What (personal) account do you use for real estate investing?

Question

Hello, I'm just starting out and I read that we should have a separate account for our real estate empire, which makes a lot of sense. I don't have an LLC and I'm wondering what (personal) account do people usually use for this purpose? A regular checking or saving account doesn't seem good to me, as this account can potentially have tons of money (my savings for the down payment, rental/flipping income, etc). I'm a huge believer in investing, so having tons of money sitting there with a super-low interest rate doesn't make sense to me. Is there any investing account that can serve this purpose where the money can be invested with better interests than banks, but very low risk? (I don't have LLC for now)

Thank you so much for your advice!

Nathan Gesner · Answer

You need two accounts: checking and savings. If the properties are split into more than one LLC, then each LLC will need its own accounts.

Checking: collect all income here, then use it to pay bills. Pay the mortgage. Pay for maintenance. If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or to refund to the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account that is specifically designated for future investments. That ensures you don't spend it on other things and that you know exactly how much you have available to spend on the next purchase. If it's mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have. I understand you would like to have something with a higher interest rate, but that's not an option if you want the cash to be accessible quickly.