If you are a landlord and own rental property, you should have a separate bank account for your rental properties. I've been a rental property owner since 2003 and have different bank accounts for my rentals and personal income.
Here are the reasons why.
Reasons To Have A Separate Bank Account For Rental Property
Here are the seven main reasons to have a separate bank account if you own rental property:
1) Avoid Commingling Funds
A separate bank account for rental property helps landlords avoid commingling funds and comply with state laws requiring landlords to keep security deposits separate. A different bank account might also earn the landlord a higher interest rate, which may be over what the law requires to pay to the deposit.
2) Makes booking easier
Landlord banking often involves automation of income, expenses, and taxes associated with owning a rental property. By having a separate bank account for your rentals, you reduce manual labor and save time.
3) Earn extra rewards and higher interest rate
Some landlord bank accounts pay higher interest rates on deposits. Other banks offer more benefits and rewards. For example, CIT Bank clients can earn a top interest rate on their money.
4) Easier to scale your rental property business
As you own more rental properties, having a separate bank account makes managing your rentals easier. You will be able to scale and keep track of your rental property portfolio easier. Can you imagine keeping track of five different rental payments per month, five different insurance policies, and five different properties tax bills through your personal bank account? It would be a mess.
5) Safeguard personal assets
Keeping separate bank accounts better protects your personal assets. A separate bank account for your rentals is one extra level of privacy and protection, in case of cyber theft or litigation.
6) Streamlining accounting and tax preparation
It's more efficient and more accurate to keep track of your rental finances. Tax-ready financials are easier to access at the end of the year.
7) Integrate your rental collection
With a separate bank account for your rentals, rent gets paid directly into your account and your banking platform tracks the payment automatically for you.
Infographic Of Why Landlords Should Have A Separate Bank Account
Invest In Real Estate More Passively
Real estate is my favorite asset class to build wealth. Real estate is less volatile than stocks, generates income, rides the inflation wave, and provides shelter.
Owning rental property can also be a time consuming headache. As you get older and wealthier, you'll likely want to simplify your finances and your life. As a result, I recommend investing more in private real estate through platforms like Fundrise.
Fundrise started in 2012 and manages over $5 billion in assets and has over 500,000 investors. The firm has multiple funds that invest in the Sunbelt, where valuations are lower and yields are higher.
I've personally invested $810,000 in private real estate funds since 2016 to earn more passive income and diversify. Real estate accounts for about $120,000 of my current $380,000 in passive income.
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