First Time Landlord Finance Questions

[Daniel Vikhtinski]

Hi everyone,

I’m a new investor in central Minnesota and I had a couple questions regarding the financials of a rental. Seeing as every CPA I tried to contact is busy with tax season, if anyone could answer even one question that would be extremely helpful. 

1. How many and what kind of bank accounts do I open for a property? I heard 1 business checking and 2 business savings but I’m not sure. 

2. Is there anything tax related I have to take care of before the next tax season, or can I just open the necessary accounts and get started?

[Bjorn Ahlblad]

Unless you live in a state where deposits have to be kept in a separate account (google) I would open 1 business account and a credit card for the rental property. 

Keep the business and personal money separate. You can open the account now.

I am not an accountant but I do not believe there is anything tax related you need to do at this time.

Congrats and all the best!

[Daniel Vikhtinski]

Thank you Bjorn! That was incredibly insightful. 

[Jay Thomas]

Hey there! While I can't give you personalized advice, I can share some general tips on handling finances for your rental property. It's a good move to keep things separate – set up a business checking account for your rental income and expenses, and maybe a savings account for unexpected stuff or future upgrades. This not only helps with organization but also shields your personal funds if anything tricky comes up. For tax-related matters, seek advice from a qualified CPA or tax advisor familiar with Minnesota's rental property tax regulations. They can provide insights into tax implications, specific filing requirements, and potential deductions.General advice? Keep solid records of every rental money move, get cozy with the right tax forms, and think about making estimated tax payments throughout the year to dodge penalties. Remember, it's always good to have a pro in your corner for the nitty-gritty tax stuff!

[Josh St Laurent]

@Daniel Vikhtinski

It's awesome you're asking these questions as a new investor.  A great book I gift to new RE investors is Profit First by Mike Michalowicz and it goes into detail about what types of accounts to open as a business owner.  The "partner" bank to this strategy is Relay and they make it very easy to open and name accounts.

I would second what was said above.  A simple business checking (Using your LLCs EIN), a business savings account (For CapEX, vacancies, estimated taxes, etc), and a business credit card for expenses would be an excellent starting point!

I'll always say find a trusted CPA that specializes in RE Investing and they'll be able to give you more insight into MN tax laws.

Hope this helps!

[Bill Hampton]

@Daniel Vikhtinski

I recommend finding an accountant that specializes in real estate taxation. You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year. Some accountants are still taking on new clients. 

Good luck in your search.

[Daniel Vikhtinski]

Quote from @Jay Thomas:

Hey there! While I can't give you personalized advice, I can share some general tips on handling finances for your rental property. It's a good move to keep things separate – set up a business checking account for your rental income and expenses, and maybe a savings account for unexpected stuff or future upgrades. This not only helps with organization but also shields your personal funds if anything tricky comes up. For tax-related matters, seek advice from a qualified CPA or tax advisor familiar with Minnesota's rental property tax regulations. They can provide insights into tax implications, specific filing requirements, and potential deductions.General advice? Keep solid records of every rental money move, get cozy with the right tax forms, and think about making estimated tax payments throughout the year to dodge penalties. Remember, it's always good to have a pro in your corner for the nitty-gritty tax stuff!

 Thanks for your reply Jay! I’ll be sure to familiarize myself with all the required forms and procedures once I find someone to work with!

[Daniel Vikhtinski]

Quote from @Josh St Laurent:

@Daniel Vikhtinski

It's awesome you're asking these questions as a new investor.  A great book I gift to new RE investors is Profit First by Mike Michalowicz and it goes into detail about what types of accounts to open as a business owner.  The "partner" bank to this strategy is Relay and they make it very easy to open and name accounts.

I would second what was said above.  A simple business checking (Using your LLCs EIN), a business savings account (For CapEX, vacancies, estimated taxes, etc), and a business credit card for expenses would be an excellent starting point!

I'll always say find a trusted CPA that specializes in RE Investing and they'll be able to give you more insight into MN tax laws.

Hope this helps!

I always love a book recommendation, I’ll be getting that as soon as I’m done here haha! Regarding the accounts, I don’t have an LLC, so does a sole proprietorship work just as well? I’ve been hesitant to do anything since apparently I have to register a name to open a business account. Thanks for the information Josh!

[Daniel Vikhtinski]

Quote from @Bill Hampton:

@Daniel Vikhtinski

I recommend finding an accountant that specializes in real estate taxation. You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year. Some accountants are still taking on new clients. 

Good luck in your search.

I will definitely be expanding my search to remote CPAs since I’ve been having zero luck locally. Thanks for the advice on who to pick though Bill! Super grateful. 

[Jonathan Bock]

@Daniel Vikhtinski

Yes, opening accounts as a sole proprietor is fine it will help you get and stay organized.  You probably do not need a CPA at this point but build some contacts.  

Start with a basic system and improve incrementally it will not be perfect.  

[Daniel Vikhtinski]

Quote from @Jonathan Bock:

@Daniel Vikhtinski

Yes, opening accounts as a sole proprietor is fine it will help you get and stay organized.  You probably do not need a CPA at this point but build some contacts.  

Start with a basic system and improve incrementally it will not be perfect.  

Perfect, I’m all set now. I appreciate it Jonathan! 

[Tim Swierczek]

@Daniel Vikhtinski 

I recommend keeping things simple. We have one rental account for all of our rentals and separate accounts for each Flip we do. They are different types of transactions and that is why we do it differently. You don't need a CPA to make this decision. You do need to find a system to keep good records for your taxes, so if having more accounts helps you should do this but I believe it gets complicated quickly.

[Daniel Vikhtinski]

@Tim Swierczek

Thanks for the advice Tim! I’ll try and keep things simple in my business, that’s how I like them anyway haha! Since Minnesota allows security deposits in the same account as rental income (as far as I’m aware), I’ll most likely just have one account per property. 

[Tim Swierczek]

Quote from @Daniel Vikhtinski:

@Tim Swierczek

Thanks for the advice Tim! I’ll try and keep things simple in my business, that’s how I like them anyway haha! Since Minnesota allows security deposits in the same account as rental income (as far as I’m aware), I’ll most likely just have one account per property. 

One account per property gets old quickly. If you're going to do that you may want to have a management account and then one account for each property.  You would then spend non-reoccuring transactions out of the management account store money and pay auto payments out of the property account. Otherwise, you will be carrying 10-20 debit cards someday. It gets crazy, even six properties gets to be a lot of debt cards and balance management just to go to Home Depot to purchase supplies.  Hit me if you want to grab coffee & talk investing.

[Josh St Laurent]

Quote from @Daniel Vikhtinski:

I always love a book recommendation, I’ll be getting that as soon as I’m done here haha! Regarding the accounts, I don’t have an LLC, so does a sole proprietorship work just as well? I’ve been hesitant to do anything since apparently I have to register a name to open a business account. Thanks for the information Josh!

 It really does depend, you don't need the LLC setup to do the things you want to do and you'll still get the tax deductions.  The main reason I would advocate for the LLC and business bank account is because then you can separate your personal finances from your business finances and also shield yourself from any liability should something happen in or on the property and you get sued.

[Daniel Vikhtinski]

@Josh St Laurent 

That makes sense. I’ve always been interested in LLCs but I’ve been told it’s a late-game move, and not really for a new investor such as myself. I’ll have to do some more research. Got any suggestions on books or podcasts to learn from?

[Daniel Vikhtinski]

@Tim Swierczek 

Interesting. I always wondered how the logistics of billing worked on a large scale. I’ll have to implement that as I progress, that’s very helpful! I’ll also be reaching out later today to possibly set up a time to meet!

[Josh St Laurent]

Quote from @Daniel Vikhtinski:

@Josh St Laurent 

That makes sense. I’ve always been interested in LLCs but I’ve been told it’s a late-game move, and not really for a new investor such as myself. I’ll have to do some more research. Got any suggestions on books or podcasts to learn from?

Here are two books to start!

 https://www.amazon.com/Limited-Liability-Company-Estate-Inve...

https://www.amazon.com/Your-Business-Entity-Estate-Investing...

I know that BP has talked about using LLC/business entities on the podcast many times, try episode 283 with David Greene "15 Real Estate Investing Lessons Learned the Hard Way"

[Daniel Vikhtinski]

@Josh St Laurent

Awesome! I’ll start on those right away. Thank you! :)