First Investment Deal and Banking Question
Hello BP community,
Just wanted to share my first deal done out in Southern Indiana as an out of state investor.
Cash Flow: ~ $285
Property needs some work and with that should be able to get rents up to market value. I plan to save all cash flow to hopefully reinvest to purchase another deal in 2023. I'm interested in doing more of a BRRRR type deal as conventional is difficult to repeat and scale, but I'm happy to have my foot in the door.
A question I have for the community is how I should go about setting up a bank account to handle this new investment. For closing, everything was done out of my personal account, but since this is a business I want to open a new account for it. Does it make more sense to get an account with local bank? Or would an online bank work? Curious to know what others have done.
First, congratulations on finding an investment in this difficult market! Things should only get easier from here.
You need two accounts: checking and savings. If the properties are split into an LLC, then you'll need business accounts for each LLC.
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.