Should I open a Business Account when house hacking?

Question

Hello BP! I’m house hacking my first property In Rochester NY and basically trying to see your opinions on the following questions/topics. I know doing an LLC whole house hacking is not a good idea based on other post but I’m still wondering about these two.

1) Can I even open a business bank account without an LLC and have all my income and outflows from that account? If I can do you think is worth it?

2) When doing business bank account would you go with a big bank (chase, boa etc), online bank only (axos, azlos,etc) or local credit union?

Thanks!

Mark W. · Answer

Couple options here.  You could open up a 2nd personal checking account and just keep finances separate.  Or you could file a DBA (doing business as) form with county for ~$20 and then take that to your bank of choice and open up a business account.

I stay away from the big banks as those tend to be laden with fees, especially with business accounts.  Locally, ESL is pretty friendly and fee-free for both personal and small business accounts.  And if you're a sole proprietor DBA they'll let you link the accounts so you can transfer money bank and forth as needed.

Would not recommend online only.  As you grow you'll need to handle all forms of payment -- cash, checks, money orders -- and that's easier to deal with at a local branch.

John Warren · Answer

@JOSE BATISTA ABIKARRAM I ran into this problem early on. I purchased a four unit property in Lyons, IL, and I thought I needed to get an LLC, business banking account ,etc. You don't really need the business banking account when you are starting out. Just use an extra personal account for your "operating" account so you don't commingle funds. Move the money from your "operating" checking account to your personal account when you want a distribution. Personal accounts tend to have more protections and perks. In addition, you can open up a separate credit card dedicated to your rentals so you don't have to commingle with your personal finances. This allows you to track everything very easily.

Jose Batista Abikarram · Answer

Thank you @Michael Lewis Lee for your input. I think there are certain disadvantages without the LLC and you point a big one. However I think losing the homeowner status and going to a way higher interest rate due to an LLC is not worth it. Also as first home buyers we get a 3.5% interest which will never compete with seller financing

Michael Lewis Lee · Answer

Hello Jose!  You should do all business and personal accounts separate.  If a judge says that you are a Sole Proprietor then all of your personal Belongings can be taken from you.  With "house hacking" you'll probably get your loan through a conventional bank and they usually that they require your personal signature.  If they do at least see if they are OK with a transfer into the LLC right after closing. Once that is done you should not be held responsible.  At least do the minimum paperwork that keeps a judge that believe your company formation is legitimate.  That is kind of a hassle to do but its well worth it.

I think that most banks are the same so just pick one that is convenient to you. If your lending bank turns down you can ask the owner is open to the idea of doing the financing of your loan.  The bank you are getting a loan from might want you to open an account with them.  Unless the owner needs some cash now you can just give it to him/her the cash or get a secondary loan.  Good luck to you!

Jose Batista Abikarram · Answer

That’s a good perspective @John Warren. I was a doing some research in DBA and the only perk it really offers is a fake name which could be useful for some business transactions. However I’m leaning more to starting with another personal account and then doing an LLC in two years when I move out of this house.

Alex Jones · Answer

@JOSE BATISTA ABIKARRAM I totality agree with Mark!

Alex

Jose Batista Abikarram · Answer

Thank you for the quick response @Mark W.! I did not know about the DBA but sounds like the option I need. I made a little research and even found out I can do a partnership one (me and my wife are in this together)!

I agree with the big banks and was just trying to see the opninons on the onine only. I will definetly check ESL out as well as some of the other credit unions to see what they are offering.

Should I open a Business Account when house hacking?

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