The Flow of Money in relation to Rental Properties

[Kole Kingslien]

Hello BiggerPockets community,

I have titled this post "The Flow of Money", so it does not get confused with the term "Cash Flow". I have just purchased my first rental property, and am trying to understand how the money is going to flow from one place to another. In the case of my first property, I have decided to not set up an LLC, I will do this once I obtain 1 or 2 more in the future, but right now I want to try to keep it simple; Here are some of the questions I have:

When I receive my rent checks, how does the cash flow get to my personal bank account, where I have freedom to spend it?

Should I set up another checking and saving account specifically for this rental? I do not have an LLC so this would still be a personal bank account. should it be through a separate bank, or my personal bank?

If it do set up a separate account for this property, can I have the mortgage payment directly drawn from this account?

What do I do when tax time comes, and will they define my taxable income differently that what I have determined my cash flow to be?

Where do I keep the security deposit and repair funds?

Should I open up a new checking and savings account with each new property (this seems like it would be very hard to keep track of all these different accounts). 

How do I pay myself?

Should I pay myself monthly, or yearly? 

When I do form an LLC, how will all this change, and is it more complicated?

I would greatly appreciate any help I could get in understanding this idea of "The Flow of Money". Thanks in advance!

Kole

[Thomas S.]

Keep in mind that as a individual investor, having no employees or partners, all monies coming in and going out is yours.

You should set up a separate account for all rent deposits from a given property.

You take your money from that account and move it to where ever you choose, expenses, investing, personal toys what ever you choose. Remember it is all your money regardless of where you put it.

You should set up a separate account for each property, this simplifies book keeping. The property can then be itemised by it's bank number if you choose.

Paying yourself is simply a numbers game since you will be taxed on every dime of rental income after all expenses, deductions. and excluding any income money you are able to hide (such as tenants that pay in cash if you choose)..generally speaking.

Deposits are to be kept in a separate account for each tenant as well as any pre-rent payment you may choose to accept.