Security deposit and rental income question

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Question about bank accounts. Do you guys keep security deposit in a separate bank account and if so what kind? CD, money market account or just plain bank account? Also for rent, do you open a different bank account for bookkeeping purposes? What if you have more than one rental? Do you do separate bank accounts for each or just bulk everything into one bank account? I want to make everything easy for accounting purposes As well as make it easy on me. If you separate, do you take money out of your personal bank for repairs on the rental or out of the bank account for the rental.

I think the best system is having a savings account for security deposits, a checking account for all business income, and a business CC for business expenses. If you’re paying or receiving money through a personal account, it can get messy to deal with. Best case scenario is keeping all REI related transactions in their own accounts so that you can track them easily.

I have 1 checking account for all of my rental transactions.  Each property has a separate money market account for security deposits.  My tenants earn and keep the money market interest within those accounts.  That makes it easy to see their balances with no additional work on my part and separates their money from mine.

It's important to read your state law. If you only get your information from strangers on the internet, you are asking for trouble! Check out NOLO.

I do recommend holding the funds in a bank account separate from operating funds. It's easier to keep track and ensure you don't spend it. Whether you have one rental or 50, you can use the same bank accounts. 

CHECKING: rent goes in, money goes out for mortgage, repairs, etc.

SAVINGS: Security deposits go in and stay in. You can also hold funds for reserves, future investments, etc.

One thing to remember: these accounts are to operate your business, not for personal expenses. If you have money saved up in these accounts and want to use it to take a trip to Cancun, that's fine but don't buy the plane tickets from these accounts. Transfer the funds to your personal account and then spend them. This helps keep your personal money and business money separated.

You should have four accounts one for the security deposits, one for expenses and income rent revenue, and then your personal checking and saving accounts.If you move money from business to personal just remember that comes out of your owners equity if it is not a paycheck situation. 

I’ve had different opinions on this at different times as I’ve grown. Below is pretty much what I have done.

I used to have a different account for each property with my Credit Union. In Credit unions each ‘account’ can have sub accounts. It was broke down like this:

xxxxx1: “O” Checking = Rent in, Bills/Expenses Out;

xxxxx1: "A" Savings = Reserve funding in, CapEx out;

xxxxx1: “S” Savings with limited withdrawals = Deposits Held;

xxxxx1: “M” Mortgage loan account

xxxxx2: “O” Checking = Rent in, Bills/Expenses Out;

xxxxx2: "A" Savings = Reserve funding in, CapEx out;

xxxxx2: “S” Savings with limited withdrawals = Deposits Held;

xxxxx2: “M” Mortgage loan account

And so on

This was fine up to a point, then it got way to convoluted keeping track of everything.

I now have one account labeled ‘Rentals' with sub accounts of checking and savings for rent and expenses and an "S" savings for all deposits. Vacancy and Repair funds go into the savings account at the end of the month. CapEx funds are transferred into a separate account for better tracking and each month on the 10th I transfer the full next month’s mortgage amounts to another account with auto payments setup, so if something crazy ever happens and I’m sort on mortgage payments, that transfer will fail and I’ll know way ahead of time.


xxxxx1: “O” Checking = All Rent in, Bills/Expenses Out;

xxxxx1: “A” Savings = All Reserve funding in, Repairs;

xxxxx1: “S” Savings with limited withdrawals = Deposits Held;

xxxxx2: “A” Savings = Mortgage Holding account;

xxxxx2: "S" Savings = CapEx Reserve Funds;

I have a credit card specifically for rental purposes, always paid off from the rental account; and the rest of my personal accounts are all separate.

I wouldn’t use a CD for deposits as they have a locked time frame on them and things always come up. Finally, of course, check your state laws before doing anything.