Types of Bank Accounts for revenues?

[Tripp Warren]

Hi all,  

I'm getting ready to go live with my very first rental. I want to set up a separate bank account to have rents deposited into. My question is; should I have multiple accounts to split rent revenues? What i mean is should I have an account for maintenance,  an account for deposits, an account for capital expenditures, and an account for net income? It seems like alot for the tax man to keep up with.  It's it better to just have one account that revenues go into and you keep up with everything on a spreadsheet?

I don't want to over complicate the process,  but I also don't want to be in a position to need a capital expenditure and it not be there.

Thanks!

[Nathan Gesner]

Quote from @Tripp Warren:

Hi all,  

I'm getting ready to go live with my very first rental. I want to set up a separate bank account to have rents deposited into. My question is; should I have multiple accounts to split rent revenues? What i mean is should I have an account for maintenance,  an account for deposits, an account for capital expenditures, and an account for net income? It seems like alot for the tax man to keep up with.  It's it better to just have one account that revenues go into and you keep up with everything on a spreadsheet?

I don't want to over complicate the process,  but I also don't want to be in a position to need a capital expenditure and it not be there.

Thanks!

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.