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  • Updated: 16 Aug 2024
  • 5 Min Read

Why Every Landlord Needs a Separate Bank Account for Rental Property

Separate bank account for rental property

Creating a separate bank account for rental property transactions can simplify your finances. Although not mandatory in all states, maintaining distinct bank accounts for property rentals offers many advantages.

This article will explain the benefits of separate rental property bank accounts and guide you in setting up one for yourself. Let’s get started.

Key Takeaways

  • A separate bank account for rental property eases financial organization by separating your business and personal finances.
  • Different bank accounts demonstrate professionalism and enhance credibility with investors, lenders, and tenants.
  • The number of separate accounts depends on factors like legal structure, number of properties, and state requirements.
  • Baselane Banking offers tailored landlord services, including income and expense tracking income, and preparing financial reports, with added benefits and no minimum balance requirements.

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Benefits of Having a Separate Bank Account for Your Rental Property

Keeping your personal and business finances separate can help you stay more organized while making it easier to run your business.

Having a rental property business checking account is no different. In your case, the rental property bank account represents the business aspect of your finances, so you always have a clear idea of the business vs. personal assets you have available.

Additionally, having a separate bank account has many other benefits, as highlighted below.

Stop Commingling Funds

The first and most obvious benefit of having a separate bank account for rental property funds management is that you don’t commingle funds. In other words, your personal and rental business finances always stay the same.

A separate business checking account is beneficial because it makes it easier to perform monthly bookkeeping, calculate taxes, pay bills, and analyze your income and personal expenses.

In worst-case scenarios, commingling can be illegal. This depends on your state and local government, but mixing business and personal funds can result in a fine. When dealing with tenant rental security deposits, most states require landlords to have a separate bank account that is not an active account to hold funds.

To avoid this, you should open business accounts for every commercial venture you initiate, including your property rental. Separate bank accounts show that your rental business is a separate legal entity from your personal finances.

Superior Credibility

Whether you’re interested in attracting real estate investors, partners, lenders, or new tenants, having a separate bank account for your property rental gives you more credibility.

Having separate bank accounts shows that you abide by the rules and are serious about your business.

Not only this, but knowing that the security deposit, business funds, and all other assets that stem from the rental of your property are safely kept away from any non-business debt collectors. This allows you to gain the trust of your real estate partners and colleagues and build a brand name for yourself.

Potential Rewards and Extra Features

It’s common for bank accounts designed for landlords to include additional features and rewards geared toward these entrepreneurs.

This includes discounts and cashback at home improvement stores and similar perks. Moreover, it’s also possible to open rental property bank accounts with an annual percentage rate (APY) higher than average, which helps you generate extra revenue from your property profits.

Taxes

Efficient tax management is a key benefit of having a separate bank account for your rental property. It also streamlines preparing financial statements for tax purposes, eliminating the hassle of sifting through personal transactions to find business-related ones.

You can access numerous tax deductions to lower your taxable income as a landlord. These deductions include:

  • Repair and maintenance costs
  • Property management fees
  • Mortgage interest
  • Property taxes
  • Insurance
  • Depreciation

Keeping a separate bank account for your rental property helps you keep track of these expenses clearly, making it easier for you when it’s tax time.

Scalability and Financing

You should use a separate bank account for rental property for many practical reasons. However, none may be as beneficial as improving the scalability of your rental business.

Once you start looking into adding more properties to your portfolio, organized accounting can also increase your chances of getting financing.

Protection of Business and Personal Assets

If you’re involved in a legal dispute with your tenant or any other individual (i.e., lawsuit), having a separate company (e.g., LLC) and business bank accounts for your real estate business finances can help you protect your assets.

Let’s say your tenant files a lawsuit because of unfulfilled duties. In this case, the bank account where you have your business funds may be frozen. There are no special protections for commingled bank accounts, so if your business and personal accounts are the same, you may lose access to them.

Simpler Rental Property Accounting

Keeping updated records and making tax payments on time is necessary for rental property owners.

The good news is that a separate bank account for rental property can significantly simplify your tax preparation process.

Instead of having to differentiate between certain expenses and payments, all the transactions in the separate business bank account belong to the property, so you can easily generate reports and track cash flow.

Employee Payroll and Vendor Payments

A business checking account is necessary if your business entity has employees, as it allows for easy and efficient payroll processing.

A separate business account makes it easier to pay vendors and contractors who work with the rental property business, improving business relationships and ensuring timely payments.

Use the Account for More than the Security Deposit

It’s common for landlords to open a separate account to store a security deposit ( known as an escrow account). But there’s no reason to limit yourself to this type of account.

You can have a rental property bank account for managing mortgage and bill payments, online rent collection, security deposit storage, maintenance reserves, and more. Use your business bank account as much as possible, as this may help increase your rewards.

How Many Separate Bank Accounts for Rental Property Should You Have?

Keeping your personal and business finances separate can help you stay more organized while making it easier to run your business.

Having a rental property business checking account is no different. In your case, the rental property bank account represents the business aspect of your finances, so you always have a clear idea of the business vs. personal assets you have available.

Additionally, having a separate bank account has many other benefits, as highlighted below.

Do I Need a Business Bank Account for Rental Property?How to Open a Baselane Banking Account?

Opening a Baselane banking account for landlords is extremely easy — the process can be as fast as two minutes.

Baselane Bank application

Step 1

First, you have to open a free Baselane landlord account.

Step 2

Once logged in, access the Baselane Banking tab on the left-hand panel.

Step 3

On the Baselane Banking page, click “Add Banking Account,” then click on the blue button that says “Open Baselane Banking Account.”

Baselane Add Account

Step 4

Now, you can open your account as an individual (sole proprietor) or as a business (LLC, corporation, or partnership).

Baselane Bank App - Account type

Step 5

Finally, you’ll be asked to provide personal information or business details.

Baselane banking application form

Step 6

Complete the process by clicking “Submit Application,” you’ll receive a notification once your request has been reviewed.

Keep your money organized

Open unlimited accounts for properties and security deposits with no monthly fees.

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Final Thoughts

Opening a separate business checking account for your property rental and putting all your relevant expenses in it is a great way to look professional, simplify your accounting, and open more opportunities.

If you want an easier way to manage money from your rental property, consider signing up with Baselane Landlord Banking. It’s a practical way to stay organized and on top of your rental business.

Sign up for free today!

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Baselane is a financial technology company and is not a bank. Banking services provided by Thread Bank, Member FDIC. FDIC insurance is available for funds on deposit through Thread Bank, Member FDIC. The Baselane Visa Debit Card is issued by Thread Bank, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa is accepted.

1Your deposits qualify for up to $3,000,000 in FDIC insurance coverage when placed at program banks in the Thread Bank deposit sweep program. Your deposits at each program bank become eligible for FDIC insurance up to $250,000 , inclusive of any other deposits you may already hold at the bank in the same ownership capacity. You can access the terms and conditions of the sweep program at https://go.thread.bank/sweepdisclosure and a list of program banks at https://go.thread.bank/programbanks. Please contact customerservice@thread.bank with questions on the sweep program.

2The Annual Percentage Yield (APY) on your Savings Account is accurate as of 04/05/23. Total balances across Checking Accounts and Savings Accounts are used to calculate APY tier, but only money in Savings Accounts is eligible for interest. Total balances less than $10,000 earn 1.95% APY for Savings Accounts. Total balances between $10,000 and $24,999 earn 2.93% APY for Savings Accounts. Total Balances between $25,000 and $49,999 earn 3.40% APY for Savings Accounts. Total balances of $50,000 or more earn 4.19% APY for Savings Accounts. These are variable rates and are subject to change based on the target range of the Federal Funds rate. There are no minimum balances or minimum deposits required to earn interest on your Savings Account. Review the Baselane Business Deposit Account Agreement for more information.

3Cash back is credited once per month for all rewards above 1% and credited to your account with a maximum of $2,000 annual spend per calendar year. 1% cash back is credited instantly following purchase with no maximum spend. No minimum spend applies. Terms and conditions apply.

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