How to collect rent

Question

My parents are starting to rent out part of their home instead of just letting my kids live there. This is great for them, but they aren't really good at management. Thus, I will be doing most of the work for them. There are already tenants in place and I am trying to get things to a more professional level.

If we set up a bank account that is ONLY for rent payments, can it be a personal account or does it have to be a business one? Can I just let them choose how they want to get the money into the account?

I'd appreciate constructive input. I understand this hasn't been handled properly up to this point. I am just trying to work towards a proper end result without destroying the relationships that have already been built. All I need to know right now is if I can use a personal account and if I can allow the tenant to get the money into that account in any way they'd like.

Thank you for your help.

Joe Norman · Answer

There is a lot more that goes into property management than just collecting rent! Be sure to study up on your local rules and regulations and make sure you're comfortable with it all before taking this on. One missed step/license/notification/etc could result in huge headaches down the road if you ever have to evict. Good luck!

Jacob Stevenson · Answer

I like having one account exclusively for rent payments and another for security deposits. This makes tracking and managing funds much easier and keeps everything organized.

As for the type of account, it doesn’t necessarily have to be a business account. You can use personal accounts for both rent and deposits, as long as they are kept separate from your parents' other finances. This helps maintain clarity and ensures funds are used appropriately.

To streamline rent collection and property management, consider using platforms like Apartments.com. These sites allow you to collect rent, track maintenance requests, and manage expenses all in one place, often for free. They also offer tenants various payment methods, which can simplify the process for everyone involved.

Mark Fries · Answer

I wouldn't overthink it. Recommend opening the account in the personal name, keep it simple. Have the tenant use ACH or Zelle for deposits.

Bhargav Hirapara · Answer

• While a personal account is acceptable, setting up a separate account specifically for rental income can make bookkeeping and tax reporting easier.
• Regardless of the payment method, always provide tenants with receipts for their rent payments.
• Keep detailed records of all rental income and expenses for tax purposes.
• Consider implementing a consistent rent collection policy to avoid confusion and ensure timely payments.
• Be aware of local laws and regulations regarding rental properties and rent collection in your area.

Michael Smythe · Answer

@Kenneth Tiedemann you can use personal account, just be sure to follow your state and local laws about security deposits.

If you're parents are living in the home with the tenants, then they are also exempt from most Fair Housing requirements, but you should look into them anyways.

You'll want a good lease to protect your parents and to be able to evict if/when necessary.

Check their home insurance policy as it probably needs at least a rider to cover renting.

Bruce Woodruff · Answer

I think @Nathan Gesner said it well. I would have 2 business accounts. A checking and a Savings. You're running a business, why not treat it as such?

I would also have a Credit Card (with points) in the name of the business. Use it to buy everything related to the ental and then pay it off every month. Use those points for travel or fun.

Colleen F. · Answer

@Kenneth Tiedemann separate from the personal accounts and depending on the state you may need a specific account for the security deposit, check those laws.  I would also advice if there is something specific to the rental they pay out of that rental account or use a specific credit card. Say they buy a new stove.  If this is part of their home there will be some expenses that are split with the rental as well.

Jillyan MacMorris · Answer

I use separate accounts for rent collection and security deposits (distinct from my personal checking&savings accounts), and they don't have to be under an LLC unless the property is operated under one. I use a product called Baselane, which combines rent collection with banking and accounting. I can set up the rent payments, collect them into easy-to-create bank accounts, and then have the system automatically categorize those payments for my Schedule E at the end of the year because Baselane already knows what each of the payments was. It's really simple to set up!

Markus Shobe · Answer

I would have two accounts, personal or business is fine. Have one account for the rents and expenses and the other account for tenant deposits.

Bonnie Low · Answer

In my opinion, this largely comes down to how you or your parents will be filing your taxes. Assuming one of you will be claiming this as business income, you should have a separate business bank account and here's the relatively short answer why.

If you're declaring the income, you also want to be able to declare the expenses and depreciation. Since you are taking on additional liability having tenants in place, you're probably going to want to update your insurance policy and put some sort of asset protection in place - most people use an LLC for a small portfolio. If you set up an LLC - or any business for that matter - it's imperative that you keep personal and business finances separate. In the case of the LLC, if you commingle funds, you essentially wipe out the asset protection of the LLC. And, as others have mentioned, I believe in most, if not all states, you're required to hold security deposits in a separate bank account. So for all these reasons, I'd set up a separate bank account.