Personal or Business Bank Account

Multi-Family and Apartment Investing
4yFollow

Personal or Business Bank Account

Alex Orrson
Rental Property Investor · Allentown, PA · Member since 2022 · 6 posts · 7 votes

Hi all,

I'm pretty new to REI but have read a few of the BiggerPockets books. I'm looking to start with a buy and hold duplex in the next few months, and continue to scale up to higher unit multi-family properties in time.

I know that it's recommended to use a separate bank account for my real estate properties than my personal account. However, I'm not sure if this should be a separate account that is still in my personal name, or if this should be an account in the name of a business (I'd have to create an LLC for this). My long term plans are to continue to acquire properties so I will likely need an LLC eventually, but I was thinking it'd be best to create that after my 2nd or 3rd deal since my total risk will be lower until then.

Is it best to create this separate REI account in my personal name or in the name of a business?

As an additional question, I wanted to know how many bank accounts per property are recommended. From my readings online, I've heard suggestions to create up to 4 separate accounts per property.

1. Checking account

2. Savings account (for CapEx)

3. Account for Security deposits since they aren't the landlords money officially

4. A credit card account

I've also read suggestions to create separate accounts per property. Creating 4 accounts per property seems like a lot considering I'm looking to scale up, and I'd quickly have 10+ total accounts Is this something that you'd recommend? To have these 4 types of accounts for each individual property.

Thanks in advance!

3Reply
12 views

Most Popular Reply

Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y

@Alex Orrson, I started my LLC all my myself but I wouldn't recommend that for most people.

I believe my lawyer charges $700-800 to start an LLC for someone and I think that is reasonable. I'm sure that is on the cheaper side. I suspect the average is probably $1000-1250. I would make sure they not only file the LLC paperwork but also provide me with an operating agreement which lenders and other entities will request from you to show you are the person able to legally sign for the LLC. They should also get an EIN (Employer ID Number) from the Social Security Administration. You will need that to open bank accounts in the LLCs name.

Another advantage of using a lawyer is developing a relationship with a lawyer. You want someone you can ask questions to. So, find a local law office that specializes in real estate.

3Reply
See this reply in the discussion

5 Replies

Jump to latestLatest
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    4y

    @Alex Orrson, I would make the decision up front on whether you want to invest in your own name or with an LLC.

    Two main factors are at play in my opinion. How costly is the LLC in your state to start and maintain? Some states are expensive and others cheap. Your state is cheap! I'm in PA as well. The other factor is financing. You can get conventional fannie/freddie financing in your own name, but not an LLCs name.

    For financing some people buy in their own name and just buy liability insurance and skip using an LLC altogether. Other people transfer the deed to the LLC without telling the lender. There is a small risk of the lender calling the note due, but highly unlikely.

    You should have separate accounts for your business activities. That will make it much easier to track business expenses. Every transaction of mine goes through an account and I have a bookkeeper enter everything into quickbooks. That makes doing taxes MUCH easier and I don't need to find a bunch of receipts to figure out what expenses I had.

    For accounts, I started using a cash management system called "Profit First". Its so easy it actually seems silly at the start but being easy is what makes it work so well. I end up having 9 basic checking accounts to use with this system but it can vary a little. Here is the book that can explain the whole system:

    https://www.amazon.com/Profit-...

    3Reply
  • Alex Orrson
    OP
    Rental Property Investor · Allentown, PA · Member since 2022 · 6 posts · 7 votes
    4y

    @Kevin Sobilo

    Thanks for the information. I'll check out that book.

    Ideally, I'm looking to house hack on this first deal and finance it through an FHA or owner occupied loan. However, after running the numbers on a lot of properties, I've found it's a lot harder to get a decent cash flow with the 3.5% down only, so I'm considering saving up more to do a conventional loan as a back up option.

    Either way, if I decided to use an LLC for this first purchase, I would most likely take the loan out in my name and transfer it into the LLC, taking the small risk of the note being due.

    I was planning to use umbrella insurance on this first property and create the LLC at a later point in time for my larger acquisitions (small commercial multi family - like 8-12 units). However, I'll look into creating the LLC from the start if PA is one of the cheaper ones overall.

    Would you recommend doing it through a lawyer or using a service like Legal Zoom?

    2Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    4y

    @Alex Orrson, I started my LLC all my myself but I wouldn't recommend that for most people.

    I believe my lawyer charges $700-800 to start an LLC for someone and I think that is reasonable. I'm sure that is on the cheaper side. I suspect the average is probably $1000-1250. I would make sure they not only file the LLC paperwork but also provide me with an operating agreement which lenders and other entities will request from you to show you are the person able to legally sign for the LLC. They should also get an EIN (Employer ID Number) from the Social Security Administration. You will need that to open bank accounts in the LLCs name.

    Another advantage of using a lawyer is developing a relationship with a lawyer. You want someone you can ask questions to. So, find a local law office that specializes in real estate.

    3Reply
  • H. Jack Miller
    Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes
    4y

    I would start an LLC and do it in that. In most states you can do it yourself on line. I would have the bank account in the LLC name.

    2Reply
  • Paul Camuto
    Real Estate Coach · Robbinsville, NJ · Member since 2017 · 185 posts · 99 votes
    4y

    Purchase the property first. Probably multiple properties first. Then worry about all that you are posting about.

    3Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free