Question on rental property bank accounts?

Question

Hi,

I currently have 5 properties in one city (out of state) and am looking at investing in 2-3 other states. I am curious what other out-of-state investors have done in terms of setting up bank accounts to receive tenant payments? Do you set up local bank accounts? One master account where are all payments are mailed? Only use property managers and have them pay you?

Any inputs would be appreciated. I am currently thinking about setting up a local account for each property to keep everything separate and easy to track but I am hoping there might be a simpler way!

Thanks in advance for any feedback!

Bill Bockwoldt · Answer

I investigated Elizabeth's recommendation (Chase couldn't do what I wanted with no fees) and the Wells Fargo solution is great! I have set up a savings account for each property under one master account. I will provide each tenant with a deposit-only card and they can pay me online via Wells SurePay or go to the ATM or branch and use the deposit card. All deposits will be swept into my main account automatically, and by meeting the min. balance in the main account there will be no fees for anything. This should work great going forward. Thanks again Elizabeth!

Bill Bockwoldt · Answer

Thanks for the info. Elizabeth!

Do you need to have a "business" (e.g. separate tax id) to set that up at Wells Fargo? I don't have LLC's for my properties so all of my accounts are personal vs. business.

Based on what I learned today, I think I might go forward with Chase because I can use their QuickPay service for tenants to pay me online for free, and I will have a separate account for each property so they can also go to the local branch and make a direct deposit if desired. The amounts in these accounts are then transferred to my main Chase account. And I will only keep the minimum in that account to avoid fees, and everything will be kept at Everbank where I can earn 30-60X the amount of interest on the money (0.61% vs. 0.01%). I love Everbank and have used them for years for both business and personal accounts. The Everbank account will be the operations/reserve/investment account. I guess the only other piece is the deposit trust account, and that will probably be another Everbank account where I set aside the deposit on each property (which will also earn interest).

Elizabeth Colegrove · Answer

@Bill Bockwoldt

We use Wellsfargo and I love them for our small business (now personal accounts a different matter:)

Each house has their own separate security deposit and individual house operating account. I than have one master "general account". Once the mortgage has been paid (after the 15th) I empty all but $500 from the house accounts into the operating account. The tenants direct deposit their funds into the "operating account". The only person that has access to the "general account" is me.

Bill Bockwoldt · Answer

Thanks for the replies!

After reading about this more in other forum threads, I think I may go with Chase since I already have an account I can use there, and they are national with branches everywhere. I agree that if all properties are being professionally managed this is essentially a non-issue. However, when dealing with this yourself, the tradeoffs are tracking at the front end (who sent/deposited what/when, method of payment) or the back-end (accounting/reconciliation under one account).

I like the idea of sub-accounts for a cleaner audit trail and if the costs are basically 0, and I can make the payment process easier than just dropping in the mail, then I will go that route until the properties are eventually professionally managed and I can consolidate. I also liked the concept of 4 accounts, splitting by tenant deposits, operating, reserve, and investment accounts. I haven't started using quickbooks yet for my properties so when I do this may override the "separation by account" strategy but conceptually I like it because that's how I tend to think about these things.

BP and all of you continue to be a fantastic resource! I wish I had found this site before I bought my first 5 properties!  :-)

Ali Boone · Answer

All my properties are out-of-state (I'm also in CA) and I just have one bank account that I use for all of them. I could see the reason for having an account for each property, well maybe. If you are landlording yourself then maybe it makes sense to pay expenses out of and such, but with a property manager who just gives you a statement each month and your deposit, I don't really see the benefit of multiple accounts. My account is with an online bank but even if it weren't online, I wouldn't worry about a local bank. The reality is now with technology at the levels it is, all a manager needs to make deposits into an account is your routing number and account number. So there is no reason, that I can see at least, to worry about having a local bank.

Aaron Montague · Answer

I recommend a company with an awesome online presence.  The bank I use enables me to create accounts in about 2 minutes.  I can have as many as I want and they are all behind the same login/password.

I use them to create individual accounts for each property, hold money for quarterly tax payments and a variety of other items.  The key is not have to pay for any of the transfers.

Xing Zhu · Answer

Local bank is OK.

It is better to have a separate account for each property.