Setting up a Checking/Savings Account for Rental

[Thomas O'Donnell]

I am looking to set up an account at a bank different than my personal one for rental property expenses/income and savings. However most places are saying I need an LLC In order to use the accounts for a rental property. Is there a way around this to have separate accounts for your property without having to create an LLC? I figure since it would be a "business account" than an LLC is needed. However I wasn't planning on setting up an LLC until I had a few properties under my belt. Any advice?

[Nathan Gesner]

You need two accounts: checking and savings. They can be personal accounts. You only need business accounts if the property is in an LLC. 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.