Your rental is a business and it is important that you treat it as such. To start off on the right foot, it is important that you keep the rental accounts separate from your personal accounts. There are many ways that you can set up your accounts.
Quickly and Easily Setting Up Your Rental Accounts
In the beginning, I just create separate checking and savings accounts at our local bank. In our case, it was Navy Federal. I set up one rental checking account and one savings account.
- Simple – limited to just two accounts at a bank that I already routinely used so internal transfer is simple.
- Simplifies Tax/Mortgage – Same bank so no added fees.
- Hard to Identify Rental Payment – With multiple houses in the same account, if the rents were different or multiple people didn’t pay their rent it was impossible to track who paid what without going into the branch.
- Hard to Track Expenses – If you pay with checks out of the account, come tax time it is hard to know what was paid for what account.
After we had three rental accounts, I realized that my original method would no longer work. I decided I needed to keep every rental separate from each other. Therefore I needed two rental accounts per rental — a checking account for the operations and a savings for the security deposit. It created more accounts but at the same time was simpler to track who paid every month.
Side Note: While every state and area is different, many require the security deposit to be held separately. While some require interest to be paid, many areas and states do not have such requirements. No matter what you do, check the laws about the security deposit.
I found out after the fact that I could have opened all my accounts at Navy Federal. Since I did not think it was possible at the time, I transferred my business accounts to Wells Fargo. This misunderstanding became a great blessing in disguise.
- Easy Identification – Every account has a separate nickname. I named each house by its street. That makes it very easy to identify.
- Separated From Personal Accounts – While having it at a different bank can making transferring money a pain. It allows me to keep the two separate. When tenants have deposited money into our accounts using teller services we have had issues with the money being put into the wrong account. This way at least the money didn’t go into our personal account.
- Lots of Accounts – With multiple houses in the same account, if the rents were different or multiple people didn’t pay their rent it was impossible to track who paid what without going into the branch.
While the extra paperwork has it moments, it has been totally worth it. While probably not for someone who has just one account, these tips for rental accounts is for the serial investor.
Not comfortable about giving out your bank account information?
While giving your tenant your direct deposit information provides no more information than giving someone a check, there are options for those who wish to have an additional lawyer between them and their tenants. One of those options is Cozy an online company that does an application, tenant screening (background/credit checks) and collects the rent. There is no fee except for the credit and background check which is paid for by your tenant during the screen. For more information, check out Cozy’s website.
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