Separate Bank Accounts Per Property

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Separate Bank Accounts Per Property

Nicholaos Koufoudakis
Member since 2021 · 16 posts · 12 votes

HI all, I had a question about bank accounts and what is the best way to manage this. I have chosen to go the LLC route for each property and was told the safe bet is to open a separate bank account per property to manage expenses/transactions etc.... Does anyone have any other suggestions? Though I am early on in my real estate investing with just a handful of properties right now when the day comes and I am at 10, 20, 30.... having that many different checking accounts seems a bit ridiculous. With that being said, if that is the safe route and best way to go about things I am all for it, but I wanted to reach out and see what others are doing when setting up and LLC per property and how they are handling their banking. Thank all.

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Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
5y

24 SFHs, 1 LLC, 1 checking account, 1 spreadsheet, apartments.com, 1 old pickup, 1 cell phone, 50 trusted professionals and contractors.

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    LLC for each of 20 properties yes you must separate everything and a staff accountant to make certain you don't mingle anything. Do you now have that many rentals? You will have bank fees for each account, LLC filing annual fees, need seperate IRS taxes for each one etc...

    You will not be able to get a mortgage with a bank statement loan, as we only accept one bank account.

    1Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    Thank for your response, right now I am at 5 properties. So for my own clarity you are saying that Yes it is best to have a separate bank account for each LLC/Property? If I have 100 properties then I should have 100 bank accounts(1 for each property)?

    I was not sure if it would seemingly be ok to have 1 account that all properties cash flow/expenses/etc... all flowed through and i could separate transactions with a tool like Quickbooks(or other tools people on here may have used that they would recommend).

    0Reply
  • Daniel HymanBusiness Member
    CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    You'll need a separate bank account for each LLC. The main function of this is to prevent co-mingling, which could potentially have adverse tax implications and jeopardize your asset protection.

    Whether or not each property needs its own LLC would be a question for an attorney and tax advisor. I always recommend consulting with these two professionals prior to opening up an entity and bank account

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  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    Thank you Daniel. I have spoken with them on the standpoint of LLC's... I was only hoping there was a simpler way rather then having numerous bank accounts... But if thats my biggest problem I can live with it haha. Thank you for your reply

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    Having an LLC for each property sounds like an administrative nightmare.
    This would result in having an entity for each property, multiple checking account numbers, multiple check books, possibly multiple tax returns, etc

    You may want to consolidate multiple properties into one LLC. Speak to an attorney to see the right fit of how many properties should be within 1 LLC.

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  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    Agreed with the admin nightmare. But, this will protect each property separately if being sued. The more properties under one LLC the more you are at risk to lose. Lets say 5 properties under 1 LLC, something happens at 1 location and tenant decides to file a law suit they can come after everything within that LLC. Admin nightmare, Yes. Worth the protection though.

    3Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    5y

    You only need 1 LLC to hold all properties (I'm not a CPA, but used to do it this way based on attorney's advice)

    Having multiple bank accounts is more comfortable and easier when you are a newbie, but becomes cumbersome (as you have guessed). By the time you get past 5 properties, you can just have one account for them all, and you should not be writing checks at this point anyway.

    Hire a weekly bookkeeper service to come to your office and go over bills. They will present you with the ones that need to be paid and you will initial those that you want to pay, then they print the checks, you sign them, they mail them. Do not do business with any vendors that insist on being paid on the spot, only use those that agree to go 'Net 30'

    1Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    Thank you @Bruce Woodruff Really appreciate the advice. But if someone is to file a law suit against me and all my properties are under one LLC does that not put them all at risk?

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    5y

    @Nicholaos Koufoudakis

    Better question for a lawyer. I'm just a dumb contractor....

    0Reply
  • Sam Wilson
    Investor · Memphis, TN · Member since 2016 · 279 posts · 257 votes
    5y

    As stated above, this seems like an admin nightmare. You will spend too much time keeping up with paperwork vs. keeping up with the things that make you $.

    2Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Bruce Woodruff haha na man I appreciate any info.... @Sam Wilson I agree it does seem to be a total admin nightmare. I guess what I am looking for is there another method that offers the same protection as having a separate LLC/property and separate bank account/property? I do not mind having separate LLC's, I feel that is a safe route to protect each entity... My question was more so around is it necessary to have a separate business bank account per each LLC.

    Ideal situation for me is to have separate LLC's per property and all money flowing in and out of one checking account. What I am unsure of is that the right way to do things? Or is there another way that still offers the same protection?

    0Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y

    24 SFHs, 1 LLC, 1 checking account, 1 spreadsheet, apartments.com, 1 old pickup, 1 cell phone, 50 trusted professionals and contractors.

    16Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Nicholaos Koufoudakis you have to have separate bank accounts for each LLC. They are independent legal entities. Your attorney should have advised you as such. The reason I don't recommend LLC for people starting out is that most don't properly manage them, making mistakes like this.

    Having a separate LLC for a single property makes sense if it is a larger multifamily like a 30 units apartment building. If you are buying single family houses, group them 3-5 per LLC.

    Also be aware that each LLC has it's own tax documents, own insurance, requires its own operating agreement, rules of operation, regular share holder meetings meetings with notes documented, etc. If you are trying to claim these are actual independent businesses, they need to be run separately and have documentation to prove it. If not, then the corporate veil can easily be pierced because they just seen as shield companies, in other words companies on paper only.

    Some people just go on Legalzoom, setting up all these entities and then never operating them properly. This is worse than not having an LLC, because you have a false illusion of protection.

    Just to clarify again, each LLC needs dedicated bank accounts. All income and expenses need to flow through these accounts. Not your personal credit cards or personal accounts and not one account for all of them. Separation is required.

    11Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Joe Splitrock Wow!!! Cant thank you enough for that detailed info... I probably should have been a bit more specific on my rental properties. Right now I have a few "short term" vacation rental properties(beach condos, ski resort condos etc...) I currently manage them myself with the help of VRBO platform. 

    I am not sure if that makes a huge difference on which route to take. I will eventually transition these over to local property management companies. I do have 1 property that I rent on a Yearly lease(which is under a property management company) and I will eventually be doing that with my current home I live in now. The others though are all short term vacation rentals. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Nicholaos Koufoudakis:

    @Joe Splitrock Wow!!! Cant thank you enough for that detailed info... I probably should have been a bit more specific on my rental properties. Right now I have a few "short term" vacation rental properties(beach condos, ski resort condos etc...) I currently manage them myself with the help of VRBO platform. 

    I am not sure if that makes a huge difference on which route to take. I will eventually transition these over to local property management companies. I do have 1 property that I rent on a Yearly lease(which is under a property management company) and I will eventually be doing that with my current home I live in now. The others though are all short term vacation rentals. 

    Short term rentals have higher incidence of liability claims, so it does make a difference. In that case having them in separate LLC makes sense. Also make sure you have short term rental insurance and not just a landlord policy. I would also have good liability limits on the STR policy. Make sure the insurance names your LLC and has you personally as an additional covered individual since you are self managing.

    Be aware when self managing that you run additional risk, because you are acting as the representative of the business. To maintain separation you need to prove you are an agent of the business. That means have documented rules and procedures to follow in all situations. If the business is "in your head" then you are seen as not being separate from the LLC. Hiring management offers a better level of insulation, but cuts into cash flow, so there is a trade off.

    4Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Joe Splitrock Joe you are the man!!! This is the spot on info I was looking for. I have separated the insurance from myself but need to make some tweaks based off your advice. I plan on going full time with management companies starting in 2022. Yes, it cuts into cash flow, but I am all about being protected for worst case scenarios. Looking forward to your posts in the future, thanks again. 

    0Reply
  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    5y
    Originally posted by @Terrell Garren:

    24 SFHs, 1 LLC, 1 checking account, 1 spreadsheet, apartments.com, 1 old pickup, 1 cell phone, 50 trusted professionals and contractors.

    Terrell, you need to post this answer on every LLC question in perpetuity. So true.

    It does not have to be complicated to work!

    4Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Will Gaston but does this not run a risk? You are risking every single property that is under that 1 LLC if something is to happen only at 1 location? The entire LLC could be forfeited depending on the extent of a potential law suit to my knowledge? I could be wrong, but I would verify before blasting that out to the public...

    1Reply
  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    5y

    @Nicholaos Koufoudakis My guess is that a great (or good?) lawyer would get a similar ruling with a one single member LLC with 24 properties as he would with 24 single member LLCs with one property each.

    If you're the only member it's not doing you a whole lot of good. I'm not lawyer but this the counsel I've gotten many times over from a lot of them. 

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Will Gaston:
    Originally posted by @Terrell Garren:

    24 SFHs, 1 LLC, 1 checking account, 1 spreadsheet, apartments.com, 1 old pickup, 1 cell phone, 50 trusted professionals and contractors.

    Terrell, you need to post this answer on every LLC question in perpetuity. So true.

    It does not have to be complicated to work!

     Anthony Robbins once said, "Complexity is the enemy of execution for most entrepreneurs. Keep it simple." Or consider the old navy principle of KISS (keep it simple stupid). There are many variations of this, but adding complexity to anything usually increases cost and increases problems. 

    4Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Will Gaston @Joe Splitrock Appreciate you both and your insight on this. Great information that I truly needed to offer myself some clarity. 

    0Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y
    Originally posted by @Nicholaos Koufoudakis:

    @Will Gaston but does this not run a risk? You are risking every single property that is under that 1 LLC if something is to happen only at 1 location? The entire LLC could be forfeited depending on the extent of a potential law suit to my knowledge? I could be wrong, but I would verify before blasting that out to the public...

    Just my perspective - One can do three things to manage risk - mitigate, accept and transfer. My single LLC mitigates the risk of my business impacting my personal wealth. I accept the business risk exposure of a single LLC. I also have an insurance policy on all assets to transfer some risk to the insurance provider.

    I insure my rental SFHs for around 75% of ACV to lower the premiums.  I worry about catastrophic events, not a new roof or broken windows.  I'm not the smartest person in the room, so everyone should tailor their risk management to meet their situational needs. 

    10Reply
  • Rob Hakes
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    5y

    @Nicholaos Koufoudakis

    Do you have the ability to set up a Series LLC in your location? this makes it easier to set up each entity on your own, and some banks are well versed enough to make this work. I have Series LLC set up so if i add a property the bank can fairly easily create an account for each series. Again, locations vary on this for sure

    0Reply
  • Nicholaos Koufoudakis
    OP
    Member since 2021 · 16 posts · 12 votes
    5y

    @Terrell Garren ah I like that. I will have to look into that option a bit more, thank you for explaining...

    @Rob Hakes I think I am able to but also not 100%. Some of the properties are not in the state I currently live in so I am not sure how much that plays a role. Right now I am deciding on which online bank to use and that is a question I will absolutely ask when making my decision.

    Thank you both

    0Reply
  • David Korchak
    New to Real Estate · Irvine, CA · Member since 2021 · 24 posts · 40 votes
    5y

    @Joe Splitrock I am wondering to your post about not using personal credit cards / accounts for LLC. Our CPA stated that using your credit card is OK as long as you have accountable plan setup and submit expense reports to your corporation / LLC. That way you may forgo on opening a business credit card and earn some points on business expenses. Can you comment on this?

    0Reply
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