Bank Account Set Up for Expenses

[Ben Volkman]

When looking at expenses related to a property (vacancy, HOA, utilities, PM, repairs etc), how is that set up within a bank account?

Do you lump them into one account and then dip into it when a vacancy or other expense comes up or create separate accounts for each expense?  The latter seems excessive but at the same time very helpful for tracking details of expenses.   

[James Triano]

@Ben Volkman

I have a two account system that I use with an operating account and a reserve account.  Exactly like what @David Barnett mentions.  I do have a third account that holds my tenant's security deposit just so there is zero chance of commingling funds.  Probably excessive, but oh well.  

I receive rent into my operating account, then pay my mortgage, taxes, and insurance (all in one payment since my bank requires escrow).  Next, I transfer the remaining funds, which are estimated amounts for vacancy, repairs and capex into the reserve account.  Mind you, this is all done with automated bank transactions.  This reserve should continue building over time and I will not touch it unless it gets really large - what a great problem to have! 

Then, I pay myself (which goes to my personal savings account - for use when buying a new property) the remaining cash flow.  This is what I would call the compounding impact of my rental property as this money is helping me build up more funds to invest in another rental property.