Keeping rental income separate

[Anne Grello]

Newbie closing on my first property, how do I keep my rental income separate from my personal accounts if I don't have an LLC and therefore can't open a business account? Should I just open a separate checking account? This is my first and only investment property. Thank you!

[John B.]

I dont have experience in this but im reading Brandon turners book on managing rentals and he mentioned to have 2 accounts. 

[Mike Weber]

Hi Anne, great congrats on your first!

As you allude, if you do not have an LLC set up, opening a separate checking account (for reference, Checking Account "A") will be sufficient. I'd suggest using this account (A) for operating expenses and rent receipts, so it's kept simple, all in once place.

If possible, you should dedicate 1 credit card to use that draws from this account (A), even though it is not a "Business Credit Card", just treat it as a business-only card. This way, at the end of the year (or ideally, monthly or quarterly), your bookkeeping (keeping account of expenses and income) is clean.

Depending on state requirements, you may very well also be required to hold a separate checking account (Checking Account "B") for Security Deposits. I would recommend this regardless to be safe, but will be good to get state specific advice as well. I currently keep 1 checking account (A) for 6 units' rent payments, and 1 checking account (B) for all Security Deposits. I never touch the Security Deposit account unless a new tenant submits their SD, or I return the SD once the lease has expired/tenant has left unit.

Do you plan to use a rental software? I see you are PRO and believe BP has a partnership to include RentRedi for free (at the time of this post), which is what I use. I would compare rental management softwares (Turbo Tenant, RentRedi, Avail, Buildium, Stessa, etc) if you haven't already compared or decided, though I do recommend RentRedi if that fits your needs.

[Hamp Lee III]

You can use bank accounts like Bluevine, Ally, or Live Oak that allow you to create sub accounts. The sub accounts allow you to split your revenue for taxes, cap ex, profit, etc.

I wish you all the best.

[Ray Hage]

Hi Anne. It is best to open second checking account where you pay your mortgage, utilities, maintenance expenses from just that one account. Ideally, you could open an LLC in your state especially if you planning to continue investing into RE. And you would have an account for each future property. You could maintain your expenses in an excel sheet for now since it's just one property. I wouldn't bother with all the fancy software till you get a few.

[Nicole Heasley Beitenman]

You don't need an LLC to open a bank account. Just open a regular checking account.

[John Warren]

@Anne Grello just open a checking account per building. Use separate debit cards and wright the address on the debit card so you don't accidently use it for different properties. You don't need an LLC to operate properties, but do you do want to keep them separated out for taxes.

[Mario Morales]

@John Warren is one account per building best practice or does it make sense after X amount of properties? I have my personal account and I have another checking account for my 3 properties?

Thanks

[John Warren]

@Mario Morales I like doing one account per building personally. I think that is the best practice. It helps your accountant separate everything out, and it minimizes mistakes. 

[Conner Olsen]

@Anne Grello I just used a regular checking account. I'd also create a folder in your email called '2023 Tax Deductible' and just throw in any invoices you get throughout the year.

[Jamie Banks]

Quote from @Anne Grello:

Newbie closing on my first property, how do I keep my rental income separate from my personal accounts if I don't have an LLC and therefore can't open a business account? Should I just open a separate checking account? This is my first and only investment property. Thank you!

I recommend using Baselane, it's a bank account for landlords that you can set up in your name or LLC I believe. You can create one account and up to 20 virtual accounts for reserves, security deposits, etc. You can also do your bookkeeping using the site to tag each expense by type so that you can see your monthly and yearly income statements. There's also an option to generate all the info you need for your Schedule E on the site.

[Hamp Lee III]

@Jamie Banks - Thanks for sharing!

[Scott Mac]

Quote from @Anne Grello:

Newbie closing on my first property, how do I keep my rental income separate from my personal accounts if I don't have an LLC and therefore can't open a business account? Should I just open a separate checking account? This is my first and only investment property. Thank you!

Just go to the bank and open a business account, you should not need an LLC.

[Tommy Parker]

Just open another bank account to separate this and you should be good. For my first property I used Innago to also help me manage my property easier and it was free!

[Kathy Kifer]

I have some in a LLC and some not. Regardless, To lessen confusion at my credit union, since that is where my personal accts and these separate rental accts are, I have my rentals nicknamed. I use debit cards with different pictures (Im in Texas and my credit union offers cards with different Texas pics) and write the nickname of the property on back of the debit cards with a sharpy. That way at Home Depot or where ever, it's just easier to find the right card! :)

[John Clark]

You should have at least two business checking accounts, with one of them clearly labeled as a trust account, which holds nothing but security deposits. That is necessary to protect the security deposits from seizure. The money in the security deposit account is not yours until the tenancy is over and there is nothing due and owing to the tenant.

Check your state laws. Even if you aren't required to have a separate trust account for security deposits, be smart and do it anyway.

[Basit Siddiqi]

I would open up a separate personal checking account and run all your rental transactions through that account.

Do the same with a credit card.

Open up a online storage such as dropbox, google drive or apple drive and save your business receipts there.