House Hacking First Duplex - Should I set up a separate bank account now?

Question

TL/DR - I bought a 3.5 down FHA Duplex, I'll be living in one side and renting out the other. I still need to pay towards the mortgage, but I'm saving money compared to renting.

Do folks recommend:

1. Just deposit rent and pay mortgage from existing account, use existing personal finance info and keep organized receipts for tax season.

Pro - Less transfers and transactions

Con - Harder during tax season

2. Separate rental to a different bank account right away and separately direct deposit my portion of mortgage + reserves each month. Run all maintenance + rehab costs through this account.

Pro - Completely separate for tax season/monitoring finances

Con - Lots of personal transfers and transactions since I'm still paying towards mortgage/costs/rehab from my personal income

Ryan Thomson · Answer

@Nick Scannell when I got my first property I set up a separate bank account and got a new credit card only for home expenses. This allowed me to keep things really clean for accounting purposes and tax purposes. I liked that system.

For the mortgage payment, you can nail down a number that you need to put into that account each month in order to cover mortgage payments. Then set up automated transfers from your personal account into your house account for that amount.

Do something similar for an "expense account".

And when there are large expenses you may need to do a manual one-off transfer to cover it (if you pay with your house credit card that is being paid from the house account).

Ryan Thomson · Answer

I am a huge fan of credit card hacking and getting southwest travel card points. If you get 125k in a calendar year you can get a companion pass for the rest of that year and the next. Time it to where you get the points at the beginning of the year and you have the companion pass for two years. Credit card hacking is pennies on the dollar compared to house hacking though.

Nick Scannell · Answer

Thank you, Ryan! Auto direct deposit is fairly through my employer, so I'll go ahead and do that! I agree it will be much easier to see where things are going.

Credit card was another thing on my mind. I've heard of folks using travel cards for points with all of the rehab costs. Is there a specific card you chose to use?

Nick Scannell · Answer

Thank you for the perspective, Andrew! I agree that the single property isn't too much of a hassle. I went ahead and set up a separate account and auto direct deposit for my part of the PITI. Have a great week!

Jack Krusinski · Answer

Hi Nick,

Both options you've listed have their pros and cons, but most d experienced real estate investors would likely recommend the second option for the sake of clear record-keeping and easier tax preparation.

Keeping a separate bank account for your rental income and expenses can greatly simplify your financial tracking and reporting. This includes not just rent collection and mortgage payments, but also expenses related to maintenance, repairs, insurance, and any other costs related to your rental property.

While it might seem more cumbersome to make frequent transfers and transactions between your personal and rental accounts, having a clear, separate record of your rental income and expenses can be a real boon when tax season rolls around. It also helps you get a clear picture of the profitability of your investment and can protect you in case of an audit.

One common approach is to set up an automatic monthly transfer from your personal account to your rental account to cover your portion of the mortgage, taxes, insurance, and other expenses. This way, you'll have a consistent record of these transactions.

Remember to consult with a tax professional or a certified public accountant familiar with real estate to ensure you're following the best practices for your situation. They can provide more personalized advice that takes into account the specifics of your situation, your local and state tax laws, and federal tax laws.

Eliott Elias · Answer

I run my rental properties on one business bank account, each property has its own checking account. It makes record keeping easy.

Andrew Postell · Answer

@Nick Scannell having a separate account is a non-issue really.  I mean, "A lot of transfers" is open to interpretation - "a lot" to you may not be "a lot" to me.  But you are only collecting rent 12 times every year.  It's not going to be that complicated.  When I owned 1 property that I house hacked, I had 1 bank account.  Now, once you move out...then it's different.  But for now, I would say it's totally up to your preference.  And I know....hey, I just got started, I don't know what my preference is!  And that's why I'm saying to keep it as one account for now.  And then if it's easy to monitor then you aren't paying $10 per month on another account.  Try it with one account for now. That's my recommendation.

Conner Olsen · Answer

If you are good at tracking your expenses and saving receipts it is not necessary to keep a separate account. I'd recommend getting one when it becomes a full rental.

Basit Siddiqi · Answer

I think you will appreciate it if you set up a separate bank account / credit card for your rental related activity.Some people have tons of transactions in their personal account from paying their own rent, sending money to friends/family, paying personal utilities, paying off credit card bills, etcIt would just be easier if you had a dedicated account where you know 100% of the transactions are business related.Best of luck.

House Hacking First Duplex - Should I set up a separate bank account now?

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