Where do you keep expenses?

[Christopher Parsons]

Hey everyone,

My wife and I are hopefully closing on our first BRRRR deal and I had a question for those who are rental investors. Where do you keep the money from rent that you set aside for expenses? Do you set up a separate bank account, have property management deposit the rent there, and then only transfer what you calculated for cash flow to your personal account? If so, is that the account you would use for multiple properties in the same area of investment? I've read a lot on strategies and how to analyze and calculate cash flow, but there doesnt really seem to be too much info on how to structure the financial side of rentals.

[George Pauley]

A few years back I had a similar question and started asking my team for advice.  More involving how much to set aside, but this ends up getting into the mechanics of how and where to put the money.  One piece of advice I got from a conservative lender was to hold back 6 months worth of operating expenses.

So, we start by having a separate bank account for the business.  When the rents come in, they go to that business bank account.  We then allow ourselves to transfer any funds above that 6-month reserve value to our personal accounts.  This is tracked as a payment to the officers of our LLC.  Which helps to make sure we don't co-mingle business and personal funds and have clear tracking of how business money is spent.

This does mean that some months we don't get to pull any personal cash out due to high expenses.  But it also means we're not writing personal checks to cover those expenses either.  

Also, as our real-estate "empire" has grown, we've made some adjustments.  With 15 rentals, 6 months of operating costs is about $70k.  That's a lot of money to leave sitting in a checking account.  So we'll take about 1/2 of that (arbitrary amount based on our comfort level) and put it in short term investments like Patch of Land.