When opening a separate account at the bank for rental deposits, rent, and expenses are you opening an actual business checking or are you opening a personal/general checking and calling it your "business" account. Keeping funds separate of course.
I plan to just up my umbrella coverage for liability so I won't have a Tax ID which I believe you need for an official business account?
I have a separate "personal" bank account for rents and rental expenses. This makes it easier to keep track of things, particularly if you use QuickBooks. In QuickBooks, you can set up a bank account, reconcile it monthly, so having a bank account just for the rentals would make it so much easier. Occasionally, I use my personal bank account, also credit cards to pay for rental expenses, and I have to make "journal entries" to record these. Otherwise, I have to record all the transactions in this other checking account, or credit card account where I do almost no real estate transactions.
Then, at one time, I had a real estate management company operating thru a C Corp with it's own business account. Unfortunately, the personal and commercial sides of most banks are separate. Even though I have a wealth account with them with perks from the personal side, I still pay fees on the business side. On the business side, they charge fees for deposits also. It's small potatoes but bothersome.
I have a separate "personal" bank account for rents and rental expenses. This makes it easier to keep track of things, particularly if you use QuickBooks. In QuickBooks, you can set up a bank account, reconcile it monthly, so having a bank account just for the rentals would make it so much easier. Occasionally, I use my personal bank account, also credit cards to pay for rental expenses, and I have to make "journal entries" to record these. Otherwise, I have to record all the transactions in this other checking account, or credit card account where I do almost no real estate transactions.
Then, at one time, I had a real estate management company operating thru a C Corp with it's own business account. Unfortunately, the personal and commercial sides of most banks are separate. Even though I have a wealth account with them with perks from the personal side, I still pay fees on the business side. On the business side, they charge fees for deposits also. It's small potatoes but bothersome.
Thanks for the replies. Will get set up accordingly
A word about handing credit cards. I had at one point used separate credit cards to pay rental property expenses. You can set the credit card in QuickBooks to track the payments and reconcile made via credit cards.
Then, I had too many credit cards out there and it's a pain to manage. And then I remembered back to my younger days when I only qualified for one and then two credit cards. I worked for a large company, paid all my travel expenses on a credit cards, back then Mastercard and Amex, then file a monthly expense account and get reimbursed. So I created an expense account report that I file for rental expenses I paid, same format as I used at the company, reimbursed myself from the rental checking account, and the expense categories corresponds to the Schedule E expense categories, so when I prepare my expense report to myself and pay myself, I handled banking and bookkeeping at the same time. The company required me to attach receipts to my expense report, and I attach receipts the same way for my rental business records.
@Frank Chin I suppose this could be accomplished with an excel spreadsheet as well? We are planning on opening a 0% intro APR card for some updates to the rental. Obviously we have 12-15 months to pay that off. Then I could distinguish that card as the "business card" for business expenses only.
@Frank Chin I suppose this could be accomplished with an excel spreadsheet as well? We are planning on opening a 0% intro APR card for some updates to the rental. Obviously we have 12-15 months to pay that off. Then I could distinguish that card as the "business card" for business expenses only.
Is that generally your practice?
Yes, I done the expense report on a spreadsheet, but the spreadsheet is called an "Expense Report" and designed to look like one. So the top line left goes: "Expense Report for ….." , top line right says: Report for the period …" Then it says "Staple receipts to the back ".
You can use any credit card, so long as it is dedicated to business expenses, so don't charge vacations on it, only for rental expenses. But I got to the point where I have items owing on 6 to 8 credit cards, at one point, 10, due on various days of the month, and I could easily missed some. I had due dates changed so I can process all the payments due on one day of the month, all on-line, so it takes just 15 minutes. I consolidated them to about 4 or less, which includes 3 for my wife doing food shopping, and there's advantages to using BJ's or Costco's card when you shop there. So if pick up a few cans of paint, I don't have to dig out a separate credit card, I just use the Costco card, and do the expense report, which is a spreadsheet already formatted to record expenses for the month. I done it both ways, separate card, expense report, both worked fine, as long as you got a system and follow it.
@Frank Chin yes business card will be used for the rental expenses only. We're comfortable with our personal card, I just want to take advantage of new card 0% offers for rental updates and spread the payments out over a few months. I'll have to talk with my accountant but I would assume using personal money (w-2) to pay a portion of the business card isn't a problem.
Managing your properties well and legally protecting you are two different topics as you know.
I think having an umbrella coverage on your property may be good enough if your portfolio is small. The bank account wise, it does not really matter if the account is business or individual. It is usually for the banks because they can offer the customers different services. If you use the account as a regular checking account, there will not be any difference. But it is significantly better than mingling your real estate business with your personal accounts. Some of my users do it but I alway highly recommend them to have a separate bank account.
Of course it is better to use a property management software because it makes your property management work much easier and it keeps your record safely.
However, if it is one or two properties and you file Schedule E, excel sheet can be good enough.
Just remember to keep the record of "Everything" in case your accountant or even IRS requests evidences.
One thing about umbrella insurance tho.
Umbrella is an insurance. The insurance company will fight and do whatever it takes not to pay for the damage you are claiming. If the damage exceeds your property's capacity, it will come to you personally.
If you have a LLC, if a really really bad thing happened, the worst case scenario, you just lose the LLC.
Umbrella insurance is a great product to protect you but you should be aware of the difference.