Is business bank account needed for rental income

Member since 2024 · 19 posts · 4 votes

Hi, I am starting to self manage my rental property and have below Qs. Please help?

1. I understand its good idea to have a separate bank acc for rental income. Can it be a personal acc? I called WF and they said for business account I need a registered business like LLC etc which I do not have.

2. We will add a addendum to the lease to remove my rental property manager and add owner. Is there any other thing i need to do?

3. Do people just wait for tenants to give them checks/transfer rent or do we need to send a invoice every month to tenant for rent payment?

4. Should I use some SW for all this accounting? Please recommend a free one, as I have only one rental property so not sure i need too many features.

Thanks!

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

I recommend two accounts: checking and savings. If you have an LLC, the accounts should be business accounts in the LLC's name. If you have more than one LLC, each LLC should have its own set of accounts.

Checking: Collect all income here, then use it to pay bills, pay the mortgage, or do maintenance. If you set aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or refund the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account designated explicitly for future investments. That ensures you don't spend it on other things and know exactly how much you have to spend on the next purchase. If mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.

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Dustin TuckerBusiness Member
Lender · Savoy, TX · Member since 2020 · 195 posts · 80 votes
2y
Hello, You should really talk to an accountant about how to set it up for your best practices, that said we ran into an issue this week when we were working on an SBA loan for a client, and because he owns all his properties in his personal name, we couldn't use his rental income to get the SBA loan. I would recommend setting up an LLC, and putting your investment properties inside your LLC.
1. I understand its good idea to have a separate bank acc for rental income. Can it be a personal acc? I called WF and they said for business account I need a registered business like LLC etc which I do not have.
I would go a step further and set up 1 Bank account for each property, this way at the end of the year you can go through each properties bank accounts to see what the income and expenses were. try not to purchase items on credit cards for multiple properties, at 1x, make 2 receipts, and write a reimbursement check from the property account.

2. We will add a addendum to the lease to remove my rental property manager and add owner. Is there any other thing i need to do?
You are the owner, The tenant just needs to know where to send the money each month, and who to make the check out to.

3. Do people just wait for tenants to give them checks/transfer rent or do we need to send a invoice every month to tenant for rent payment?
For rent collection, sending an invoice on the 20th greatly helps with getting paid on the 1st. There is rental software out there that can automate this for your, you can also set up auto emails to go out to your tenants.

4. Should I use some SW for all this accounting? Please recommend a free one, as I have only one rental property so not sure i need too many features.
I would just set up 1 dedicated bank account for your rental property, you are going to have very few transactions.

Thanks,
Dustin
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Bill HamptonBusiness Member
Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 979 votes
2y
Quote from @Sweta Jain:

Hi, I am starting to self manage my rental property and have below Qs. Please help?
1. I understand its good idea to have a separate bank acc for rental income. Can it be a personal acc? I called WF and they said for business account I need a registered business like LLC etc which I do not have.
2. We will add a addendum to the lease to remove my rental property manager and add owner. Is there any other thing i need to do?
3. Do people just wait for tenants to give them checks/transfer rent or do we need to send a invoice every month to tenant for rent payment?
4. Should I use some SW for all this accounting? Please recommend a free one, as I have only one rental property so not sure i need too many features.
Thanks!

1. Yes, you should have an LLC business bank account. If you don't want an LLC business bank account, a personal bank account that is used solely for real estate is a second but less desirable option.
3. You should use software that automatically sends you rent payments. Zillow offers this as well as other companies.
4. Stessa and Azibo offer free real estate accounting software.
5. I also recommend hiring an accountant that specializes real estate taxation.
Good luck.
404-482-3170
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
I recommend two accounts: checking and savings. If you have an LLC, the accounts should be business accounts in the LLC's name. If you have more than one LLC, each LLC should have its own set of accounts.

Checking: Collect all income here, then use it to pay bills, pay the mortgage, or do maintenance. If you set aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or refund the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account designated explicitly for future investments. That ensures you don't spend it on other things and know exactly how much you have to spend on the next purchase. If mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.
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Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
2y
1. It is not necessary
2. Make sure that they are FULLY aware of how to pay and who/how to contact you.
3. The tenant does not need to be prompted to pay but we send them reminders
4. SW is not normally necessary when you only have a small amount of units
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Lynn McGeein
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
2y
@Sweta Jain we just keep it simple. I didn't like the expense involved when I researched cost of maintaining a business account to self manage 1 rental and found that the LLC route wasn't necessary if we maintained an umbrella policy, so I just keep track of rental income and expenses (not that hard) on the one I self manage and any extra expenses on the ones managed by property management to add to their annual summary for my accountant. I placed the security deposit in a separate savings account. Rents just go into our personal account, and I transfer monthly excess into another savings account to be used for maintenance, renovation, etc. No fees involved and bookkeeping isn't that difficult. If I self-managed them all, I'd probably do it differently.
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Sweta Jain
OP
Member since 2024 · 19 posts · 4 votes
2y
Thankyou all for great suggestions!
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes
2y
Hi Sweta, having a business bank account for rental income is a good choice and choosing a software to order the accounting.
You've come to the right place, there are over 20 enlisted CPAs here in Biggerpockets working with real estate investors across different states. Feel free to reach out to one and set up a consultation call.

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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y
@Sweta Jain There’s a difference of opinions about the checking accounts depending on who you talk to.
Some investors say individual accounts for each property and some say one checking and one savings and lump all your properties together.
Personally I have individual accounts (they are personal) for each property. I feel this makes it much simpler to see my income and expenses at all times.
My new bookkeeper thought this was a little weird at first but quickly came to see the benefits.
The only issue you may have is when filing your taxes some preparers charge based on the number of inputs you have such as W2s, 1099s, and P&Ls. When my accountant was with H&R Block they functioned this way and even though he could prepare my return in about 1.25 hours it would cost me $1800 because of the number of inputs I had specifically from my 7 properties.
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