Business Bank Account and Credit Card

Toledo, OH · Member since 2022 · 7 posts · 3 votes

Hello BiggerPockets!

I'm currently looking at properties to house hack as I start my journey into real estate investing. Because I am just starting out I want to be proactive and lay a good foundation that makes it easy to scale up in the future.

I'm interested in learning if you guys set up a business credit card and a business bank account when not using a LLC. I don't see much of a reason to have a LLC this early on when I plan on being highly leveraged with a FHA loan on a single property (duplex). However, in the future I anticipate that will change and the benefits of having an LLC will be great.

I feel like these financial accounts will make it much easier to track income and expenses especially come tax time. I look forward to hearing your thoughts and experiences.

Thanks!

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Markus Shobe

Accountant · Indianapolis, IN · Member since 2019 · 247 posts · 135 votes

Try to keep it simple. I would suggest just having one bank account and one credit cards for your portfolio. It doesn't matter if you have an LLC or not. You just want to track your business transactions separately than personal.

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Jeffrey Albaum
Investor · Austin TX · Member since 2018 · 151 posts · 165 votes
4y
Hi @Garrett Whitlock!
Congrats on starting the journey into house hacking! So if I'm understanding your question correctly - if you were to set up a business account or a business credit card, the business would be the LLC. If you're not using an LLC, than there is no bank account or credit card associated. Let me know if that doesn't make sense.
Also - you can set up a new bank account (personal) to handle your property, so everything in and out will be from one bank account and as you said, will be much easier come tax time! Hope this helps and let me know if you have any quesitons or concerns!
Cheers,
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
You need two accounts: checking and savings. You do not need an LLC to do this.

Checking: collect all income here, then use it to pay bills. Pay the mortgage. Pay for maintenance. If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or to refund to the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account that is specifically designated for future investments. That ensures you don't spend it on other things and that you know exactly how much you have available to spend on the next purchase. If it's mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.
As for credit card, I highly recommend a business card strictly for rentals but only if you're disciplined enough to pay it off every month.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y
Quote from @Garrett Whitlock:

Hello BiggerPockets!
I'm currently looking at properties to house hack as I start my journey into real estate investing. Because I am just starting out I want to be proactive and lay a good foundation that makes it easy to scale up in the future.

I'm interested in learning if you guys set up a business credit card and a business bank account when not using a LLC. I don't see much of a reason to have a LLC this early on when I plan on being highly leveraged with a FHA loan on a single property (duplex). However, in the future I anticipate that will change and the benefits of having an LLC will be great.
I feel like these financial accounts will make it much easier to track income and expenses especially come tax time. I look forward to hearing your thoughts and experiences.
Thanks!

Capital one and chase both have 2% cash back on their cards. Capital one must be paid off monthly. For LLC's I have always found the banks look at your personal credit and have you sign a personal guarantee. So you can build your own credit which is more important. FYI - banks typically want your LLC to be open 2 years before considering giving any credit.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
4y
@Garrett Whitlock
I think once you "scale" beyond one, having these accounts is MORE headache. Don't confuse bookkeeping with accounting or having accounts. I maybe old school or just cheap (because I don't pay for somebody else to do my bookkeeping and accounting). Using a bank account and credit cards, even with all the electronic paperwork that is provided, seems to be more headache when you have multiple properties as your bookkeeping. you'd have to have a bank account and/or credit cards per property. Otherwise, how else do you know what charge when with which property? At least stay with personal accounts which is part of the beauty of running with your own name. Do you your own actual bookkeeping..
Does this make sense? Even if you run your rentals out of a single bank account / credit card, you will still need to categorize/mark each line item goes with which rental. I'm not sure how others do it, but having whomever prepares your taxes guess at which is which is silly. I can' remember after a month whether that "Home Depot" charge was for my personal residence or a rental when it comes to reconciling the statement. So, keep it simple with just one or two bank accounts and whatever set of credit cards you like (focus on building up your points/rewards!!). Do your bookkeeping so that the charges are properly categorized. I categorize my rental expenses directly by the SchE categories. It makes it really easy when I prepare my return as I all I do is copy the numbers over onto the IRS form.
So, keep it simple, use the right tool for the job.
Right, you don't really need a LLC... It will just cost you more, limit some of your transactions, and force you into commercial lending terms. We've covered that ad nauseum on BP, although there are different points of view.
Good luck.
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Markus Shobe
Accountant · Indianapolis, IN · Member since 2019 · 247 posts · 135 votes
4y
Try to keep it simple. I would suggest just having one bank account and one credit cards for your portfolio. It doesn't matter if you have an LLC or not. You just want to track your business transactions separately than personal.
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