Do I need a separate bank account for my rental properties? Best type of bank account for landlords?

by | Indiana real estate, Indy Anna, Real Estate Investing

How to set up a separate bank for your rental properties.

As a landlord, you need to pick the right bank.  I made another class about banks so in this class you and I will go over specifically how to set up a new and separate account for your rentals.  We will go deeper on specifically what a landlord should look for in a bank and what features to make sure you get because you need to have the right demands of your bank.

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Now for today’s class on separate bank accounts for rentals…

Bank for your rentals

Do I need a separate bank account for rental properties? Should I open a separate bank account for my each my rental properties?

Indy Anna explains;

Should you open a separate bank account for rental properties

What type of bank account to use for rental properties

How to pick the best bank for landlords

“Should I open a separate bank account for my rental property?”

The question has come up a few times so I’ll go over the full answer today. Yes, for most real estate investors and landlords you should open or have a separate bank account for your rentals. Now I’ll go into why this is, and cover what type of account to use and how to pick a bank as well.

Is it legal to have different bank accounts for rental properties?
Yes, it is totally legal to have bank accounts opened specifically for your rentals. Today we will go over two ways of doing this and both ways are totally legal and I’ll also point in the direction of legal help that you can help you set this up as well.

Why do I need a separate bank account for my rental property?
While it may seem like pointless extra work to set another account up, it’s worth it to streamline the expenses and have a separation of assets. Plus this will make doing your taxes on your rentals much easier and even cheaper because the organization will take much less time to complete and file.

Now, there are basically two situations where you will be setting up a new bank account for a rental property:

First, a property in your personal name that will not be transferred into an LLC, and you’re simply using an umbrella policy. If that’s you then you can check out or classes on LLC’s and the use of umbrella policies.

The second situation would be a property purchased through an LLC or one that will be transferred into an LLC.

Those are the two main situations now let’s go through the five steps:

Five Steps to Opening a Bank Account for Your Rentals:

Step one; pick the type of account

For a property that has been purchased in your personal name with no future plans of transferring into an LLC a personal checking account will work. You may set this up as a “DBA” (Doing Business As), but it’s under you personally.

In the other scenario, for a property that is purchased under your name that will be transferred into an LLC, a business account will be best. When you’re forming your LLC, while filing the articles of organization be sure to obtain an EIN -a tax ID- for your LLC. Most banks will require this to set up a business account, and you’ll need it for tax time as well.

Step two; pick the bank you’ll be using

All banks are not created equal and there is a shopping period for banking needs just like shopping for your deals. Some banks will have incentives for opening new accounts, both personal and business, while other things to keep in mind include;

Minimum daily balance requirements, usually higher for business accounts

Yearly fees

Yearly APR yields, some states require security deposits to be held in interest bearing accounts

Number of checks written per month as some have limits in place

Monthly fees for statements

Debt or credit card usage

ACH deposits

Statement outline via Intuit or Turbotax,etc.

Quick Note: you can always ask a few real estate accountants/investors which they suggest.

This section became so big that I actually did a whole separate class on how to pick the best bank for real estate investors and landlords. So you can check that out for more.

Step three; Updating lease agreements

You need to update your lease agreements with your new business name, bank account, etc. We have more info in another class about how to give tenant incentive to do sign up for auto payments and ACH deposits for their monthly rent. For now just worry about updating the lease agreements. This is to make sure all incoming payments are made payable to either your LLC or your personal DBA account, and not you personally unless you’re using an account in your personal name – and that would only apply to you as an umbrella only policy user.

From now on, each month then you should have rent payments coming into the account you’ve set up specifically for the rental property. You will have a separation of assets to quickly streamline incoming vs outgoing funds. This leads us into expenses.

Rental Property Expenses usually include:

Property tax payments for rental properties

Insurance premium payments for rental properties

Maintenance costs for rental properties

Utilities for rental properties – this is more state specific on what state legislation has deemed necessary to be covered by landlords. We have numerous classes on landlord friendly states and which states are best to invest in – take a look at those as well for more help

Property Management fees for rental properties

Returned security deposits at lease ends

HOA dues for rental properties in some cases

There may be others as well, you need to make sure that you, your accountant or your property manager update your info at all of these places so that your new bank account is used to pay for these costs. Most of your expenses and payments will be made monthly, quarterly or yearly so you want to make sure that is all set up.

Step four; keeping track of expenses

This should be part of your bank shopping and how monthly statements are set up. Ideally, you will have a clear picture each month of what’s coming in vs what’s going out. Some banks will use software to help with this such as Intuit or Turbotax on an annual basis, while other banks will have an ‘overview’ each month available.

Be sure to simply download these statements into one PDF or file to give to your accountant at tax time. We have other classes available on what you can deduct on taxes with rental properties, how to file owner occupied rental taxes and a few more helpful videos as well.

At the very least you should get a statement texted to you every month so you can see the total amount of money coming and the total going out so you know the health of your rental properties’ ROI.

Step five; ACH setup

Once you have the account set up, and the lease agreements updated you can proceed with setting up ACH deposits for collecting rent. I’ll cover more of the “how to’s” on this in another class on banking, but for now consulting with your bank on their specific instructions will help move things along instantly.

Also after a few requests from you guys I’m going to make another class right after this that goes over the best practices that our Heroes and clients are using to tenants to sign up for ACH payments so stay tuned for that.

Also when it comes to being a landlord, tax deductions/expenses and other bookkeeping items here’s a cool bonus this a link from the IRS where they outline their top tips rental income deductions and record keeping I’ll be including that link below:

https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping

We’ve also made a free download to go with this class as well and on this next screen I’ll show you a preview of this printable guide:

So, in summary;

We’ve covered why you should open a separate account for rental properties

The five steps in opening a bank account for your rental properties

We also talked about what type of accounts and banks to look for

Also if you need help setting this up you can check out a list of contacts that we use at our “People Page” just go to: BigReia.com/People

Make the Universe Smile.

Thanks so much! = )

Indy Anna

Bank accounts for rentals comic

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~ Indy Anna
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