Rental Investors: How many Checking Accounts do you have?
Brandon TurnerPro Member
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votesRental Investors: How many Checking Accounts do you have?
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Buy and Hold Investor · Knoxville, TN · Member since 2013 · 450 posts · 270 votes
10yI really can't see how 16 separate accounts would be simpler than one. I know you'll be getting more properties, so that would necessitate more checking accounts. That would be an accounting nightmare in my opinion.
This is a perfect example of the K.I.S.S. principle.
60 Replies
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes10y
I have 3 checking accounts. 1 personal, 1 agent, 1 rental. I wonder if segregating checking accounts like that would make it harder to qualify as a real estate professional for IRS purposes. As I understand the IRS allows you to qualify using minimum time by grouping the properties together. If you are segregating the accounts that way, would you then need qualifying time on each separate rental? @Brandon Hall thoughts?
District Invest Group545 Reviews - Buy and Hold Investor · Knoxville, TN · Member since 2013 · 450 posts · 270 votes10y
I really can't see how 16 separate accounts would be simpler than one. I know you'll be getting more properties, so that would necessitate more checking accounts. That would be an accounting nightmare in my opinion.
This is a perfect example of the K.I.S.S. principle.
Accounting wise separation is the best way to go.
I operate my entire business through a HELOC having the ability to have I think 10 separate accounts within it. Every daily expense and every deposit is done to the appropriate account.
This way the majority of my book keeping is pre done by the bank. I do not have to remember what money was from what project/property 2 or 6 months down the road when I do the books. It's all separated in my bank statements.
- Investor/Syndicator · Cincinnati, OH · Member since 2014 · 470 posts · 599 votes10y
Why are you getting the itch to change the way you have it currently?
We opened a management company to consolidate operations between several properties/ LLCs. We use Buildium which also caters to this method. It sounds like thats how you have it set up currently. Its working great for us this way.
17 checking accounts sounds like a recipe for headaches, and how scalable is it?
Not that this a huge factor but when you go for financing and they ask you for bank statements... Thats going to be fun haha.
Let us know why you're wanting to change and someone may have a new even better way to fix the issue.
- Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes10y
I have a "management company" separate LLC that I run all my rents and expenses through. Then I have separate "classes" in quickbooks for each individual property so I can break them up for tax purposes. If you set your classes up correctly you can run individual reports per property or as a global report, or even different groupings. Managing 17 bank accounts seems cumbersome and think about logging in and out of each account to post separate rents received and constantly haveing to move money around to cover expenses. If I have a partner on a specific project I do run a completely separate company and bank account for that business.
"You can't improve what you don't measure" so it's essential to have acurate data and good reports per project.
Hope this helps' good luck!
- Brandon Turner That sounds horrendous. Do you use modern accounting software (like Quickbooks) that makes auto-categorizing and segregating expenses trivial? On the business side, I've got one "main" checking account through which all expenses for stabilized properties flow (rent payments, mortgage payments, vendors) as well as overhead and prospecting activities. I've got two additional checking accounts called Project1 and Project2 which I use for new properties until they are stabilized. In my case, there's usually some number of months of renovation before a new purchase is "stable". Some things that would pain me is I went with separate accounts for each property: 1. More work every time a property is purchased / sold. 2. Many property expenses are paid by credit card. Would I then have a separate credit card for each property? 3. So many online services used to automate things, and I'd have to setup multiple bank accounts with each. Setting up 16 accounts for tenant screening, 16 different payment accounts for utility payments, 16 different accounts to pay the mortgages. 16 different accounts with the County to pay taxes. 4. 16 different ATM cards and check books. 5. I get quite a few perks by having largish balances in my few accounts (free wire transfers, other stuff). Think I'd lose that if I peppered them out. 6. Would increase the possibility of overdraft. 7. I'd have to reconcile 16 accounts each month instead of 3. Unnecessary accounting overhead. I'm all for going with whatever works in each person's situation, but man, thinking about how much automation is at play, I'd probably quit REI if I had to do that. :)
- Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes10y
I use QB to separate and track (1 )checking account entries..
- Investor · Ventura, CA · Member since 2016 · 264 posts · 70 votes10y
Sixteen sounds crazy but I'm always open to new ideas. We have one checking account for the business (16props) and one personal. I use Quicken and my tax guy was very happy with me this year ;-)
I'm always running reports just to keep track of how props are performing.
- Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes10y
@Russell Brazil If you have multiple properties and multiple real estate activities and wish to qualify as a real estate professional, you need to add a statement to your return to combine your activities as a single activity. Since it is almost impossible to meet the material and actively participation rules for each activity separatly.
This statement should explicitly declare that the taxpayer is a qualifying taxpayer (i.e., I ____ meet the requirements to be a real estate professional for the tax year and am making the election to treat all my real estate activities as a single activity under Sec. 469(c)(7)(A).
Hope this helps good luck!
- Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes10y
@Russell Brazil - interesting on the RE Professional thing. I would doubt it... but it's worth looking into.
@Chris Eaker- I'm torn on this. While I do think it might be overkill - I think it would be so nice to see the same numbers in the checking account as I do on paper, hence the simplicity. For example, X property had $700 in expenses and $800 in income, therefore that account has $100 more in it than the month before.
@Thomas S. - lol - see above :)
Summary:
But I think i'm beginning to think that the 16 account thing is probably not the solution to the problem I have (See message above to Justin R.) I'd love to hear more feedback from anyone else. The main goal - get my wife and I out of the need to do pretty much anything related to bookwork. I have a full-time assistant who could help, but she's not that involved in the rental stuff, so any work the assistant does would need to be fairly "turnkey" and simple data entry. I also have a bookkeeper who runs the Bookkeeping software.
- The problem isn't your checking accounts it's that you aren't using a software to track everything. Their are several out their like Buildium or appfolio or others that are simple after a week your assistant can handle it and it will track everything for you. One note about having separate checking accounts so your going to keep 16 separate check books also? Pay Mr plumber from checkbook A and then pay the electrician from checkbook B? I would go crazy.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes10y
@Brandon Turner - more is not better. I have:
- Chicago properties owned by me and my husband - 1 operating account, 1 reserve account, and 1 account for each SD (required by law)
- Milwaukee properties owned by me and my husband - 1 operating account, 1 reserve account, and 1 account for all SD (ok in that jurisdiction)
- Milwaukee properties owned by me and my partners (three sets, each have their own) - 1 operating account, 1 reserve account, and 1 account for all SD (ok in that jurisdiction)
- Plus personal checking, personal savings, and an account for my brokerage business and an account for turnkey-reviews.com
That is 21 accounts. It is insane, and unfortunately they are consolidated as much as they can be.
Why I wouldn't separate them out by property:
- Trips to home depot, the post office, ect would need seperate transactions for each property to properly account for them.
- I would spend more time figuring out what items need to go on what transaction for what receipt than breaking it out after
- getting a loan would be more of a pain because you would need to submit bank statements for each property for them to review
I find that spending a couple of hours weekly/bi-weekly makes it so much easier since it is still pretty fresh in my mind. I am also WAY too OCD about accounting and still use excel, Quicken, and Buildium and triple reconcile everything every 7-10 days. My largest account has 59 units in it and I don;t think it is a problem at all keeping it in one account
Second City Real Estate4.821 Reviews - Investor · Cathedral City, CA · Member since 2014 · 481 posts · 170 votes10y
Simple, use a free property management application with a good accounting package. In the GL accounts you have separate accounts for each property. However at the bank you use only one bank account. Each transaction has a transaction id that is mapped to the individual property id. The correct software does this behind the scenes and the user need not get confused. At the end of the year the accounting package generates the complete correct Schedule E which is IRS compliant in PDF form with the IRS requiring each property to be itemized separately.......... Simple, why spend the time and money on so many bank accounts?
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes10y
Brandon sounds like overkill. I have 3 accounts for my main rental company. I have the operating account, and a separate account for deposit money, and a savings account for cap ex, insurance and taxes. My property taxes can be pretty big so I must save some each month. Same for insurance and big ticket items like roofs, or digging up a sewer line out to the main.
- 10yCurtis BidwellPro MemberRental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
@Brandon Turner I assume you have one account for your 24 unit, and not 24 accounts. Treat your 1-4 unit properties the same - lump them all together in 1 account, unless they are in separate partnerships or other entities.
I have 1 set of accounts for each business entity. I probably average about 5-10 hours a month specifically on bookkeeping using Quickbooks. I'll just bet a guy as sharp as you could pick it up in no time! If needed, get one of your favorite accountants to set things up for you. Once it's set up either you or a bookkeeper can manage the monthly input.
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes10y
Dude -- 1 accout for R&M. You can book things to whatever category form there. This works OK in QB, but better in buildium. The reconcilliation on 16 accounts will be a nightmare. Simpler - better!
- Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes10y
Look into starting a master LLC if you can to handle all of the day-to-day for your rentals and through a system like Buildium like @Ben Leybovich mentioned you can still keep accurate accounting for the individual properties.
First of all I'm a firm believer that everybody should use the setup that is fitting their individual situation. As an "outsider" I find that many people here have a "standard" situation due to the fact that they operate their real estate business in a "normal" way simply because they are resident in the US and might actually do things on their own simply because they can. This results in a "standard" approach. Don't get me wrong: nothing wrong with that! And good for them as it's fairly simple. Then there are people like me where many of these aspect do not work as I'm not physically in the US.
I therefore thought I'd chime in @Brandon Turner, even though I feel a bit "puny" when reading the numbers that are thrown around (56+ units, etc). Then again, I do have some 9 doors in 6 buildings now, and ultimately the principle is the same. Also, I have a mix of what's been described here, I think:
@Curtis Bidwell and @Simon W.: this is what I do too. However, since my operating LLCs only own 1 property each in praxi I therefore do have 1 account per property (for those owned by an LLC). The LLC owning a multi-family consequently also (only) has 1 account. Having one bank account is really required for the LLC to have any effect with respect to it offering liability protection.
Now, since these LLCs are all owned by 1 parent LLC (Holding, or whatever you want to call it) and this parent LLC being a single member LLC, the accounting ultimately is, in relation to tax matters at least, for me as a private person filing 1 tax return. So one should consider the individual situation with respect to that. If the LLCs were partnerships or S-type then this would be very relevant and somewhat different.
From a practical point of view: Since the parent LLC has a bank account as well, I can simply open the accounts of the underlying individual "children" LLCs as sub accounts of that parent's LLC bank account. Makes it very simple to open (or close) an account, I only have one login (yes, still different checkbooks which I never use anyway as I do everything online or my PM takes care of it) and still everything is separated legally with respect to each LLC having its own bank account. No co-mingling funds there, especially not with my private ones.
In addition, my LLC units are all managed by a property manager. Yes, that poor chap has to account for everything individually: Rent for property A goes into checking account of property A LLC. Bills are accounted to the individual property, i.e. LLC, and so on. Just as he would have to if these units were owned by nine different people.
And my properties are financed (= property and insurance taken care of by bank). So for me there are basically none of the practical issues described by @Justin R., who does, however, have a very valid point when looking at his individual situation.
Now when it comes to units held in my own name: I see no real reason to keep separate bank accounts as I'm on the hook personally anyway. That does not mean that I don't keep separate accounts in relation to the operating aspects. I need to know what the figures are for each individual unit. And the latter has nothing to do with a bank account. For this situation I can really see the practical issues pointed out by some here. However, maybe 1 LLC with a master bank account could make sense then, simply to facilitate your account, ehm, accounting. :-)
How do I keep track of all this? I love Excel. It's my work horse when it comes to numbers. As I'm a cheapskate ;-) I didn't want to buy no fancy (= expensive) software. Since I started with 1 Condo a couple years ago, I simply created an xls file with appropriate sheets to e.g. calculate cash flow while factoring in the individual monthly expenses of the property (really: the unit) and whatever else is necessary. This is all automated thanks to references within the xls file. Heck, I can even consolidate these individual xls files in another overarching file to see the overall figures of my "enterprise" (just make sure you got your folder setup figured out before doing this, otherwise references turn into a mess...don't ask me how I know). With this I was simply able to scale for each new unit: copy xls file, name it after the new property and set up sheets depending on the amount of units in the property. Yes, the details will change depending on the type of transaction and the amount of units and so on but changes are minimal, especially once you have run into that situation once (like going from 1 unit to a multi-unit: a bit of work, but from there on you can simply copy that particular multi-unit excel and use it for another, new property). Very simple. And cheap.
Now, would this excel thing work if I were to do several deals a month and/or hundreds of units? Probably not! I would have to find something that takes away the need for adjustments in that regard. But this is currently not my situation and I cannot envision it to ever come to that. And if so, I would also have a lot more time to deal with this as I would then not have a job anymore as an employee but would do this full time.
I found what (currently) fits me. Maybe some of the aspects are of use to others reading this.
And now I shall apologize for this loooong post...
- Investor/Syndicator · Cincinnati, OH · Member since 2014 · 470 posts · 599 votes10y
@Brandon Turner We went through the same thing recently and had to come up with system to keep book keeping organized.
So what we do now is we have a Management LLC that has one checking account that all operations run through. The way we keep track of all the invoices and which property they are for is pretty simple.
We created a Gmail account. We then require anyone who has the ability to spend company money to send a weekly email with a scanned package of all the receipts and invoices. The subject of the email is always the date range of the attached receipts. The person who spends the money is responsible for indicating which property the purchase was for (we just write on the receipts in marker) So right now our resident managers and maintenance men send this email weekly to our designated email. Our book keeper can then access the email, reconcile the checking account to our Buildium accounting software. If there are any questions the receipts are all there in that one specified email in dated order for him to find.
Another major benefit to this method is it leaves you with a great easily sortable archive of all your invoices and receipts. IF you were every to get audited this would make the process much less painful.
If you wanna talk more details on this feel free to reach out!
- Investor · Union City, NJ · Member since 2016 · 2 posts · 0 votes10y
I completely understand where you are coming from. I have one primary holding company and then break the buildings down by "class". I have a class for each property and one that you might consider management and operations which is a catch all for things that aren't easily segrigated by property. My corporate tax return, general liability and umbrella policy, higher level accounting, continued education, etc.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes10y
@Brandon Turner Are all 52 units owned by the same principal's and or LLC? If so 1 account should suffice as the management account for all 52 units.
In the past we attempted to have a different bank account for each property but as we scaled it became to troublesome. Now we use different accounts when there are different ownership groups and equity shares involved in the ownership of the property but everything runs through 1 management account, 500+ units and counting it's the most efficient method. Otherwise your carrying around 16 debit cards. What if you use the card to buy supplies for 123 main-street but you really wanted to buy the supplies for 234 main-street? Accounting nightmare!
- 10yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
Most of the time your accounts just evolve over time so for us this has meant that the accounts are separated by purpose. Personal/ business. The business accounts seperate out for tenant management /mortgage/expenses. The tenant management accounts we sweep everything out of or let it set there for security deposits, the mortgage ones we have no say, to get a mortgage we had to open with x bank. We wind up with 11. That said your one account is probably fine.
Half of any issue is framing the problem and it sounds like you framed the problem that you are trying to solve in your last response
" The main problem with segregating has been that my wife is the only one who knows what goes where - and I'm trying to get her out of being that linchpin."- Frankly, I am not sure more accounts will help with this.
Buildum or quickbooks (I understand your frustration with it- I don't think like an accountant either) can help or see if the bank has a category system you can pre-populate categories by property. What I also did to make it so someone besides me knows what is happening is set up a cheat sheet in excel specifying how every vendor is paid. Vendor, property, how received, freq, how paid, bank paid from. I try to autopay for anything fixed. Even things that are regular but aren't fixed have a payment set in the bank monthly at some fixed amount that coincides with the due date. I can then edit the payment amount to what is needed. Also for vendors if they don't already have them standardized putting the property serviced on the invoice. We don't have as many properties but have some other business activities and this has helped.
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