Do I need a Business Checking Account?

[Michinori Kaneko]

Hi,

I went into contract on my first rental property a week ago, and getting ready to close the property in few weeks (under my own name, with no LLCs).  I am wondering if opening a business checking account is recommended, and if so, what do i need to be conscience about? Can i "distribute" money to my personal checking once every few months, or do I need to keep it in the business checking account?  Thank you for your help!

[Joe Hines]

Absolutely.  

You are now running a small business.  Looking at it from that perspective, you should never co-mingle funds with your business funds.  You can be creative about how you 'pay yourself' and transfer money from your business account to your personal accounts, but make sure there is a clean separation between the two.  

While you are at the bank opening that account, I'd recommend opening a CapEx Savings account. Depending on the age of the home and the condition, I usually set aside 3% of the purchase price of every new property into this CapEx Savings account. In addition, I put 10% of rent each month into this account. This will give you a nice cushion to pay for a new roof, refrigerator, etc when the time comes (and it will come). If you do a great job in managing your capital costs, then you want to reward your star employee (you) with a bonus from your capital expense account!

If you intend to grow your rental business, also consider accounting software.  Just be sure to get advice from your accountant as you'll need their help to set up your chart of accounts and advise on how to implement properties in whatever system you choose.