communication to prevent disputes:

Detailed Lease Agreements:

“Verbal contracts don’t work when it comes to real estate. You have to write down the terms and conditions under which you will rent an apartment.”  - The Washington Post  Even though lease regulations vary by state and locality, your lease should include:

• Contact Information: Details of the landlord, property manager, and all property agents.

• Lease Duration: Clearly state the start and end dates of the lease.

• Security Deposit: The amount and its purpose.

• Monthly Rent: The agreed-upon amount.

• Payment Timelines: Specific dates for when payments are due.

• Late Fees: Amounts for any late payments or returned checks.

• Payment Methods: Acceptable methods for paying rent.

• Charges & Fees: A detailed breakdown of all charges, including definitions.

• Utility Payments: Who is responsible for paying utilities and services.

• Occupancy Limits: Guidelines on subletting and occupancy.

• Pet Policy: Rules regarding pets.

• Termination Clause: Terms for ending the lease.

Breakdown of Charges & Fees

Provide a clear breakdown of what each payment covers. Whether it’s rent, utilities, or other fees, ensuring renters understand all charges helps prevent disputes. According to a study by Ethoca, enhancing transaction descriptions can reduce chargeback calls by up to 25% when customers find purchase details unclear. Transparency is key. Provide a detailed list of potential fees, including:

• Application fees

• Monthly rent

• Security deposits

• Maintenance fees

• Utilities

• Late payment penalties

• Move-in fees

Regular Communications & Reminders

Maintaining regular communication with renters is essential in preventing misunderstandings that can lead to chargebacks. Implementing a system for timely reminders about upcoming payments and policy updates can help renters stay informed and engaged — this can also be automated within your property management systems (PMS). Set up reminders a week before payment due dates and use various channels like email, text messages, or an online renter portal. Ensure that renters are informed of any policy changes or additional charges. Regular updates on maintenance fees, utility charges, or policy adjustments help build trust and ensure renters feel involved in the management process, reducing the likelihood of disputes.

Effective Record-Keeping

Utilize Digital Payment Platforms

Maintaining accurate financial records can be challenging, but digital payment platforms have made it much easier. These platforms offer real-time payment tracking, automatic reminders for renters, and alerts for landlords about missed or late payments. A study by Ethoca found that 96% of consumers prefer having a more detailed transaction history for better clarity— this enhanced transparency minimizes disputes and chargebacks. Additionally, digital platforms offer features like auto-pay, which ensures timely rent payments and peace of mind for both renters and landlords. This streamlines the rental process while fostering a more efficient and stress-free experience for both parties. 

Maintaining Payment Logs

By maintaining accurate payment logs, you have a reliable reference point to verify transactions, making it easier to resolve any discrepancies that may arise. "Without documentation—such as a written record or receipt—it’s hard for owners to show that a renter has missed a payment or underpaid rent. That could make it difficult to enforce the terms of the lease." – J.P. Morgan To ensure you’re covered, keep a comprehensive log of all rent payments received, including the date, amount, and payment method. This can be done through digital spreadsheets, accounting software, manual logs, or streamlining this process by storing it all in an integrated PMS.

Document Communication 

Tracking all interactions with renters is crucial, especially those about payments, disputes, or maintenance. Since 79% of renters prefer direct messaging, text, or chat for communication with property managers, having a system to log these conversations is essential. Whether it’s an email confirming a payment or a text about maintenance, keeping a record of these interactions can be incredibly helpful in resolving disputes.

Integrated Property Management Systems (PMS)

According to Buildium’s 2024 Property Management Industry Report, 70% of renters say that it’s important to them that their property manager or landlord provide access to an online resident portal where they can pay rent, submit maintenance requests, and complete other rental processes. Implementing an integrated PMS helps landlords streamline billing and payments, centralize lease information, and enhance communication with renters. These systems provide timely reminders for payments and updates, helping to prevent misunderstandings and chargebacks. By consolidating lease information and payment history, renters can easily access important details, improving satisfaction and retention for both parties.

Leveraging Technology and Partnerships

Multiple Payment Options

Offering paperless options like debit, credit, ACH transfers, and BILT rent pay gives renters the flexibility to choose the best payment method. BILT rent pay also lets renters earn rewards points on rent, which can be redeemed for travel, fitness, and more—encouraging timely payments and reducing chargebacks. Plus, these methods come with advanced security features like encryption and tokenization, keeping transactions and personal information safe from fraud.

Flexible Payment Schedule

A recent 2024 National Multifamily Renter Study revealed that 93% of renters prefer options like biweekly, bimonthly, or weekly payments over a single, lump-sum monthly payment — especially since 85% of renters have regular debt payments, with rent typically being their largest monthly expense. This preference reduces the financial strain on renters, leading to more timely and manageable rent payments. Consequently, landlords experience fewer missed payments and decreased instances of chargebacks, improving cash flow consistency

Partnering with Reliable Insurance Providers

Renters Insurance helps protect personal belongings from theft, damage, or unforeseen events, reducing financial stress that might otherwise lead to late payments or chargebacks. When renters feel secure knowing their possessions are covered, they’re more likely to prioritize their rent payments. Additionally, 47% of renters say that alternatives to cash security deposits are a key factor when evaluating a new lease. Security deposit insurance eliminates the need for large upfront deposits, allowing renters to save on moving costs and allocate funds toward other essential expenses. This not only eases the financial burden but also makes the rental market more inclusive, leading to higher occupancy rates for landlords. At Rhino, we understand the challenges of managing security deposits and renters insurance. That’s why we offer a comprehensive solution that seamlessly integrates both services with your PMS. Our security deposit insurance can save renters up to 90% on upfront costs, with policies starting as low as $7 per month*. This provides the financial flexibility to focus on important payments like rent. This approach helps ensure renters feel confident in their financial commitments, leading to greater stability in rental income for property owners

The Bottom Line

Renters who aren't happy with their property management are five times more likely to think about moving, often looking for a better property manager. As the property management world evolves, staying updated on new trends is crucial for landlords. Embracing innovative solutions can not only boost your financial stability but also help you excel in today’s tech-savvy market and build stronger relationships with renters. By adapting to these advancements, you can reduce chargeback disputes and unlock new opportunities for growth and renter satisfaction. Modern strategies and technologies are more than just smart choices—they're essential for staying competitive and meeting the needs of today’s renters.

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* Pricing for security deposit insurance will vary by individual renter. Example rates are based on limited information and are for informational purposes only. Actual monthly rates determined based on the specific information provided to Rhino. Monthly payment plans may not be available to all renters.