Bank accounts - per unit or per property?

Question

Evening all :)

We just got our second duplex under contract this morning, so I'm starting the to-do list of what needs to happen before we move in (house hacking again). I know a lot of people recommend having a separate bank account for each property, but what's the recommendation for multifamily properties? Should I have a bank account for each of the three units that will be rented, or one for each property? We'll own two duplexes, and live in one of them for the next year.

I feel like all I do is deposit rent and once in a while pull some money out for some repair or other, but that's it. My current rental house account hardly gets touched otherwise. Thoughts?

Bettina F. · Answer

We have a 6 unit building held in one LLC. The LLC has one checking account, and one savings account. We use QuickBooks desk top for our books. Each tenant is a customer, each unit is a job. Security Deposits are recorded in separate QB accounts as current liabilities. At any given time, the LLC's saving account has more than enough money to cover the SDs. If I lived in a state where SD had to be held in escrow (stupid law as money is fungible), I would have ONE escrow account holding all the SDs. If we were to buy a new building, the decision would be whether to start a new LLC for the new property, or fold it into the existing LLC. We would only open a new bank account if we decided to start a new LLC. You do not need more bank accounts. You need a book keeping system.

Filipe Pereira · Answer

Hi Kate, For my personal properties, I have a bank account per property, not per unit. I feel that with proper book keeping it is sufficient. This is also how I handle things in the property management that I do for others. From a scalability factor, imagine if you were managing 50 units in 1 building, with 50 different accounts. I think I would just about lose it, trying to keep track of all that! That being said, I'm not sure of the legalities in your state, but the state of Connecticut requires security deposits to be placed in Escrow Accounts (separate from other monies), so be sure to look into the laws of your area to make sure you are doing things "by the books"!Congrats for getting under contract!!Filipe

Irina Belkofer · Answer

Totally agree with @Bettina F. - you don't need too many accounts, just one per LLC. If you manage other people properties, you have to be a real estate broker and have a special trust account per each client (in Ohio - non interest bearing). If you manage your own rentals - that's not apllicable to you, unless it's in LLC form (again, in Ohio). Each state is different and it's better to call your state's Division of Real estate or read the legal docs.

Terry Miller · Answer

I sometimes have a strange way of presenting things (private tutor for twelve years) but it brings home the point.(Set of bank accounts = one checking and one savings account)One set of bank accounts per state: Ridiculous!One set of bank accounts per city: Not as ridiculous, but still not enough detailOne set of bank accounts per property: Perfect!One set per unit: Really pushing it. The extra detail gained is not really worth the extra accountsOne set per room: WTF?!

Kate Moreland · Answer

@Filipe Pereira @Bettina F. @Irina BelkoferOkay good, thank you all! That's what seemed sensible but then I thought maybe I was missing something and didn't want accounting trouble down the road. I'll definitely check into laws regarding deposits and escrow as I had not heard about that before, and will look into a better bookkeeping system as well. Appreciate the advice y'all!

Oren K. · Answer

@Kate Moreland @Meghan Chomut Ledger refers to the old paper based method of keeping accounts on paper. Don't know if you have ever seen them but think of 'tabloid' sized sheets bound in a book with lines and columns, etc. where every transaction (paid & received) are written down. Historically, this was the way most / all bookkeeping was done. With today's technology / computers, it is much simpler to do and we use some of the same terminology for the same / similar concepts.Think of it this way, if you were running a business where you have many repeat customers to who provide a service or product (e.g. flower shop, pool cleaning, HVAC maintenance, whatever), you would not have a separate bank account for each customer but you would have to keep track of what each customer has been invoiced and what payments they have made. Tracking this is referred to as a ledger / customer account. Every accounting software package has this capability.In the case of a real estate rental company (commercial or residential), you should / need to track each 'invoice' and payment from each tenant. If you only have 1 or 3 tenants, you may get away without formally tracking each one in a ledger / customer account but once you grow beyond that, a system needs to be put in place. Which one has a monthly pet fee? Who should the charge go to for locking themselves out and you had to let them in? Who gets the late fee?, Which tenant did you cut a deal with to split the cost of a new appliance? Is there a tenant that is now cutting the grass for the building and getting a $100/M credit? etc. etc. If it is a commercial leasing property, they may ask for some extra cleaning or you need to charge for a pylon sign or 'CAM' charges.I certainly would not want to try and keep it all in my head each month beyond 1 or 2 units.To @Terry Miller and @Roger Sandmann, this not about bank accounts. I currently have 39 units and only one one set of bank accounts. I also have separate ledger / customer accounts for each unit.Oren

Simon W. · Answer

One operating checking account per LLC and if you have RESIDENTIAL tenants, you need a separate account for Security Deposit (usually interest-bearing).

Michael Myers · Answer

If it's a hobby, intermingling funds is not necessarily bad with one or two properties. If you are getting serious with the business side, each property is a living thing and should have it's own account.

Kate Moreland · Answer

@Oren K. I’d be interested to hear more what you mean by a ledger account too. Accounting and bookkeeping are not my areas of expertise so I’m trying to improve while everything is still small and manageable.

Roger S. · Answer

Keep it simple. I have a checking account that I pay all of the bills for our 10 SFR's and a savings account for maintenance and capex. I charge everything I can on airline rewards cards and pay it off each month out of the proper account.