Bank accounts for investment properties

[Will Morrison]

As an agent here in Western North Carolina I have been posed the question by a client whether or not it is better to have a separate bank account per investment property or to have all the income flow into one account. 

With my own properties I have created separate bank accounts as I understand it makes for cleaner taxes. The recognizable downside is that this is not convenient having to keep up with multiple banks/cards/accounts. In my scenario I have only one LLC that my (two) investment properties fall then I have a house hack in my name.

I am open to feedback as to how I should be organized as well as whether or not its recommended to have different bank account per property.

Thanks in advance!

[Nathan Gesner]

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.