Separate Bank Accounts For Each Property?

Question

Howdy,

Newbie to the forums and a relatively newbie investor.
I have two rent houses and have separate bank accounts for each one (one is shared with my sister, 50% each). I'm wondering, as I buy more single-family rent houses, if it would make sense to have a separate bank account for each property. What do you all do? Are there advantages for doing this or would it make more sense, over time, to have one consolidated bank account for all rent houses? Thanks.

Bill Gulley · Answer

Steve has a point, much can be reduced, but let's not confuse "relationship banking" with a good banking relationship, that doesn't add value for the bank in that respect. These are also known as sub-accounts, nothing more than a consolidated account, which may help avoid that bit of looking silly or attracting attention. Check with your bank, but I wouldn't let on like you don't know how to keep track of your money....I'd agree with Steve, that could be an option fora consolidated account. BTW, a good banking relationship is usually established by one thing, allowing them to make alot of money, the more, the better relationship you have....when you get tickets to ball games from yourbanker, then you know you have a good relationship! LOL

Ann Bellamy · Answer

You definitely need separate bank accounts for each company.  So if you own one property in company A, and one in Company B, you need separate bank accounts.  In your case, where you share ownership of one with your sister, it will be much cleaner to keep the income and expense of that property separate.

If you own the other properties in the same name (yours, or a company), then you can keep the funds in one account.  Just account for the different properties' income and expense, because you'll need to keep them separate on your tax return.  I use Quickbooks  classes for that, but you can do it with a simple spreadsheet

Karen Margrave · Answer

Chris Montgomery You probably should do some research on what is required as per real estate law in Texas. You have to be careful so that you don't end up comingling funds, etc. Read up on the laws, because financial issues are heavily regulated, and you want to get it right!

Steve Babiak · Answer

Banks have something called "relationship banking" to deal with just such a situation.  You get ONE paper statement, with each account identified and transactions that go with that account in its own section of that single statement.

If you have to maintain separate escrow accounts for each tenant, then "relationship banking" is even more beneficial for all, because those escrow accounts sit there with zero activity, so why have to deal with all the extra statements.

And if you go paperless, then this is even less of a factor to the banks; the account info is all computerized, and the computer could care less whether the accounts it has belong to one or a hundred people.

However, the smaller bank, with just a couple of branches and the same people always there, just might look at your situation as Bill posted.

Bill Gulley · Answer

Let's look at one account for each property. Say your mortgage, principal, interest, taxes and insurance is 650 and your rent is 850. That's 200 a month. You set aside 10% for maintenance -85 that leaves 115. Are you going to draw any money out for yourself? -100 for food, now you have 15 bucks slush fund and 85 for maint or 100 for a balance. What's the bank charge for small checking accounts? Subtract that. Now consider you have 8 properties, an 800 dollars in 8 accounts. Guess you aren't doing the books because if you were able to do some basic accounting, you wouldn't have seperate accounts, what is you bookkeeper going to charge to reconcile 8 bank accounts?

There is no requirement, tax wise or for any other reason that your "books" must be done by a CPA, an accountant or even be in accordance with acceptable accounting principles (to some extent) what is required tax wise is to keep track of your income and expenses in a consistant manner so that such items can be identified.

If you just write the check number down in a book and write out what it is for, paint, cleaning supplies, carpet shampoo, those are expenses and you subtract it for the money you receive from rents.

Code your checks and deposits, a, b, c, d, e, f, g, h (later you could go to a-1, b-1) each represents a property. A deposit marked h, is that property, all expenses are marked h, pretty simple. You should get a photocopy of all checks written and the codes will show you what you need to know. Make any code you like, maybe just the street name of that property.

Another issue, if you bank at the same bank for multiple checking accounts, they will know you're not very business wise, when that loan office opens your accounts and sees you're running 8 accounts with low balances, that's more of a hassel for the bank, sending out statements, tax reports and taking up two pages on their books in printouts for really no money being earned, that reflects on your abilty to run a business!  Frankly, if an examiner sees that on the DDA printout, it almost stands out as an unsophisticated customer and when the loan review comes the name is likely to be recognized again which says, let's take a look at this loan. While the loan may be fine on your end, the bank just had all of your loans get additional attention, LTV, appraisal review, financial statements and that usually leads to remarks as to bank management as something is usually noted when there are several loans with one borrower, especially a weak borrower or one who is less than business-like. IMO, because that's just what I did. Multiple accounts draws unnecessary attention, unless it's a big operation, like a car dealership.

If you have different partners in several properties, get a seperate account for each partnership, so that your partner can go through the books without getting into other partnerships. Seperate by partner.

If you form an LLC, you may be required to have or perhaps should have an escrow account for deposits, as it is not your money until a certain occurance or damage is suffered. One escrow account is sufficient for all properties and code the deposits.

Most accountants will sit down with you for an hour and show you what they want to see and teach you how when you initially hire them. I'd also suggest you get on Quick Books, pretty simple but having a little accounting will also help, just 4 hours of studying will make a big difference, what's known as "slotting accounts", correctly placing assets, liabilities and capital in the right place. :)

Luis A. · Answer

Just my 2 cents... I also own two properties under one LLC. I do keep one checking account for both properties. I use this one account to deposit rent checks, pay bills for either property, pay taxes, etc. I checked with my accountant first and he told me this would be fine.

I then keep separate "reserve" accounts where I basically put the remaining cashflow from each property. By keeping separate accounts for saving purpose I know how much I have in reserve in each property and I can make decisions on maintenance/upgrades for each different property based on how much is available. This basically helps me make sure I don't spend more on a property than what it brings in.

As far as accounting goes I am sure Quickbooks is good since I have heard so many people recommend it. However, I just keep a simple spreadsheet where I record all income and expenses. I also categorize each income/expense IAW the categories that you find on Schedule E for rental properties. Yes, I have to do this manually but with only two rental properties it does not take more than 15 minutes a week. When tax time rolls around I just email the spreadsheet to my accountant.

Chris Montgomery · Answer

Thanks for the quick replies! There are no companies involved (yet), I own one rent house in my name and the other is 50% share with my sister (house we inherited from our folks). Right now, we have our shared house in one bank account (both have access) and I started a new bank account for my rent house (it was my former personal residence). I am leaning in the direction of keeping just the one bank account in my personal name for future single family acquisitions unless I decide to partner with someone else on those. In that case, I'd set up separate bank accounts for each property involving a partner (or probably set up an LLC before that and have that bank account for any partnership deals going forward).

As far as bookkeeping software, that's another question I have and will likely explore that in a separate message thread but I'm using MS Money right now to track income/expenses and have considered moving to Quickbooks. I'm still undecided on what to do moving forward but will re-visit this topic later.

Thanks, all! Good forum, glad I found it.

Steve Babiak · Answer

If you are not using some sort of bookkeeping software, then you should get each property its own bank account, so that expenses and income for each are trackable within that single bank account for any single property.

With bookkeeping software, the software allows for other methods to track, so not as necessary there.  But some people will still get a separate account for each property even when they have bookkeeping software in use.

Bill Gulley · Answer

Ann is correct and if you hold more than one property personally you can simply have one account like Montgomery RE Account, you don't need multiple accounts for multiple properties. Quick Books would probably be good for your use.

Separate Bank Accounts For Each Property?

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