From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1522 topics, 14436 posts — Last Post 04/23/14, 11:39AM

BiggerPockets Exclusive PRO Area

118 topics, 844 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10968 topics, 86438 posts — Last Post 04/23/14, 12:15PM

Real Estate Success Stories

397 topics, 6188 posts — Last Post 04/23/14, 07:49AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5986 topics, 47182 posts — Last Post 04/23/14, 12:16PM

Renters

649 topics, 5856 posts — Last Post 04/23/14, 10:42AM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/21/14, 03:59PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

658 topics, 6316 posts — Last Post 04/23/14, 09:50AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3704 topics, 29699 posts — Last Post 04/23/14, 11:00AM

Real Estate Guru, Book & Course Reviews and Discussions

1139 topics, 11596 posts — Last Post 04/23/14, 11:28AM

Ask About A Real Estate Company

743 topics, 7344 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5630 topics, 43908 posts — Last Post 04/23/14, 12:21PM

Rehabbing and House Flipping

3349 topics, 31094 posts — Last Post 04/23/14, 11:14AM

Real Estate Development & New Home Construction

554 topics, 4694 posts — Last Post 04/22/14, 09:17PM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

867 topics, 6692 posts — Last Post 04/22/14, 08:22PM

Rent to Own a.k.a. Lease Purchase, Lease Options

698 topics, 4923 posts — Last Post 04/23/14, 12:22PM

1031 Exchanges

143 topics, 1062 posts — Last Post 04/22/14, 03:21PM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1691 topics, 11313 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3102 posts — Last Post 04/22/14, 01:39PM

REOs

1217 topics, 10595 posts — Last Post 04/23/14, 09:23AM

Short Sales

1538 topics, 13139 posts — Last Post 04/22/14, 01:38PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7243 topics, 71100 posts — Last Post 04/23/14, 12:33PM

Mobile Homes & Mobile Home Park Investing

639 topics, 5144 posts — Last Post 04/23/14, 07:57AM

Investor Basics

Starting Out

7725 topics, 60648 posts — Last Post 04/23/14, 11:42AM

Investor Psychology

431 topics, 6107 posts — Last Post 04/20/14, 06:04AM

General Real Estate Investing

4727 topics, 37314 posts — Last Post 04/23/14, 12:12PM

Real Estate Investor Marketing

1737 topics, 14144 posts — Last Post 04/23/14, 12:07PM

Commercial Real Estate

Commercial Real Estate Investing Forum

1412 topics, 9004 posts — Last Post 04/23/14, 08:50AM

Multi-Family and Apartment Investing

1123 topics, 9364 posts — Last Post 04/23/14, 12:35PM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

644 topics, 4910 posts — Last Post 04/23/14, 10:40AM

Business Basics

Goals, Business Plans & Entities

832 topics, 7571 posts — Last Post 04/23/14, 09:48AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2803 topics, 20131 posts — Last Post 04/23/14, 12:24PM

Property Insurance

310 topics, 2055 posts — Last Post 04/22/14, 07:38AM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2852 topics, 19841 posts — Last Post 04/23/14, 12:23PM

Creative Real Estate Financing

1217 topics, 8845 posts — Last Post 04/23/14, 09:39AM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1217 topics, 8024 posts — Last Post 04/23/14, 08:23AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1929 posts — Last Post 04/22/14, 11:03AM

Contractors

269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2012 topics, 11723 posts — Last Post 04/23/14, 12:05PM

Americans & International Real Estate

162 topics, 568 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

65 topics, 439 posts — Last Post 04/22/14, 09:27AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15078 topics, 54101 posts — Last Post 04/23/14, 12:17PM

Real Estate Events and Happenings

167 topics, 2590 posts — Last Post 04/23/14, 09:12AM

Off-Topic

Off Topic

Off-Topic

2907 topics, 32441 posts — Last Post 04/23/14, 11:24AM

Housing News & Real Estate Market

920 topics, 8390 posts — Last Post 04/23/14, 11:47AM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Landlord & Rental Property Questions » Separate Bank Account for Rental Activities?

Separate Bank Account for Rental Activities?

13 posts by 8 users

Signup

Multi-family Investor


Hi all

I'm closing on my first property today a 3-family unit. I was wondering if I should set up another personal bank account for all activities. I'm going to be depositing my checks and if there are repairs I'm going to take it out of this account.

I will also be paying the mortgage from this account and if I am short, I'm going to transfer money from another account.

Is this a good idea and what does everyone do? I'm just starting out. Thanks



Real Estate Investor · Ellicott City, Maryland


Are you planning to create a business entity out of which you with either hold and/or manage this property?

If so, set up a separate business account. If you ever get sued and want to use the business as a legal shield, having a separate business account that doesn't co-mingle with your personal funds will be important when it comes to the determination of whether what you have is a business or a personal hobby (though there are certainly lots of other aspects of this you need to investigate as well).

If you don't plan to create a business entity, then the only purpose I can think of for a separate account would be to help you manage and track your income and expenses. If you don't need a separate account for that purpose, it just boils down to personal preference.


Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook



Create a business, and have a separate bank account for that business. Create a business! Create a business! Create a business!

Did I say that enough? I chose a LLC myself for my rental properties. Getting sued isn't worth it. You should also get liability insurance.



Real Estate Investor · Audubon, Pennsylvania


If you are buying in your own name, then obviously you won't have this as a formally separate entity.

But the bookkeeping will be so much easier at tax time if you set up bank accounts for the rental property separate from accounts you use for your personal expenses. So I strongly recommend that your rental have its own bank account.

As for worries about the mortgage bouncing - the only way to prevent that is to fund the rental property's account up-front with some reserve capital. If you aren't doing this with an LLC or other company, then the money is "still all yours" - you can freely do as you please with those funds (once the rents accrue enough for you to have a comfort level).

I would suggest you contact a good accountant (CPA) knowledgeable in real estate matters to assist you with starting up your accounting system for this rental. I also suggest getting some software for the management of this (ask your selected CPA for what to use - mine suggested QuickBooks for my needs).


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Real Estate Investor · Audubon, Pennsylvania


Another thing to consider is the handling of the security deposits that were funded by the tenants. Your state and local law may have some mandates that you must follow regarding treatment of those funds. If there are no such rules in your area, I still recommend a separate escrow account for each tenant's security deposit; there are some banks that have "master" escrow accounts that allow for each tenant to be a "sub-account" under the master - this is also a good way (maybe even better if you scale up in size).


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Multi-family Investor


Thanks for all of the replies.

The current tenant has security deposits and the seller gave me all the forms necessary to just do a transfer of the account. I will be doing that later today. I am going to just open a separate account and just do deposits of rents and write checks from there. Damn all these bank accounts...



Real Estate Investor · Springfield, Missouri


Hi as Steve and Jason pointed out it is very important to keep funds seperate.

You will need an escrow account, if it's required by law, your account will need to be titled XYZ ESCROW ACCOUNT, if not so required, it can be any account but ONLY deposits and funds held in trust should ever be depoisited to this account and any withdrawl should be well noted on the check and on your books.

If you comingle you accounts and you need paper towels to clean units, the IRS can simply disallow your deduction saying it was used at home since it was paid from a personal account or one of comingled funds.

I too would suggest you formalize a business entity, an LLC probably. You need to have a chat with an accountant and probably an attorney. Good luck, Bill


Financexaminer@real estate investor dot com


Real Estate Investor · Audubon, Pennsylvania


Originally posted by S Yu:
... Damn all these bank accounts...


You're saying that today because you don't look forward to the management of those accounts, but later on you will be thankful that you did create the separate accounts and did not commingle any funds (personal vs rental income vs security deposits in escrow).


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Real Estate Investor · Ellicott City, Maryland


Originally posted by Steve Babiak:
Originally posted by S Yu:
... Damn all these bank accounts...


You're saying that today because you don't look forward to the management of those accounts, but later on you will be thankful that you did create the separate accounts and did not commingle any funds (personal vs rental income vs security deposits in escrow).


Exactly.

Last time I counted, I had 23 business bank accounts, and while it can sometimes be a pain in the butt (for example, I have about 11 different checkbooks), at the end of the year, it makes accounting much, much easier...


Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Developer · Rochester, New York


Originally posted by J Scott:
Originally posted by Steve Babiak:
Originally posted by S Yu:
... Damn all these bank accounts...


You're saying that today because you don't look forward to the management of those accounts, but later on you will be thankful that you did create the separate accounts and did not commingle any funds (personal vs rental income vs security deposits in escrow).


Exactly.

Last time I counted, I had 23 business bank accounts, and while it can sometimes be a pain in the butt (for example, I have about 11 different checkbooks), at the end of the year, it makes accounting much, much easier...



Ugg! There are so many extra fees for business accounts. The banking industry is such a scam... I'm still searching for that perfect local bank that treats me like a human and not their own personal ATM.
:roll:


Small_leavesMark Updegraff, Updegraff Development LLC
E-Mail: [email protected]
Telephone: (585) 666-3069
Website: http://www.UpdegraffDevelopment.com
http://UpdegraffDevelopment.com Real Estate Investment & Property Management, Rochester NY


Multi-family Investor


Yea, I will be opening a separate account for depositing this. I already have one for their security deposit. I need to create another one for the rental income/expenses. I will have to have a chat with an accountant/lawyer to see how best approach this.

Right now I am just going to open a personal checking account just for rental income/expenses.




Originally posted by Mark Claire Updegraff:


Ugg! There are so many extra fees for business accounts. The banking industry is such a scam... I'm still searching for that perfect local bank that treats me like a human and not their own personal ATM.
:roll:


Find yourself a good credit union. Their fees/rates are usually better and the service more personal. We belong to the Olean Fed Credit Union in the southern tier and love it. The service, products and fees/rates are exceptional.



Landlord · Seattle, Washington


If your just getting started you may not be aware of the many advantages of being in business rather than just being an investor.

Businesses enjoy greater tax advantages not available to someone that is just an investor.

Businesses can offer asset protection.

Businesses open retirement opportunities that are not possible as an individual.

This is only a start. When I think about the many good reasons for being in business things like separating my business from my personal transactions don't seem to matter to much. You'll be very happy you did if your ever audited.

An investor will find that the IRS will dig into everyone of their bank accounts to determine the source of each deposit. If you can show that you have separated your activity an IRS agent is less likely to do this. If the business entity is a corporate or partnership entity they will have no reason to look at personal bank accounts for business activity.





Sign up