Account for rental property

4 Replies

Good afternoon! 

I am 2 weeks from closing on my first deal- a duplex house hack. The property will be in my name, and it seems the general consencus is that someone just getting started doesnt need an LLC. However, I have also been told I should get a bank account to collect deposits and rent in, and to pay expenses from. Should This be a business account, or just a seperate personal checking? What are advantages/disadvanteges of each? Can you get a business account without an LLC?

I plan for my 2nd deal and beyond to be BRRRRs, and will have an LLC later on. Should I go ahead and get one now, or wait?

Thanks,

Michael

Congrats on the house hack!

The general consensus that you don't need an LLC early on is because there are fewer assets to protect from a liability standpoint. However, if you would like to segregate bank accounts, an LLC can be a good way to accomplish this. The annual fees are pretty minimal (depending on the state) relative to the accounting benefits.

For reference, that's what we do with our business. Our LLC has the bank account, collects rents and pays bills. It doesn't own the underlying properties because of some of the issues that are often discussed here (difficulty getting financing with an LLC, etc.).

It is mostly a matter of preference and whether it will make things easier for you on a day to day basis to have the revenues and expenses separated from your personal finances. 

@Michael Janke

Create an LLC and open a business bank account for accounting and tax purposes. Start your real estate business correctly.

Good luck 

It can be a personal or business account. There's no requirement for you to use a business account and the bank may charge additional fees, so why bother?

A checking account and a savings account.

SAVINGS: Security deposits are held here so they are easy to account for and not accidentally spent. I don't put anything else in the savings account.

CHECKING: This is my daily operating account. The rent money comes in. Pay mortgage, taxes, insurance, utilities, maintenance, and other expenses from here. If you have a reserve for emergencies, I would keep it here as well. For example, you may have a $5,000 reserve so you know to keep the balance at $5,000 at all times.

If the Checking account builds up to a higher amount than needed, I transfer the excess funds to my INVESTING account that is specifically for new investments. This ensures I know exactly how much I have available at any given time for a new investment and my wife knows it's my money to invest and not to buy a new couch set or trip to Italy.

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