You could lose your assets if your business has difficulties and you need separate accounts while doing property deals. The same applies if your business needs help repaying loans or other debts. Renting out a property is a business, and having a rental property bank account is an essential part of investing in commercial real estate. A rental property bank account can help to save time and money, keep personal and business assets separate, and create the professional appearance that real estate investors seek. Managing multiple rental properties’ finances simultaneously becomes more difficult as your real estate portfolio grows.
You may want to spend most of your time and energy on day-to-day operations and property maintenance, but investing in the right banking decisions now will save you many accounting headaches. Not to mention, in some cases, it keeps you legally compliant. One of the more critical decisions you must make is how many business banks account you will open and maintain through which you will channel rental income and expenses.
You should have at least one business bank account, if not more, for each real estate property you own or manage. Let’s move on to the longer answer, explaining why having separate business accounts is so important.
Let us discuss some significant benefits of having separate business bank accounts for every real estate property;
Comply with legal requirements for ownership or management of multiple properties
If you own multiple business entities in your real estate portfolio, you may be required by law to keep at least some of the funds associated with each entity separate.
Simply put, let us suppose:
- You own or manage multiple properties.
- Each property is its legal entity.
- Some states require you to keep money earned or held from each property separate from one another and undoubtedly separate from all personal accounts.
You should check with an accountant to confirm local regulations for your properties; you may be required to separate funds such as deposits and rent payments for each entity. That’s why having separate bank accounts will give you more ease in compiling business.
Enhance cash-flow management and book-keeping
Keeping your books balanced in separate bank accounts for different properties is much easier if you don’t mix rent checks from different buildings or pay your contractor for work on one property with funds earned from another. If banking information for each property is separated, whoever does your bookkeeping will be better prepared for success in commercial real estate.
These back-office tasks will be even easier to manage if you choose a business bank with a dashboard that displays all your different accounts and a breakdown of deposits, expenses, and payments for each account.
This detailed view of each property’s income and expenses allows you to quickly:
- Forecast future cash flow based on previous financial activity and trends.
- Set aside funds for future expenses.
- Determine potential tax breaks or savings.
Defend the company against tax losses and individuals against audit risk
When tax season arrives, no one is happy. However, if you keep detailed financial records for each property, you will be far better prepared for tax filing or an audit. It is easier to reconcile income and expenses for taxes at the end of the year if funds for each property are kept separate. You can also reduce the amount of tax owed by referring to a clear-cut list of all deductible expenses for the building in question.
If you own or operate more than one type of property as a real estate developer, your tax obligations may differ for each entity. Again, keeping separate financial records makes it easier to meet various tax obligations accurately. It is strongly advised that only funds from the audited entities be reviewed if you are facing an audit.
It is critical in this scenario that all personal income and expenses are routed through bank accounts unrelated to the entity so that no individual is held personally liable for any business-related penalties.
Prepare for your next mortgage and expansion success
When you’re ready to diversify your real estate holdings and purchase a new property, obtaining loans or mortgages will necessitate a thorough examination of your financial performance. Your current portfolio serves as a resume for the bank or lending institution, indicating how safe a bet you are. Remember that separating financial records for each of your current properties will make your application more professional.
Select a banking platform that supports multiple business accounts
Now that you understand how separate accounts for each property can help protect your business from risk, it’s time to pick the right business bank.
While everyone’s needs are different, turning to an online bank specializing in business accounts and making it simple to open and access as many accounts as you need is often a good fit for property managers and owners.
So, you need to look for a bank that provides the following services to real estate businesses:
- No account opening fees.
- No monthly fees for maintaining each of your multiple accounts.
- No minimum balance requirements.
- No fees for sending or receiving transfers or checks
- you can make mobile check deposits.
- Multiple no-fee checking accounts are available for each business entity, allowing you to classify different expenses.
A single login allows you to manage multiple accounts for multiple entities. Better transaction data and automated accounts payable integrations lead to more efficient bookkeeping. With services like these, you can rest assured that your banking requirements for each property are met and get back to running and growing your real estate company.
When each rental property has its checking and savings account, it’s much easier to track income and commercial rent expenses. A business account can be linked to a debit or credit card, which can be used for purchasing supplies and paying recurring monthly bills. Real-time tracking of income and expenses flowing through a rental property bank account assists investors in understanding their current profit or loss and simplifies tax preparation.