I will be closing on my first rental property soon (house hacking a triplex in Philadelphia, Pennsylvania) and am starting to think about organizing the finances of a few accounts, not only for accounting ease but to keep the rental information separate from personal banking.
I understand I will need an escrow for safety deposits, and then at least need a rental checking account for incoming rent checks and outgoing mortgage payments or expense payments.
1) Should I be separating the operating costs account from the property's "reserves" (I am thinking of putting away 10% of gross monthly rental income for this, does that sound like a good number? What should all be accounted for in reserves? : capex, vacancy, repairs...taxes maybe?)
2) Are there any recommendations for Philadelphia/PA banks or credit unions (or big banks, if you've had luck with them for such an account) for user friendly accounts or business accounts (like maybe a easy to navigate app and no monthly maintenance costs)? Specifically one bank or credit union that we can have both the escrow account and the checking account. Ideally the account would have credit/debit card ability for things like trips to home depot etc!
3) We would also like to put together a savings account for future property purchases, are there any recommendations for this type of account as well? I currently have a personal online only high yield savings account, but my partner and I would like to jointly contribute to our future funds in a savings account with some growth potential---I was thinking about opening another Wealthfront account for us but wondering if there's any other recommendations from local BP-ers!
Open to all suggestions or other information that is useful for organizing expenses...even trying to figure out what to put in our spreadsheet is driving me nuts
I was a banker for 25 years, so perhaps I can help. I would simply set up 2 accounts, one for your operating account and one for your escrow account. Nothing else can run through the escrow and I would set that one up with an account that has no minimum balances, but does not pay any sort of interest. This type of account will likely allow very few transactions each month, which is why it would be free. The operating business checking account might have a minimum balance and a $12 - $15 monthly maintenance fee, but it will allow for considerably more volume to run through the account. I certainly wouldn't do what is called "Treasury Management" or "Analysis" type of accounts out of the gate. These accounts charge you a small amount for each deposit, check, transaction...everything, but they give you an "earnings credit" that is based on your average daily balance that is applied to those charges. That makes sense for really high-volume accounts. I don't suspect analysis accounts will make sense for you. Keep it simple. For your reserve account, I would do a Commercial Money Market. Although a Money Market is technically a DDA (Demand Deposit Account...a fancy word for an account that lets your write checks), it sill falls under the Truth in Savings rules. You will be restricted to 6 transactions/month and it will certainly have a minimum balance to avoid fees, but it will pay interest and you are only using it to park money anyway. If you really wanted to, you could link it to the operating account for overdraft protection, but that is up to you. It really isn't that big of a deal. Each bank is very much like another...you're looking for a good banker that is attentive and has enough authority to waive deposit holds and the like. I hope that this helps
@Doug Smith Yes thank you it does help! I feel like I'm over thinking this, but want to be sure I'm not missing something.
I use a separate account for each property. The book keeping is done automatically as long as I pay for expenses out of the correct accounts. Pretty easy.
I have a savings account for all security deposits.
I have another savings account for capex - each rental checking account contributes to this savings account monthly (auto deposit).
@Max T. any particular bank you prefer using for these accounts? Wondering if I should use someone like Chase or WF or a smaller bank
They’re all pretty good. You want one that has a good mobile app. Photo check deposit. Easy online bill pay.
All of the Philly banks of my youth are probably gone now.... but I still get an earworm of the jingle “just say hello...to...Meridian Bank” which became CoreStates which became First Union which became Wachovia which became Wells Fargo (I think I have that right). I also liked Fox Chase Savings & Loan. They would come to our elementary school, collect our pennies and log them as deposits in passbook savings accounts. My how much has changed in 35 years. Thanks for the trip down memory lane. The advice from the other guys is solid ;-)
I would go with a small local bank and build up a nice relationship. I like the idea of moving some extra money to a high yield online savings account to help with future property purchases. One thing I have is a totally separate account just called the maintenance account, and I put 10% of rent collected into that account every month. If your property is newer, you might just do 5% every month. And I pay for all maintenance materials and repairs out of that account.
I have been using Capital One for the ability to make new bank accounts in easily online once you have an account setup.