Financial Accounts for Real Estate

[Matt Michaels]

Hi all - I am in the process of buying a duplex property within the Pittsburgh area, and wanted to gain expertise from the members of the BP community. As I am looking to start financing the deal, I was wondering if you had insights about starting a new checking account with my bank, specifically for real estate? I would imagine you need to open a new checking account or put the property into a LLC, but was wondering if you could provide a few nuggets of expertise.

Thanks in advance for the help!

MJM

[Jay Helms]

I highly recommend it @Matt Michaels. You're going to need to open 2 or 3 new accounts. 

Account #1: rent collection and/or to receive deposits from your property manager

Account #2: the "EMRVITC" account (see below)

Account #3: security deposits (only needed if self-managing and state statutes require it)

Check with your state statutes, but in FL you or your LLC are required to hold security deposits in a completely separate account (if self managing). And if that is an interest bearing account, you have to provide the tenants their fair share once/if they move out and are eligible to receive their security deposit. If your not managing nor title the property under a LLC, then yes, new & separate personal (or business in your name) accounts. Check to make sure none of these require a minimum deposit or come with a reoccurring fee.

The "EMRVITC" bank account. That stands for 

Expenses - Maintenance - Repairs - Vacancy - Insurance - Taxes - Capital Expenses

You'll want to stash money away into your EMRVITC account every month based on your analysis, that way you have the funds when your blind sided by a large repair or taxes/insurance come do.

I go into more detail on my 10 Step Guide to Buying and Holding a Small Multi-Family Rental Property. 

And only if you're titling the property or managing the property under an LLC do you need to open an LLC bank account. In order to do this, the bank will more than likely want a copy of your Articles of Organization, county or city business license and the EIN.