Investor · Member since 2020 · 164 posts · 87 votes
6y
@Brad Haughton Although not in the same domain, there is a design principle called "Separation of concern" in the world of software engineering. This principle simply supports for separating a computer program into distinct sections such that each section addresses a separate concern.
Keeping your RE investment finances apart from your personal finances may be beneficial. Within your investment account, you may need to further consider 2 separate accounts - one for income and the other for expenses.
Investor · Member since 2020 · 164 posts · 87 votes
6y
@Brad Haughton Although not in the same domain, there is a design principle called "Separation of concern" in the world of software engineering. This principle simply supports for separating a computer program into distinct sections such that each section addresses a separate concern.
Keeping your RE investment finances apart from your personal finances may be beneficial. Within your investment account, you may need to further consider 2 separate accounts - one for income and the other for expenses.
Mount Vernon, NY · Member since 2020 · 75 posts · 5 votes
6y
@Tommy Adeoye that sounds like three separate accounts the investment account the income account and the expense account. That's interesting how do you manage such an account especially the expense account considering money is coming out of the account.
Investor · Member since 2020 · 164 posts · 87 votes
6y
@Brad Haughton As you would your personal account. Almost all banks have mobile and/or web applications that help keeps tabs and notifies you of every income and outgoing expenses. It should be fairly easy to manage. Why do you think you would have any problems managing the accounts?
If you are going to be an active REI, you may consider sharpening your accounting and bookkeeping skills.
Mount Vernon, NY · Member since 2020 · 75 posts · 5 votes
6y
@Tommy Adeoye the reason why I thought it would be hard because an investment account would be different in some sort of ways compared to a traditional banking that's what I thought, considering I just have one account which is the checking account.
Math is my least favorite subject.
I was thinking of opening a separate account with a different branch so I don't get them mixed up that's why I have to ask that question.
Investor · Member since 2020 · 164 posts · 87 votes
6y
@Brad Haughton Opening a separate account with a different branch or bank for the purpose of your real estate investment is not a bad idea.
Moreso, if you are not great with numbers , math, accounting, you should consider partnering with someone that's strong in that area while you focus on your area of expertise/strength.
Mount Vernon, NY · Member since 2020 · 75 posts · 5 votes
6y
@Tommy Adeoye any suggestion on where to find such partner that's good with numbers and the market I'm looking at is New York. I may consider going into investing in 3 months to the end of the year just still do my research because I'm trying to figure out is this something I can do considering no jobs since 2013 of graduating high school and strategy that you would recommend for a beginner because I'm looking at house hacking and the BRRRR strategy and think for some of the info.
Investor · Member since 2020 · 164 posts · 87 votes
6y
You may find them at bigger pockets or a REI meet up closest to you. Another way would be to partner with a high school colleague/friend/family members you know is verse with numbers. There are many other ways - just ask your brain how can I get a partner and it will feed you with ideas.
As per figuring if this is something you can do, how about obtaining a Real estate agent license and work for a broker , learn the necessary skills and maybe earn some money while you are at it. I'm not sure what your source of income is at the moment but with a big gap in employment you may run into impediments getting lending/funding.
Your strategy depends on your goals. With that being said, do some research and find one strategy to adopt ,see how that works for you and then run with it. If you don't like it , you can change anytime. The real estate business is forgiving.
Realtor · Laurel, MD · Member since 2017 · 38 posts · 36 votes
6y
Definitely open a seperate account for your rental money. You should have at least 2 accounts for it. One holds the security deposit. That money is deposited either into an interest or non-interest bearing account. The only time that is touched is when the tenant moves out and you conclude there are no damages that requires them forfeiting it. The second account is for the funds received from rent. I would also suggest a 3rd account for savings (at least 6 months of expenses) towards your rental. That way if something comes up it's already there and you're not pulling from your rental or personal income.
Always keep your real estate funds, or any business funds, seperate from personal funds. It becomes not only a problem with balancing the books, but a potential problem with the IRS. And if you've set it up as a legal entity, you risk what they call "piercing the corporate veil" which is when a judge rules that your company doesn't really exist because you mixed your funds.
If you have just the one property I would suggest learning the ropes of basic bookkeeping for it. Look for someone on here who is already doing it. I linked a guide below from BP that runs through some basics. Knowing the basics you then know what should be done should you decide to outsource the bookkeeping.
Mount Vernon, NY · Member since 2020 · 75 posts · 5 votes
6y
@Danielle Gray oh wow I did not knew that that would affect the IRS. Don't the Traditional Bank offer those no interest or interests account I think BiggerPockets should do a video about that process.
Realtor · NY · Member since 2020 · 167 posts · 169 votes
6y
@Brad Haughton, I see you are in Mt Vernon, there is a Westchester REIA, led by Rachelle Rayner, you will definitely find the resources you seek, PM if you dont find it
Definitely open a seperate account for your rental money. You should have at least 2 accounts for it. One holds the security deposit. That money is deposited either into an interest or non-interest bearing account.
I'll expand on this even more. I would create at least 1 account with an online bank that offers a much higher interest rate than traditional banks for the security deposit. I'm not sure about NY, but some states like mine require you to pay interest to your tenant on the security deposit. Putting it in a high yield savings will offset this a bit. In the grand scheme of things it's small peanuts but every little bit helps.
Mount Vernon, NY · Member since 2020 · 75 posts · 5 votes
6y
@Andrew Yarman ok that's interesting how do you go about opening a account strictly for Real Estate I just have a Chase account which is just traditional I wish there was a video that could explain this to get a visual idea of what it is. Does biggerpocket a video on that.
Westchester, NY · Member since 2018 · 115 posts · 52 votes
6y
@Brad Haughton; I 100% suggest using separate accounts. Most are free with a nominal monthly balance (Capital One: $0, Chase: $1500, etc). This makes end of year accounting for the IRS or to track profitability easy. I have a separate account for each property, but, I also understand at some point this is no longer scalable.
As @Account Closed alluded to, I also use high yield savings accounts to park CapEx, Vacancy and accruing Insurance Premiums. Checking Accounts are only for month-to-month operational expenses.
I am a math nerd, but don't really understand what you are looking for in a partner. Feel free to PM me and we can go from there.
@Andrew Yarman ok that's interesting how do you go about opening a account strictly for Real Estate I just have a Chase account which is just traditional I wish there was a video that could explain this to get a visual idea of what it is. Does biggerpocket a video on that.
Brad, I'm assuming you will be operating as a sole proprietorship so there will be no difference in opening an account. Simply apply online using your SSN just like you would for your personal accounts. Just make sure your personal money doesn't mix as Danielle mentioned previously. If you intend on creating an LLC or some other type of business there are still high yield online business savings accounts out there. I do not hqve experience with them though.
@Brad Haughton; I 100% suggest using separate accounts. Most are free with a nominal monthly balance (Capital One: $0, Chase: $1500, etc). This makes end of year accounting for the IRS or to track profitability easy. I have a separate account for each property, but, I also understand at some point this is no longer scalable.
As @Account Closed alluded to, I also use high yield savings accounts to park CapEx, Vacancy and accruing Insurance Premiums. Checking Accounts are only for month-to-month operational expenses.
I am a math nerd, but don't really understand what you are looking for in a partner. Feel free to PM me and we can go from there.
@Danielle Gray oh wow I did not knew that that would affect the IRS. Don't the Traditional Bank offer those no interest or interests account I think BiggerPockets should do a video about that process.
Choose a bank outside of your normal bank. This way you aren't tempted to link the accounts and transfer funds back and forth so easily. Not certain if you plan on purchasing more property in the future, but treat your investment as a business. I've attached another article for you that gives the process of opening an account for real estate investing. I would start with an account that doesn't charge minimum fees. And you don't have to necessarily start with a business account. It would be easier in the long run to do so, but once again, fees. The goal is to keep everything separated. You can do rate and fee research on sites like bankrate.com or just google search.
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
Strictly speaking, for tenant monies (like refundable deposits) you should set up a separate account to prevent commingling.
If it's rents and bills, I don't have a problem with using one account - AS LONG AS YOU HAVE A GOOD ACCOUNTING. Which is why you should have a good prop mgmt software. You need to see trends and how to improve operations.
Westchester, NY · Member since 2018 · 115 posts · 52 votes
6y
@Steve Morris, This is required in NY for 6 units or above. A good idea all the time, just a matter of getting over the friction of setting up more bank accounts.
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
"A good idea all the time, just a matter of getting over the friction of setting up more bank accounts."
Well, accounts, outside of keeping them straight, are not that hard to set up. Plus your bank should be able to do it easily. More accounts yous have that are well-maintained means a better relationship with the bank on the personal side. Which helps to qualify for new debt.