Starting as a real estate investor can be hard to know what to do next. There are so many options and decisions, and it can be not easy to know where to start.
One of the things that people tend to struggle with is deciding whether or not they need a separate rental property bank account. The answer is an unequivocal yes!
Why? Let’s take a look at some reasons why you should consider opening a separate bank account for your rental property business.
- Prevents Commingling
- It helps protect personal assets
- Simplifies income and expense tracking
- Save on tax preparation fees
Prevents Commingling
If you’re an investor in real estate, chances are you’re familiar with the concept of commingling. Commingling occurs when personal funds are combined (or mingled) with business funds. Many real estate investors view mixing funds belonging to one party with another as a bad business practice. Using a rental property bank account helps to prevent commingling in real estate by keeping business funds separate.
You can make sure your money isn’t mixed up with your landlords by opening up a separate bank account for your rental property. This way, you’ll be able to keep track of all the expenses and revenues associated with your rental property and make sure that none of this money is being used for any other purpose other than its intended use in the rental property itself!
It helps protect personal assets
A rental property bank account may also help protect an investor’s assets. Let’s say a landlord is involved in a lawsuit, and the bank accounts are frozen pending a hearing before a judge. Even if the money in the bank account consists of a mixture of business and personal funds, all funds will likely be considered part of a business account.
In this case, it could be essential to have a separate personal account set up outside of the liability limits of your business account. This would allow you to have the ability to move money around freely without worrying about having it tied up by court orders or other legal issues that might come up. At the same time, your business is being prosecuted against or otherwise investigated by law enforcement authorities.
Simplifies income and expense tracking
Another benefit of having a rental property bank account is that it is much easier to keep track of income and expenses.
This is because you can record all of your monthly expenses in one place, then make sure to deduct them as they occur. You’ll be able to see at a glance how much money you have left over every month, and you’ll be able to update the balance easily whenever there’s a change in your income or expenses.
Save on tax preparation fees
An investor with a rental property bank account may save on tax preparation fees by paying their quarterly estimated taxes with the bank. This will allow them to receive their entire tax refund at once rather than over the course of several months.
Conclusion
If you’re investing in real estate as your primary source of income, you must have an account dedicated exclusively to your rental properties. Not only will this help you keep track of all the transactions related to your rentals, but it can also help you make more informed decisions about what kind of renovations and improvements should be made on each property.
