Mukilteo, WA · Member since 2019 · 14 posts · 4 votes
Hi all,
After a year of studying and hesitation (I will admit that), I finally pulled the trigger and got a duplex under contract! This will be my very first investment property!
Here is a quick question: do you create separate banking accounts for all transactions on your rental properties? From the Rental Property Investing book by Brandon Turner, he clearly stated: "don't use your personal checking account to run your rental business!"
I am not quite sure where the author is coming from. Why is it so bad to mix personal and rental property transactions in the same bank account? Is it to make tax reporting simpler? Or are there any legal considerations?
For those of you saying you cannot co-mingle LLC and personal bank accounts, I ask; why not? Not saying it's a good idea, but as far as I know it is not a tax or law violation. At tax time, your LLC will prepare a K-1, which then goes on your personal taxes anyway. At no point has my CPA asked or required me to have a separate bank account for my LLC (which I do, but I haven't heard it is "required").
It's no illegal to do so, but the point of an LLC is to shield some liability. If you co-mingle funds, it can be argued that the LLC and you personally are the same, thus piercing the corporate veil.
I use separate accounts for all my properties but in the same bank. It makes it easier to track when you have multiple properties. Is it necessary? No it is not, but with one of my credit unions I can create a new account for each property and if need be transfer funds between accounts as needed.
One tip I discovered for people with numerous properties and one account is to make the rent amount end in the number of the unit. Example apartment 101 would end in .01 unit 107 would end in .07 that way you can scan your statement quickly and see what tenants have paid and who has not. This makes is easier than trying to track down 10 different rents to see which ones paid and which ones did not.
@Jimmy Wen Yes, you want a sperate bank account. I also recommend setting up an LLC for your investments. Transactions can be tracked to keep your units separate. This is how you know the performance of each investment. I use property management software that helps do that as well.
If you do have an LLC you are not allowed to co-mingle personal and business funds, that and it's just a bad idea and makes it really hard to get a clear picture of how each of your individual properties are performing.
At one property it's easy to keep it straight but not if you plan to have multiple. You must set the ground work and processes now for scale or you will have mucho problems down the road. Treat it as a business and not a hobby if you plan to grow this.
Separate from personal? Of course. Better for taxes, liability, and convenience.
Separate for each LLC? Hell no. Idk about you, but I don't want to manage that many accounts. Maybe if you have 1 rental sure, but for me it would be a nightmare.
It is not necessary. Yes, like most will say, it does make it easier. But, it all depends on what other type of software or accountability you are using. Your first duplex? Are you living in the other side? A simple spreadsheet could be used to make sure you account for all expenses, mileage, rents, deposits, reserves, etc. I have properties in an LLC, which I do use a completely separate account for. But I also have 1 duplex that I still have just in my name. I use my same main bank account, but different off shoot accounts from that (damage deposits, rents, reserves).
For those of you saying you cannot co-mingle LLC and personal bank accounts, I ask; why not? Not saying it's a good idea, but as far as I know it is not a tax or law violation. At tax time, your LLC will prepare a K-1, which then goes on your personal taxes anyway. At no point has my CPA asked or required me to have a separate bank account for my LLC (which I do, but I haven't heard it is "required").
For those of you saying you cannot co-mingle LLC and personal bank accounts, I ask; why not? Not saying it's a good idea, but as far as I know it is not a tax or law violation. At tax time, your LLC will prepare a K-1, which then goes on your personal taxes anyway. At no point has my CPA asked or required me to have a separate bank account for my LLC (which I do, but I haven't heard it is "required").
It's no illegal to do so, but the point of an LLC is to shield some liability. If you co-mingle funds, it can be argued that the LLC and you personally are the same, thus piercing the corporate veil.
Looks like a general consensus on this! Definitely have separate accounts! Makes it easier to use that money and cash flow to reinvest into your business for more properties or property upgrades along with the benefits listed above with taxes and business efficiencies.
@Jimmy Wen for all legal and tax purposes, you want separate accounts; you need to separate your personal self from your business.
If you were to use the same accounts/credit cards for your personal expenses as you do your business, a tax auditor can make the argument that there's no way to prove that the business expenses are for business use because you've muddied the waters. At that point, they can prevent you from using those business expenses as deductions.
In a similar fashion, from a legal standpoint. If it's your name on the deed and your name on the bank accounts and you get sued, the damages will come out of the accounts that's tied to the investment. Additionally, because it's your name on the account and you personally are your business, anything else that has your name on it has the potential to be seized for the lawsuit. This includes things like your personal residence, car, etc.
You book keeping becomes your bank statement. Makes life a lot easier. Get a credit card that you will ONLY use for rental property stuff too. Everything that can be expended, on that card. Nothing unrelated should go on it.
@Paul Schu I much prefer this way of deposits than something online like cozy. Good idea about the amount. Do you have any that use the night deposit box, or send a check to the account?
Allow me to ask another stupid question - for people who created separate bank accounts, do you ever withdrawal that fund into your personal accounts for other investment purposes or general spending? Or would that count as co-mingling/mixing funds and thus losing the LLC protection?
@Jimmy Wen It’s just easier to organize what’s the rentals money and what’s your money. What’s the downside of just having another account? If there isn’t a good one, just open it up so you’re not confused on balancing the books.
Allow me to ask another stupid question - for people who created separate bank accounts, do you ever withdrawal that fund into your personal accounts for other investment purposes or general spending? Or would that count as co-mingling/mixing funds and thus losing the LLC protection?
Thanks everyone for the reply!
I have my properties in a LLC I have a single account for the 6 units I own, all within the LLC.
It is your money, so withdrawal it all you want, but just pay all your bills from that single account, or a business credit card, or anything separate from your own personal accounts.
It's all about what's the easiest way to handle the property for TAX reasons, a single member LLC is a disregarded entity so it's just you with a fancy name and a limited liability to what's in the LLC.
Taxes aren’t complicated but having had tons of receipts all over the place at one time it is just easy to have one account and just pull statements monthly to see my income and expenses and to put them in the right pile, so come tax time it’s just a few numbers to input.
@Jimmy Wen, I just have one business account where all of my rental income and expenses flow through. I don’t find the need to create a bunch of accounts. My per property income and expenses come in on monthly statements from my managers. Then an annual statement at the end of year, which is what I give to my accountant for taxes.
If it helps you organize better, then it would be worth it for you to create multiple accounts.
@Jimmy Wen . My LLC is with two other non-related partners. I handle all of the managing of the properties for the LLC. Once a month I transfer money from the LLC to my personal account as a management fee expense for the LLC. On taxes, on the K-1, it will show the LLC paying me as the property manager. So yes, I do transfer money from the LLC to my personal account, but it is a business transaction for services rendered.
I just use one account and do all my book keeping through Quicken....every transaction is categorized so its very easy to pull reports for income and expenses and I can do that as a whole or break it down to each unit. I don't need separate accounts to do that..... just tag a different category for each transaction going in/out of that account.
Originally posted by @Account Closed: Originally posted by @Jimmy Wen:
Hi all,
Allow me to ask another stupid question - for people who created separate bank accounts, do you ever withdrawal that fund into your personal accounts for other investment purposes or general spending? Or would that count as co-mingling/mixing funds and thus losing the LLC protection?
Thanks everyone for the reply!
I have my properties in a LLC I have a single account for the 6 units I own, all within the LLC.
It is your money, so withdrawal it all you want, but just pay all your bills from that single account, or a business credit card, or anything separate from your own personal accounts.
It's all about what's the easiest way to handle the property for TAX reasons, a single member LLC is a disregarded entity so it's just you with a fancy name and a limited liability to what's in the LLC.
Taxes aren’t complicated but having had tons of receipts all over the place at one time it is just easy to have one account and just pull statements monthly to see my income and expenses and to put them in the right pile, so come tax time it’s just a few numbers to input.