The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Mazzinator on November 13, 2015, 09:46:33 AM
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I'm curious what you all actually do with your rental income.
My friend suggested that each rental property should have it's own checking account. All repairs, expenses, mortgage payment, etc comes straight out of that account. He suggested to open the checking account, put in $5k (to save on bank fees and for a buffer for expenses) then operate from that account. Then at the end of each year, to pull out the profits, but to leave the $5k + rental deposit.
So, i'm curious what do you all actually do each month/year? Sorry, if this is a noob question. I just don't want to start off doing it one way, wishing i had done it another...and i'm brainstorming ways to set it all up.
Thanks!!!
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I'm curious what you all actually do with your rental income.
My friend suggested that each rental property should have it's own checking account. All repairs, expenses, mortgage payment, etc comes straight out of that account. He suggested to open the checking account, put in $5k (to save on bank fees and for a buffer for expenses) then operate from that account. Then at the end of each year, to pull out the profits, but to leave the $5k + rental deposit.
So, i'm curious what do you all actually do each month/year? Sorry, if this is a noob question. I just don't want to start off doing it one way, wishing i had done it another...and i'm brainstorming ways to set it all up.
Thanks!!!
Looks like your friend is too lazy to correctly categorize transactions in the account. I do not see why you cannot service multiple rentals in one account. Potentially, if you are using an LLC for running the rentals, this account would be the LLC account.
I put the security deposit in its own escrow account. You are supposed to return the interest when you return the security deposit. It also gives a new tenant confidence in his landlord when I send in an occasional escrow statement to them.
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We use a PM who handles the rents and the deposits. They deposit our portion into one account as one big chunk. We keep separate sets of books in excel that all roll up into an annual summary.
we always keep a cushion of a month's extra mortgage payments (we have 3).
Our capital savings (the requisite repairs fund) is a savings account and we keep that at a fixed amount, replenish as its used (in 3 years now we've never used it...so far so good)
It seems silly to me to have multiple accounts, you just need multiple books.
We do use the money for some expenses, living etc. alot of my W2 income is saved in another fund for more property purchases.
In January we are switching to living off of the rental income for one year as a proof of concept for my FIRE date of Jan 2017.
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I bought a second rental house. Now I have two. I'm currently working on getting the cash for #3.
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I've heard some say that each rental should be in its own LLC as liability protection, but I don't really see what each rental being attached to its own checking account accomplishes except more headache. As long as you keep the books right, it shouldn't be an issue at all...
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I have three rental properties that I manage myself and each has its own account. It works for me. The accounts are at the same bank, and are linked, so I can sign on once and pay bills/check rent deposits in the same place. I think it is an easy way to keep a running tally of how each property is doing throughout the year. These are 4-8 units each though. I don't think I would keep a different account for sfh.
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We have our properties in LLCs for liability reasons. Each LLC requires a separate bank account, but most of them hold multiple units that run out of that account. It's not good to let those accounts get too high, because if you do get sued then that's assets they can go after. So I keep them at enough for about a month's mortgage plus some minor repairs, and pull everything else out to my personal account.
BTW, handling of tenant deposits varies by state. In my state you don't even have to hold it in a separate account, much less pay forward tenants the interest on it.
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I have one checking account that all the rents from all my houses are deposited to. I use that account to withdrawal for any money going back into the rentals for whatever reason. That account grows fairly quickly and once I get enough money in that account for a down payment on a new rental, I use that money to buy a new rentals.
But i always keep $3k cash per property in that account as the minimum balance.
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I deposit a set amount each month from rents received from 4 properties into one fund (a medium-term corporate bond ETF). It is not necessary to separate this fund from our general emergency fund but I like it that way. It is used to cover any big ticket items that the properties may need.
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I put it in a separate savings account to save for additional properties, pay for repairs, and eventually pay my properties off early.
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