Buisneess savings account or personal savings account?

Question

Hello,

Im starting my first house hack here soon and im debating weather i should sign up for a buisness savings acccount or start a separate personal savings account for my tenants to pay rent to. (im using Avail for property management and as a program to collect rent) I went to the bank today and they said i must use a buisness account for tax purposes and i would need to start a sole proprietorship or an LLC to set up the buisness account, even though the building is going to be owner occupied by me. Is this true what the bank is saying or could i just go to another bank and ask to start a new personal savings account.

Anything helps, thanks!

Josh St Laurent · Answer

@Nolan Mahoney Financial advisor and certified financial planner here, wanted to throw in my 2 cents. The mechanics of a personal vs business savings account will be nearly identical meaning they work the same and the interest will be roughly the same. The difference maker here is actually in the LLC or business. The important piece here is the LL, which stands for limited liability.

If you own the home in the LLC (Or at least title it that way) and have all tenants paying into the business account you have effectively separated your finances from the businesses. You now have less likelihood of a tenant trying to sue you for your personal assets, bookkeeping is cleaner at tax time, and you have a business foundation that you can build over time including credit for the business, additional accounts for CapEx/Vacancies, etc.

TLDR: Use a business to do business. All expenses paid by the business and all income to come to the business.

Hope this helps, feel free to follow up with questions, I know that was a big data dump.

David M. · Answer

@Nolan Mahoney

Its probably the way you presented it to them, but banking rules may have changed.. How are your tenants paying you? Electronically, or are you having them deposit directly, i.e. walking into the branch? If the latter, then I could understand their requirements since there have been some new banking "rules," although apparently some will still do it to personal accounts.

Like I said, I haven't opened a new bank account in a while. If you want a savings account, you can't just walk into your bank and open a new savings account? WIthout trying to advocate fraud, but just tell them that you want another savings account for "whatever." Personally, I just use a checking account.

David M. · Answer

@Nolan Mahoney okay. Well, I assume/guess that funds can be transferred to either a checking or saving account.

Basit Siddiqi · Answer

If the property is owned by an LLC, open up a business account owned by the LLC.if the property is owned by you personally, open up a personal account.

Michael Smythe · Answer

You can't open a business account without LLC or DBA paperwork.

If you're making real estate a business, why wouldn't you open a business account?

Alecia Loveless · Answer

@Nolan Mahoney I believe my accounts are personal accounts but they have my name on them and under the new bank rules they then make me put DBA Alecia Loveless as well. Which seems excessively redundant to me and it wasn’t that way when I started investing in real estate 4 years ago, this seems new within the last 15 or so months on the properties I own under my own personal name.

So my checks read:

Alecia Loveless

DBA Alecia Loveless

address of property

city, state, zip code

For my property I own as an LLC I did have to have a business account and the only real difference was a $5 monthly fee and a slightly different interest rate between the personal and business account in the amount of interest I am earning on the cash held in the accounts.

I’m sure different banks have tiny differences between business and personal accounts but likely if you’re only running a few properties out of account you won’t notice the differences.

Personally I have different bank accounts for each property which makes sense to me but I know some people use one operating account for many properties.

Nolan Mahoney · Answer

The tenants will pay through avail, so i want the rental income from Avail to automaticaly transfer into my new savings account and then dispurse funds to where they need to go.

Buisneess savings account or personal savings account?

Buisneess savings account or personal savings account?

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