Managing your finances as a landlord or property manager involves setting up the right type of bank accounts and understanding how money flows from one account to another as you collect rent, pay expenses, and calculate profit. While property managers are required to have a business checking account and trust account for managing rent payments, landlords will benefit from understanding what type of bank to work with and when to open multiple bank accounts and business checking accounts.
As your business grows and you find success as a landlord or property manager, banking becomes more complex than it would be for the average individual. Managing the finances for multiple properties or clients has some differences from managing the finances on a home you own and live in, or even from owning a single rental home.
As a landlord or property manager, good banking and accounting are essential to ensure that rent is paid on time, maintenance is done when necessary, and you earn and spend the money you expect from every business interaction. Fortunately, careful accounting and knowledge of the right banking systems can make this process easily manageable. This article will cover the basics of bank accounts for landlords and property managers, and discuss whether you need multiple bank accounts depending on your situation.
Do I Need a Separate Bank Account for Each Property as a Landlord?
No, you do not need to have separate bank accounts for each property as a landlord. One business checking account should be plenty to fulfill your needs. Some landlords advise that you keep a separate bank account for every property you own, but that can make banking significantly more difficult and complex than it needs to be, depending on how the portfolio is set up. So long as you keep good records and follow good accounting practices, you have no need to keep multiple separate bank accounts.
While it is not a necessity, there are some reasons why many landlords might choose this route. You should have a dedicated bank account for your rental properties as a whole, but you do not need a separate bank account for each rental. Some landlords prefer to have multiple bank accounts for each property because it makes tracking expenses easier, especially if your properties are owned by different LLCs, or you want funds from different kinds of properties to be separate (one account for a multi-family property and a second for single-family homes, for example).
However, having so many accounts isn’t always a necessity and can become complicated, especially when tax season comes around. Property managers often maintain multiple accounts for each owner they work with, but landlords do not need to do this for each individual property. Both can be great ways to manage your banking, but it is important to choose the option that works best for your circumstances.
Learn more: How to Open a Business Checking Account for Landlords
Do I Need a Separate Bank Account for Each LLC as a Landlord?
Yes, you should have separate accounts for each LLC you own. If you are the sole owner of an LLC that owns a rental property, you can set the LLC up with its own bank account. Many accountants recommend that you keep your accounts separate; this protects each LLC’s liability shield and ensures that assets between each LLC are clearly separated. Each individual LLC can and should have its own single bank account, because one LLC’s funds can be held together and managed with thorough accounting.
Learn more: Do I Need an LLC to be a Landlord?
Do I Need a Separate Bank Account for Each Client as a Property Manager?
Property managers do not need a separate bank account for each client. Property managers are required to follow their state’s trust accounting guidelines and set up a designated trust account for managing their clients’ rental income. Property managers have a fiduciary responsibility to actively manage their clients’ money without commingling the funds with their own personal or business funds, which is a practice known as trust accounting. Some property managers have a second account to handle client funds separate from tenant security deposits.
It is important to be extremely cautious when managing your bank accounts as a property manager to prevent commingling of funds. Commingling of funds is illegal and can land you in significant trouble, so you should learn about your state’s trust account requirements and commingling of funds laws. The following acts may be considered commingling in your state:
- Depositing personal or company funds in the trust account
- Depositing trust account funds in a personal or business account
- Commission or management fees being left in the account for longer than legally permitted
- Depositing rent or security deposit on properties owned by the property manager into a trust account
- Conducting personal business using the funds in a trust account
- Using one client’s money for a different client’s property
- Using tenant security deposits to cover operating expenses
These and more can all cause serious legal problems and can result in the loss of a real estate license, so it is important to avoid these actions and learn about any others your jurisdiction may consider commingling. The rules and regulations vary significantly depending on your location, so don’t consider this a comprehensive list of the rules to follow.
Learn more: Rental Property Management Trust Accounting Primer
Final Thoughts
Banking as a landlord or property manager is simpler than you might think, as long as you know how to manage your bank accounts. With smart accounting work, you can easily manage your business with little trouble.