Personal or new account for rental income/ reserves?

[Jacob Disher]

Hey everyone! I was just curious what you found was the best way/ how you prefer to keep or store cashflow and reserves for your rental properties. Do you prefer your personal account or have you opened a business account? Thank you all and have a great day!

[Anna Laud]

@Jacob Disher

Hi Jacob! 

I think maybe this will depend on your set up as it was during acquisition- somewhat at least. If you purchased property through an LLC, this would (in most cases) mean that your LLC had it's on EIN for taxes and the bank account from which funding was pulled to acquire property. As you're asking about this question however, I don't think maybe you purchased them through an LLC and did so under your personal name maybe.

I would assume at this point you at least have an umbrella policy if you're not using an LLC to have a little personal protection maybe and this would be where your question seems to fall in line more. Most people would simply consider it easier to have a separate bank account for expenses and colleting rent.

This would be much easier come tax time to do a quick P&L for your CPA from the overview of one account as it directly pertained to the properties alone. As it pertains to a business account (usually in opposition of DBA under your personal name) usually these do require articles of formation at set up unless you have a grandfather-ed account.

I say this from personal experience and within the last year having the branch manager looking up the filing with the secretary of state before I was able to open a business account. Now, this pertained to one of my S-Corps, but the same thing with each LLC set up and this particular bank.

If you're not doing any of the LLC set up and keeping these in your name, another checking account in your name would suffice it seems. One thing to keep in mind is that the minimum daily balance required for a business account will be higher than a personal account in most cases. If you're just starting out, or this isn't a positive cash flow situation just yet, this might be something to consider, later moving onto a business account with or without LLC setup. Usually this difference is minimal for most involved in REI (the difference between $500 and $1500 avg) but for for negative cash flow situations or beginners it could matter.

If you do get set up with a business account, I would shop around for the best bank to go with as some banks offer minimal business support, a minimum of five checks per month written for example. Again, this is more of a personal issue perhaps in that for my S-Corps and having shareholders I disperse dividends to, five checks didn't work. As it pertains to an LLC, cutting checks to contractors, etc could get cumbersome quickly, unless you can use a business debt card.

So to recap; 

If these were purchased in your name, it seems like a separate personal account would maybe work - basically you're acting as the sole proprietor-ish in this case, and while missing on the tax advantages of an LLC and the pass through income, it's all coming back on your personal taxes anyway is what I mean.

Having a separate account would at least help to streamline things for expenses and revenue now, while also being easier if you ever decided to move assets from your personal name into ownership of an LLC in the future.

Hope this helps some!