How do you separate income and save for expenses? If everything lines up and its a good property what do you do to set money aside, hypothetically if your income was 1000 and you set aside 100 each for 10% for Maintenance, Cap Ex, Vacancy, and Management what do you do with it as far as collecting and separating it? Is there an app for that? Do you put it in a single account for the property to use as needed, or only use what's collected for Cap Ex just for Cap Ex etc.? Do you collect rent put it into an account for that property and just keep track of how much is designated for what? Would it be better to put it in separate accounts for each category so you would have 400 for those variable expenses and the other 600 in its own account? What about when you get 3+ properties or multifamily? Do you make an account or 2 for each property, or each door? I haven't got any properties yet but I'm curious how everyone keeps track and keeps everything separate so when I do I want to make sure I'm organized the best I can be right away so I don't get overwhelmed or anything as I get more properties.

@Ryan Guffey upon purchase I padded the account with enough to be very comfortable. If for whatever reason capex were to deplete I’d replenish accordingly. Hopefully that never happens but I sleep better know worst case scrnario, something bad happens and I need to drop $10k on an unexpected repair, it’s already there.

@Ryan Guffey Perhaps this is redundant to clarify, but just note, setting aside reserves does not count as an expense. It's all considered income to you. Once it comes in, just sweep out a certain percentage each month until you have at least 6 months in reserves set aside in a separate account. Once you hit 6 months, now you can switch to downpayment savings mode!

I use Ally bank as my regular savings account haven't gotten a rental property yet. One feature I like and thought about when I saw your comment was that they have what they refer to as buckets. So in an account that has $10k in it you can create your own buckets to filter the total balance into. It's all one account but let's you visualize how your money is being divided up. You could create a bucket for cap ex, one for vacancy, etc. Just a thought

@Ryan Guffey You'll want to always track income and expense by property or you'll pay a lot more for your accountant's time as they will do that for you. I'll track any income and expenses that come up and allocate to the property via excel. I usually invest the profits rather than keeping it inside a bank account, but I will keep a separate chequings account per property to deposit funds and pay HOA fees

Everyone has their own style and preference. I have a separate account for each property and manage expenses/income in a spreadsheet. I think keeping accounts separate is helpful in extremely helpful especially when reconciling and doing your taxes. I always try to have a specific base level of money in each account for reserves.

@Ryan Guffey I have a separate account for each property, and one combined account for capex reserves. Once a property is stabilized I set up a monthly auto deposit from the property account to the capex account. Generally I use the capex account for any large expenses over 5k. In 10+ years investing I’ve never had to come out of pocket for an expense, and that includes the first few years when I was woefully under capitalized.

@Ryan Guffey Use stessa.com app (free not sure for how long as it's recently acquired by RoofStock) It can pull transactions from bank, convert receipt sent from email transactions, and many cool reporting feature such as income, cash flow, capital expenditure. Each transaction whether imported from bank, manually enter, or from emailed receipt you can assign to a property or unit in a property

I'm a saver, so it all goes into my main bank account. I keep track of income and expenses separately (old school with a notebook as it is faster and easier). I have enough set aside to cover the unexpected...which with multiple rentals seems to happen on multiple units at the same time.

How do you separate income and save for expenses?

Ryan Guffey

OP

Contractor · Kansas City, MO · Member since 2020 · 147 posts · 74 votes

5y

@Whitney Hutten yeah that makes sense, that's pretty much how I was looking at it, I guess not so much an expense, but something I have to be sure to account for

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Ryan Guffey

OP

Contractor · Kansas City, MO · Member since 2020 · 147 posts · 74 votes

5y

@Evan Polaski when would you recommend getting someone else to manage, just when I don't feel like it or a certain number of properties? I don't think I would want to tie up reserves either, would like to have access to a bit just in case at least

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Account Closed

Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes

5y

@Ryan Guffey I have a separate account that is only used for real estate income. All monthly bills associated with the properties are on auto pay, and are deducted from this account. My property managers deposit the rental income into the same account. I don’t touch any of my rental income. Also, what ever savings I have from our W-2 gets thrown in there at the end of the month as well. I call it my magic bank account lol. It just gets bigger all by itself.

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Sayed Islam

Investor · FL · Member since 2021 · 1 post · 0 votes

5y

Hi @Ryan Guffey. My property manager keeps track of income vs expenses for me. But if I was going to do it myself, I would use Google Drive. They have free documents and spreadsheets. It all saves to the cloud, so it is user friendly. Hope that helps.

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Frank Chin

Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes

5y

@Ryan Guffey

Good questions. I was going to do real estate investing the way you described, go slow, have a budget for income and expenses, build up cash reserves. But events went faster than I anticipated, and I never got to do it that way. I went ahead doing cash management, using credit lines to handle unanticipated repairs, emergencies, unexpected vacancies. I use one separate checking account for real estate.

Things turned out in my favor. At the same time, it could turn out to be a disaster.

I started doing rentals in the early 80's, got going with my 1st triplex in 1983. My mother in law had the cash, retired, and we had the income, credit scores. At first I wasn't going to do it, she put down $50K, act as 50% silent partner. we collect rents, act as PM, fund repairs, fund vacancies. It was 2 years ahead of schedule for us, and we went ahead.

Then a year later, in 1984, I changed jobs, sold my SFH in NJ, moved back to NY, had $25K to buy a SFH. My M-I-L stepped in again, said if we could come us with $40 to $50K, she put in $50K for another. multi-family. I scrapped together $50K, found another triplex and bought it. Had no chance to build up reserves, but wound up with 2 triplexes in two years in 1984.

Then I had credit lines credit card, bank overdraft lines, tried a flip on a SFH that fell through. I wound up closing on it in 1985, no cash reserves, but a bundle of debt. So in three years, I closed on 2 triplexes and a SFH. Owed a bunch of money, no cash reserves.

Looking back, did I do wrong? Turned out I was lucky. The real estate market moved up rapidly in the 70's, doubled and tripled in prices just between 1983 to 1986. Between my MIL and us, our equity increase by $300K in a little less than 3 years. A triplex worth $150K in 1983 sold for $250K in 1984, and $350K in 1985-1986. So I was thinking, where would I be on my original plan, build up cash reserves, I would have missed the whole runup. But that's only half the story.

The market crashed starting the end of 1986. Properties worth $350K dropped to $250K- $275K after 1987. But I'm still sitting pretty buying it 2 years earlier. at these prices

I met a few investors that started in 1986, the market peak. One bought the triplex next to mine in 1986 for $350K. Waited a few months and put it on the market for $399K. Well, wound up selling it in 1990 for $300K, when the market stabilized. The guy who bought it in 1990 for $300K sold it for $275K in 1993. Met a few other investors who lost their shirts.

Making a long story short, under my original plan, have cash reserves first, I would have dived into real estate investing in 1986, 1987, exactly when the market crashed.

I waited till 1992, 1993, got myself a $120K HELOC, went around looking for triplexes in foreclosure, managed to find them at $200K. Got a few condos in foreclosure.

Bottom line, through the years, unexpected expenses, and unexpected opportunities upended my original plan that sounded like yours, build up cash reserves to handle the unexpected, because you never know when the unexpected will come upon you. I just make sure I don't negatively cash flow on a monthly bases that lots of investors do in a rapid rising market.

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Dave Carter

Rental Property Investor · Springfield, IL · Member since 2020 · 36 posts · 35 votes

5y

@Ryan Guffey I use an app called Stessa. It links to your bank accounts (I have one per property) so that every a transaction shows up in there and you just pick which category it falls into. I take 15% each month from all of my properties and put it into a separate account to cover cap ex, maint, vacancy.

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Gail W.

Investor · IL · Member since 2019 · 151 posts · 135 votes

5y

I have one checking and one savings account that is strictly real estate, I pay taxes insurance and mortgage out of this account. I have a number which is 6 months of expenses on all 5 properties which I remove from the check register, (it's accounted for but not counted) I try to always maintain this number in the checking. Then since my rents are due on the 1st of the month about the 5th I transfer 20% of the rent into my savings. Again I do not count a portion of this money that would be used to cover any major expense, in an emergency. In my case $12000 in this savings account. When I have reached that number the balance is what can be reinvested. I also transfer any extra in the checking into savings once a quarter.

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Kenneth Bullock

Specialist · Los Angeles, CA · Member since 2016 · 61 posts · 32 votes

5y

@Ryan Guffey Go read the book “Profit First”. Total game changer!

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Jill Iwanski

Rental Property Investor · Marshfield, WI · Member since 2019 · 18 posts · 37 votes

5y

We run quicken to keep track of the operating account and capex savings accounts. All rent is deposited in the operating account. Then we maintain a savings account for each property. Once a month we move money from our operating account to the capex savings accounts (set up as auto transfers). We transfer $300/door/year divided up monthly, also property taxes and property insurance yearly divided up monthly. We also set up quicken to auto record the transfers so there is no work for us except to reconcile the accounts monthly. All repairs and bills are paid out of the operating account. The capex reserve savings accounts are for exactly that, capex. Quicken is cheaper and easier to run then quick books and gives you the ability to run all the needed reports on any given property. We started out using spreadsheets but they are cumbersome and didnt scale easily. They work great for a few small properties but if you plan to scale they will prove limiting.

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Jeff S.

Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes

5y

@Ryan Guffey I have one LLC where I have 2 checking accounts. In one goes 50% of the rent to pay for all expenses, capex etc. The other 50% pays debt and me. Works well.

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Alecia LovelessPro Member

Member since 2019 · 3k+ posts · 2k+ votes

5y

@Ryan Guffey When I am ready to put a property online with a tenant or tenants if multi I make sure I have a $10,000 balance In the account if at all humanly possible.

If I have been doing a rehab on the property prior to placing tenants the account may already be open and have more or less money in it according to circumstances.

I will then work my way up to having enough funds in this account to cover every worst case scenario I can think of, new roof, new furnace, trashed interior, long term vacancy if not covered by insurance, etc and work to build up my reserves as quickly as possible before starting to take profit out of a property.

I then usually set the cash flow into an interest bearing account to use as a down payment on my next deal.

I don’t really separate my capex, vacancy, etc it just all goes into my main bank account.

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How do you separate income and save for expenses?

How do you separate income and save for expenses?

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