I'm struggling with setting up an organized method to keep track of my rental income. I'm leaning towards the simple method of one checking and one savings account for each rental. This is great, until the savings account only holds the security deposit by Tennessee law and no other transactions can be made out of this account.
I would like to hold my cash flow in a separate account, but I guess this is not necessary.
Also I don't know if this happens, but what about cashing the check from the renter and only depositing enough money each month to cover the mortgage payment? Thus, showing a loss come tax time? Is this legal?
I was interested to see how others structure their rental income accounts. I want to keep everything separate from my personal accounts. Any comments are very appreciated.
How many rentals do you have? One checking account is probably enough for all of the rentals, and its probably not necessary to have a separate checking account for each one. One checking and one savings (unless your state requires you to have separate savings for the Security Deposit or something like that). You can still record and account for your Income/Expenses and Profit/Loss for each property without having to setup a separate checking account for each. And yes, keep it separate from your personal income/expenses.
Quicken is overkill for 13 properties. I ran only one checking account until I bought my first out of state rental where each security deposit had to be in a separate account. (I opened cds for each as I have to pay interest)
How much you deposit in to the checking account has nothing to do with how much tax you owe. If you receive a $1,000 in rent you have a $1,000 in income (before you subtract expenses,) the irs doesn’t care if you deposit in in the checking account, gamble it away, lose it to a pick pocket, or literally light it on fire.
the only advantage to putting the extra cash in a separate savings account would be to prevent stolen/fraudulent checks on a large account but I live with that risk and sleep just fine.
Me personally I like having each property in a separate account. Helps me keep track better and if my account gets frozen for fraud activity I don't have to worry about all my money being in one account. I have my account set to automatically do transfers one at a time to a separate account just for cash flow.
It's a little trial and error to find what works best for you.
I have found that it is very beneficial to use something like Quickbooks which can link your accounts together, invoice your renters, pay for expenses like repairs, and track each property in terms of income and expense so tax time is way easier than an excel spreadsheet. It makes sense to just have an account for security deposits so you know where exactly where they are an accounted for.
These are the things I do for my clients and it has improved their ability to really see where their money is, where it is going, and tax time has become much less stressful! I hope this helps!
Thank y'all for the replies. I like several different items in each post here. I didn't think about holding the security deposit in a CD. In Tennessee, I'm fairly certain I don't have to give interest back to the renter. I will definitely look into that.
Good question and I'd like to see ideas too.
I have 5 houses and each one has a separate checking account and line of credit. I'm not sure I like all this or not yet, but it seems manageable with this few houses. As I grow I'm not sure if this will be the route I continue with (all income contained separately). I'm thinking as I add to my portfolio I'll add them to the existing bank accounts as I don't want to have the added burden of managing bank accounts. The hard part is keeping on top of bank fees. I have to meet certain criteria to avoid them, such as spend $250 a month per account to avoid a $15 monthly charge. While I've been able to do that, it's a juggle.
One luxury of it is that I can see all my accounts on one screen, and I immediately know who and who has not paid, and that's been the pay day for it so far. Does that make it worthwhile? Up till now, yes.
My accounts are with Bank of America. I like big chain banks because they're generally everywhere. That said, I'm thinking of trying a small local as I need some creative financing.
I have one checking account and one savings account that I hold my rental incomes in. My bank allows me to have sub account heading where money can be stored. Label the sub accounts with address numbers.
This works until you grow to big then you might need something else.
Easy to keep track, easy to get info for tax purposes.
I hope this helps!