Say what you want about the “sharing economy.” At the end of the day, your rental property activities constitute a business venture. Whether you rent out your home for a few weeks here and there or operate a growing portfolio of long-term rentals or Airbnbs, your tenants and guests are paying you actual money for the privilege of cooking in your kitchen and sleeping under your roof. So do yourself a favor, and get separate bank accounts for each rental property you own. Here’s why…
Easy to Track Income & Expenses
Peace of mind and simplicity are by far the best reasons to establish separate bank accounts for rental properties. There’s typically no extra cost, beyond your time, to set up multiple accounts with a single bank or credit union. This will make tracking your income and expenses by property far easier, which in turn allows you to better understand how much money you’re making.
If you decide to use an online accounting program like Quickbooks or Freshbooks to keep track of your long-term rentals or Airbnbs, you may want to connect your bank account directly to import data while you sleep, lie on the beach, or read a good book. If you have a single bank account for all your rentals, all the data will come in jumbled up and you’ll have to sort it out line by line. With separate accounts, you can usually connect data from each bank account directly to the correct rental property. This will help you stay organized with minimal effort.
Interest Will Add Up Over Time
Online banks are slashing costs and becoming very efficient at delivering basic checking and savings account services. What that means for you is that these newer banks are now willing to pay substantial interest to secure your deposit business. Whereas traditional bank accounts pay something like 0.1% interest, online banks like Ally, Marcus, and Barclays pay up to 20 times more.
If you can have your tenants or Airbnb, VRBO, and other booking platforms make deposits directly into a high-interest savings account, you’ll start earning interest immediately.
You’ll Seem More Professional
We’ve written about the importance of setting up an LLC for rental properties in the past. Once you’ve done this, you can get an EIN for the LLC from the IRS, which will often be necessary to open a business bank account in the name of the LLC.
You’ll then start establishing a credit history for the business and can even get a dedicated credit card for expenses with the LLC’s name on it. You may still need to personally guarantee the credit line if your LLC is relatively new. Either way, this practice will help establish your LLC as a legitimate business entity, which will make it much more difficult for a potential creditor, tenant, guest, or other aggrieved party to “pierce the veil” and come after your personal assets in a lawsuit.
Courts have found that simply having the LLC isn’t sufficient. If your tenants or short-term rental guests pay you personally over an extended period of time, you’re unlikely to enjoy the protection of the LLC structure in court. You have to operate like an actual business day-to-day, which generally means funds must flow through the entity before being withdrawn to a personal account.
Get a Dedicated Credit Card Too
Once you have a business bank account for each property, consider getting a dedicated credit card for each address as well. You can then link them directly and auto-pay the credit card each month. This is a great way to avoid late payment fees and reduce the hassles associated with operating your rental property business. Finally, If you’re also careful to always put rental property expenses on the dedicated credit card, it’ll make tax time so much easier.
Make the Investment Now
While it takes some extra effort up front, once you have separate bank accounts for each rental property or Airbnb investment, you’ll find that your mind is freed up for more lucrative pursuits. You won’t have to juggle expenses between accounts and reconcile your personal and business spend across different properties each month. Instead, you’ll be able to put most of it on auto-pilot from day one and then run a few simple reports when tax time rolls around.