Good Afternoon BP Community!!
So we are about to close on our first rental property!!! YAY!!!
In doing so we are trying to get all our ducks in a row and be ready for this. We know we need a seperate account for the "business" that is not our personal account, not a problem. (as well as an escrow account for deposits...). I remember hearing on a podcast this summer (was listening in on a friends on a car trip so I don't know which one to go back and find it...) about someone who used Online banks. One reason was the % on interest was higher.
So what are everyone's thoughts on using an online bank vs. a local or national bank with a brick and mortar location?
Thanks in advance!
I chose to go with a local bank for a few reasons. The biggest reason is because I like that I can establish a relationship with my bankers. Some people don't care about that, but I love being able to walk into the bank and get them to do whatever I need without questioning. (A perfect example was not too long ago. A tenant made out a cashier's check to the wrong name. The new teller wouldn't deposit the check, but they called their supervisor over to see if he could help. He immediately recognized me and my company name and was able to make the deposit for me.)
Also, another key factor in choosing a local bank was for cashier's checks. We require first month's rent and security deposits be paid with either cashier's checks or money orders. Many banks will not allow you to deposit money orders or cashier's checks without going to a branch. I also need cashier's checks from time to time to close on properties. I technically can wire funds to a title company, but cashier's checks are more affordable.
The main benefit of an online bank is the yield which is around 2% right now. Figure out your average balance in the account over a year and you can determine how much money you will make (don't forget to use after tax returns as it is taxed as normal income). Remember on-line banks constantly change rates over the course of a year and you may need to change banks to maximize $.
If you plan on doing a lot of business in the area it is easier to get in to see a banker and build credibility if they see you have a steady income stream and you are managing the balance (ie, getting a higher balance every quarter). This will make them more likely to lend to you on a future rental project.
Why not try the middle path - open both and use the local bank as your primary bank. When the balance is too high, then transfer to a higher-yielding online bank?
I second what @Cassi Justiz said. My banker made a 90 minute round trip drive to come to my home to close on a $100K line of credit. Then the branch manager came to the closing on my last property, a 4 plex. He said while we were discussing the financing for the 4 plex, that his team said they had to find a way to get me the loan on such a good deal. So they did, it was effortless for me.
Are you making so much money on interest with an online bank, that the value of a financial relationship with a local bank and opportunity cost is not worth considering?
And just to clarify, I will have both local and out of state properties!!!