Setting up bank accounts

[Tim Adams]

Hey everyone, my question is in regards to setting up bank accounts for properties. I am a new investor who is hoping to jump into my first multi family purchase this year, the question that I have is when buying property do you normally set up new bank accounts where all rent/cash flow go that is separate from your personal savings or checking accounts? And additionally, when you have multiple properties, Do you normally have all properties earnings going in and out of that one account or is it usual to set up multiple bank accounts for each property to keep all money in/out separated? I’m trying to understand the logistics and what is normal during this process. Thanks in advance for your comments and advice!

[Nathan Gesner]

Quote from @Tim Adams:

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.