What is the proper type of bank account to run my rental through?

Question

Hey everyone - new investor with some basic questions. I know this probably sounds pretty elementary, thanks anyways!

I have one rental property that was purchased with a VA loan and was my primary residence for 15 months and is now a rental property. I currently am just renting at my new duty station. The lease I currently have with the tenants at my rental started on Aug. 31 and is a 12 month lease. I have a property management company running the property for me.

As far as having my accounts in order goes, does it make sense to set up a business account to run all the rental property transactions through even if it is just a single property (and no, I don’t have it as part of an LLC)? Currently though everything is run through the management company portal and I just receive a monthly check like usual. Or does it make sense just to have a separate personal checking and savings strictly for the rental property?

Additionally, regardless of if the rent checks I get are coming to a personal or business account, should I be paying the actual mortgage payments with the account strictly for the house or with the current personal checking account I have been doing so for the past 15 months? Thanks!

David Van Singel · Answer

As I'm relatively new to the forum, I could be wrong. It comes down to your personal preference. I, personally, would not have my income be mixed with my personal/general account. This way, you have a sort of barrier in how you spend that money. It makes sense to me to keep them separated. This way, you're not accidentally spending money that you shouldn't be spending. This could be for if a big tax bill happens and you happen to buy a new car at the same time. This can keep you out of that situation.

Drew Sygit · Answer

@Michael Coritz as long as you can separately track the income & expenses for the rental, it doesn't matter how you do it.

Suggest you discuss with a tax professional - even if you have to pay them a few dollars.

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.

Markus Shobe · Answer

I would use a separate personal account. It will make bookkeeping so much easier.

Michael Coritz · Answer

awesome - yeah I figured since its just a single property and not incorporated in an LLC a business account wouldn't make sense or even be possible for this. so thanks. I have just been using a separate personal account and will continue to do so! appreciate it!

Doug Spence · Answer

@Michael Coritz You can (and should) use your personal bank account for it. If you want to, you can create another checking account specifically for that property (i.e. 123 Main St checking account, but still within your personal bank account) and run the income and expenses through that account, but you definitely should not set up an LLC for it since you own the property personally and it isn't owned by an LLC.

I recommend using Stessa (free bookkeeping software) to track your income and expenses. it will make it easier to keep all your numbers straight when tax season rolls around!

What is the proper type of bank account to run my rental through?

Most Popular Reply