How to set up accounting and banking for reserve funds.

Question

Hello, everyone.

I have a newbie question about reserve funds. Let's say I have a number of rental properties, each with income, actual expenses, and reserve funds for capex or vacancy.

1) Do you have separate bank accounts for each property?

2) Do you funnel all of the cash flow through that one bank account, even reserve funds...letting the balance increase over the years, or are you moving reserve funds to another account? If so, do you have a reserve account for each property, or one reserve account for all your properties?

3) I plan to use quickbooks, should I create sub-accounts for each bank account to indicate that some of the money is operating and some of the money is for reserve?

Maybe I should have a single bank account for everything and just handle "reserving" funds through quickbooks sub accounts...

Thanks in advance for your thoughts.

-Andrew

Todd Lennig · Answer

Andrew,

As a bookkeeper i would say do the card at the check out line. Most of my clients come to me because they don't like bookkeeping or don't keep up with it. It is very easy to forget what was what. It would also be easier to track what you have left for flips if you were pulling money out of a specific account when you went to lowes, etc. Also, sub accounts are a pain to reconcile in QBO depending on the bank.

Hope that helps.

Todd

Scott M. · Answer

No right or wrong way to do it. It really comes down to personal preference. Some like to keep capex/vacancy etc in a sperate account, like a savings account and some will keep it all in one account and let the software keep track of what is what. You might also start one way and as your portfolio grows decide to change. Generally investors start off with keeping things like maintenance and vacancy per house but once you hit a certain number a lot move to portfolio. So instead of having say 5K per home set aside you may decide on 30K for the whole portfolio.

What works for me personally is fewer bank accounts and rely on software to keep it straight.

Account Closed · Answer

The more accounts you have to track, the more headache you create.

I'd suggest one parent checking account for the bulk of your activity, then set up another account (or two) and do your own escrow to save for your capex and vacancy, and your taxes (though you should be making estimated tax payments if you're expecting a bill come April).

Also, if you're using QBO, make sure you use Plus so you can turn on class or location tracking in order to track the P&L by property. An alternative would be Xero Growing - it's at least as good (I actually like it better) and significantly less expensive, while connecting to a myriad of useful apps.

Basit Siddiqi · Answer

@Andrew Z.You may want to create a 'restricted' account which would help identify how much you have to set aside for upcoming renovations.

Andrew Z. · Answer

Todd, I've got my business accounts with Relay, too. Love them. I actually asked the question because it is so easy to add extra accounts.

I think it really comes down to whether I want to spend the time in the checkout line finding the right debit card, or just use a single debit card/credit card and spend the time in quickbooks later assigning the expense to a particular subaccount.

Either way, this is fun. I guess it's time to make one of those decisions...

Todd Lennig · Answer

I use relay bank for my business. you can set up multiple accounts with a touch of a button. they are an online bank so if that worries you they are not the bank for you. I was able to set up the master account within 20 minutes from my home office and can set up any number of accounts after that. I am also able to have a debit card for each account if I want. So I can easily track expenses for each property if I want. Also it syncs with quickbooks.

Scott M. · Answer

If you like that idea then you should do that. See how it works for you and modify as you move along. I would for sure have an operating and escrow account to hold deposits/prepaid rent etc. The others are really personal choice.

Andrew Z. · Answer

I kind of like that idea. Maybe three accounts....1) Operating, 2) Estimated Taxes, 3) Portfolio Reserve?

How to set up accounting and banking for reserve funds.

How to set up accounting and banking for reserve funds.

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