Do I need a Business Checking Account?

7 Replies

Hi,

I went into contract on my first rental property a week ago, and getting ready to close the property in few weeks (under my own name, with no LLCs).  I am wondering if opening a business checking account is recommended, and if so, what do i need to be conscience about? Can i "distribute" money to my personal checking once every few months, or do I need to keep it in the business checking account?  Thank you for your help!

@Michinori Kaneko I would suggest you get an accountant and ask them. You could do it all in your personal account but it opens you up to being sued for your personal assets. You should consider moving the property into an LLC which you would then likely want a business checking account.

Absolutely.  

You are now running a small business.  Looking at it from that perspective, you should never co-mingle funds with your business funds.  You can be creative about how you 'pay yourself' and transfer money from your business account to your personal accounts, but make sure there is a clean separation between the two.  

While you are at the bank opening that account, I'd recommend opening a CapEx Savings account. Depending on the age of the home and the condition, I usually set aside 3% of the purchase price of every new property into this CapEx Savings account. In addition, I put 10% of rent each month into this account. This will give you a nice cushion to pay for a new roof, refrigerator, etc when the time comes (and it will come). If you do a great job in managing your capital costs, then you want to reward your star employee (you) with a bonus from your capital expense account!

If you intend to grow your rental business, also consider accounting software.  Just be sure to get advice from your accountant as you'll need their help to set up your chart of accounts and advise on how to implement properties in whatever system you choose.  

Thank you both for your inputs. I do intend on utilizing LLC once my portfolio grows, but probably not until i have a handful of properties.

@Joe Hines How do I become "Creative with how to pay myself"?  I guess my question is, when i'm transferring money from my business checking to personal checking, how is that different from mixing the two? I suppose my question is how do I have a  clean separation? do I schedule like a set amount of quarterly distribution or some sort of "rule"? 

I am a CPA and good with excel so I think i'll be ok with maintaining my records (I don't really practice CPA though, so I'll still need some advice from people who practice in these type of situations).

@Michinori Kaneko  

Having separate accounts is sufficient.  Transferring money from account to the other doesn't not breach that separation.  It is the same as having a W2 job and your employer directly depositing your paycheck.  That transfer does not constitute co-mingling.  

By "getting creative in paying yourself" I simply meant you could choose to make this transfer monthly when you get your rent, quarterly as you see what your expenses are going to be or even annually after you close out your financials for the year and assess your taxes.  You could even choose not to pay yourself at all and re-invest all proceeds back into your business.  It's up to you.  You are the boss of your small business.    

Thank you Joe,

that's every helpful.  So if I distributed all the money to my personal, then decide I want to purchase another property, it's probably better to transfer more money into the business checking and buy the property from there, correct? 

Great! Thank you so much for your help.  I'll open the account soon, along with your suggestion about capex savings account!