Do you separate your expense reserves from your cash flow?

Question

Hello everyone,

I'm wondering how people handle their expense reserves and cash flow.  Do you keep it in the same account? Do you separate the two? Do you put the expense reserves in a checking and cash flow into a savings?

I know to keep the rental income separate from personal funds and to keep security deposits in their own savings account but how much separation is enough/too much?  Or is this one of those whatever you're most comfortable with things?  Is it easier to just keep it all in one account and let Quickbooks keep track of what's what?

Thanks!

Account Closed · Answer

I keep linked checking and savings accounts to have an idea of what's what. Reserves and expenses go into savings (because I only use the money once in a while). Anything else stays in checking. Security deposit with PM. Would open a separate account if I were self-managing.

James Triano · Answer

@Zachary Taylor

Ideally, you would have 3 accounts or 3 ways of separating funds.  First, an account for security deposits since these funds legally need to be separated.  Second, you should have an account for your capital and expense reserves.  Third, you'd have your operating account with all of your normal funds for paying your mortgage, taxes, insurance, recurring monthly expenses, etc.  In this third account, I keep 3 months of operating expenses just so I know there's always enough money in there to cover anything in expected quickly.

Ray Johnson · Answer

@Zachary Taylor I keep two accounts per LLC, one operating business checking account, and one linked business savings account in which I keep rent deposits, and reserves. I do it this way since it's easier to keep track of the reserve balance, If not I'd have to run a report to determine what's excess cash flow versus reserves and deposit if all funds were in one operating account

Eric D. · Answer

My properties cash flow greatly.  I keep mine all together.   Rarely do I ever have an expense than cannot be financed out of the monthly cash flow.  That includes property taxes, insurance and even my own distributions.  Or three roofs.  Or two furnaces.

I will use a credit card is there are no fees and pay it off in a month if I need extra.  Or plan ahead a bit and save for taxes.  I have put on three roofs in one day and paid out of the cash flow.

Of course, if I rally need to, I can withdraw from previous months cash flow that went to my investment accounts.