Managing the money side of rental properties

[guiseandguile]

Hello all,
First post but long time reader. I'm not new to being a landlord (we own a multi-unit property that we used to live in but is now fully rented). However, we've never properly set up the money side of our rental income. Right now, the income and expenses from the property come out of my checking account (which is my only account, so I also do everything else out of this account).

I know we need a separate account for the rental business, so I'm very curious to hear how others have set this up, particularly when you have a property manager. Does your property manager have access to the account? Or do you have a separate account for unplanned/minor repairs? How much do you keep in the repair account? Some of our tenants do electronic deposits of their rent, but others still pay by check.

Does anyone have a website or book on the financial side of landlord-ing to recommend? I feel very behind the curve on this!

[ducky19]

We are relatively new to landlording, having held on to our old house when we moved 2 years ago. The first thing we did was to set up a separate checking account to keep the money from it out of our spending money. The mortgage comes out of that account each month. It's on a fifteen year note, so it's taken a little longer to build a cash cushion but we still cash flow ~$200/mo. We're currently at ~$2200 after replacing the carpet when the first tenants moved out (was 10 years old and needed to be replaced). I would like to build that up to at least $5000 as a repair/vacancy fund before moving any money out of there. Our tenants pay by check and we use a receipt book. That's about it! If we do add some additional properties in the future, we may take a more complex approach, but this works for us for now.

[zinethstache]

We have 3 multis. We have a checking account to pay rental expenses and a rental savings for our capital savings fund. Our PM handles the tenants and we receive statements electronically each month. They include a simple debit/credit layout statement and any invoices from third parties are also sent. Expenses the PM incurs in our name are paid by them from our monthly PM proceeds. They auto deposit our surplus into our rental checking account.

We receive an annuallized summary set of books for each property from the PM. I match that with my own set of excel workbooks (again one for each property). I also have a rollup summary Excel workbook. My excel file and the PMs annual summary are sent to our tax accountant. It gets tricky when tenants prepay their rent in December, we have a few who choose to do just that.

Once in awhile DH will pay a primary residence bill from the rental checking account (he still writes out checks for our water/sewer bills). I just ignore those and consider them a draw. When we use any of the Cash Flow for our own expenses we transfer a chunk out of the rental checking to our personal checking. Typically we use a chunk of the CF to pay off our CC each month.

I would review your 5k. Be sure no big ticket items are going to need replacing soon. Furnace/Roof etc. We keep quite a bit more than that, but not a full 5% of the value of each property. We replaced a roof a few years back and it was $7500. Our own home's roof was $13k! Just a warning to not underestimate that burden.

[marty998]

Never needed a separate account. I track everything religiously with spreadsheets though.

Would imagine you only need a separate bank account if you are holding the property in a separate legal entity, e.g. and LLC / Company, or a Trust.

[dpfromva]

I'm on an unplanned landlording adventure. Tenant is my kid in another city.

The only necessary extra account in that municipality is an escrow account for the security deposit. Check your local regulations. For convenience sake, I have a local credit union account for the kid to pay rent into. That's going to be my war chest for, oh bother, repointing all the bricks next year.

Otherwise, I'm just keeping good records on my QuickBooks accounts.

[richschmidt]

We use CapitalOne360.com (formerly ING Direct) for the financial side of our rentals. Rents go into the checking account, mortgages are automatically deducted from it, and expenses are paid with checks or the debit card. Separate savings accounts are set up for the security deposits, which they make easy on their website. It's all connected to our regular checking account should we need to transfer anything (like when a tenant pays in cash instead of check). Checks can be deposited using the smartphone app. It's all pretty simple.

[earlycheckout]

We have not had a separate account for our rentals. We just track every detail on a spreadsheet and keep all documentation (electronic and paper).

We do have separate credit lines at the bank for our rentals, so the interest and mortgage expenses are clearly and distinctly aligned with each.

[srob]

I have a checking account for each rental property. The property management company I use keeps a reserve with them for repairs, deducted out of the first couple months rent collections. (500 or something like that) Toward the middle to end of the month, they transfer a payment electronically to my bank account which consists of the rents minus the repairs and management fees. They send a written statement with repair write-up each month which is nice. I had one month where I did not get a payment for a certain property from the management company, because they replaced a bunch of carpet and it ate up all the proceeds. I leave enough in each checking account to cover the mortgage payments which are deducted automatically.

[Beaker]

We hold our rental in an LLC, which requires a separate checking account. I keep tenants' deposits there, plus a buffer for the mortgage, but not much more than that. We keep a larger-than-normal cash balance in our personal account to handle repairs, etc.

I track expenses in an Excel sheet which goes to the accountant at tax time. By using the rental account debit card and truing-up against the bank statements I've caught a few expense write-offs that I had forgotten to record, so I find it worthwhile. I guess I could've gotten some more credit card rewards by using my personal card, but it doesn't seem worth the brain damage.

[clarkfan1979]

At least $10,000 of cash for each rental property in a separate checking account.