Previously we dissected the benefits of having a great CPA on your team. Now, let’s take a look at another fundamental aspect of your financial management: setting up the right banking structure. After more than four decades in property management, I can assure you that having a solid banking strategy is a crucial building block in your overall success along your real estate investment journey.
The Dual Bank Account Approach
You're embarking on your real estate investment venture, and it's time to establish your financial foundation. The first item in your toolbox? A dual bank account strategy.
1. Operations Bank Account
Your operations bank account is the hub of your property management activities. This account is your financial control center, where your collected rents and capital for property improvements reside. This is where you manage the financial ebb and flow of your properties.
Your operations account will be what you use to pay trusted vendors–be it the yard maintenance crew, the skilled plumbers, or the AC guru you'd better have on speed dial here in Florida. The most important beneficiary of this account is none other than you. Yes, paying yourself is an essential part of the game. As you transition into the role of a landlord, always remember that you're running a business—one that deserves compensation for your expertise and hard work.
2. Security Deposits Account
The second bank account you'll need—a dedicated trust account for security deposits. This account should be non-interest bearing. While that might seem counterintuitive in a world where maximizing returns is often the name of the game, we do this for good reason.
When it comes to security deposits, Florida state law dictates that you must pay interest back to your tenants. To save yourself from the hassle of extra paperwork, opt for a non-interest-bearing account. It's a streamlined approach that ensures you're not caught up in complex calculations and extra legwork just to satisfy these legal requirements.
Per state law, this account must also be disclosed to the tenant. You must let them know where their security deposit is being held. The bank must be in the same state. Make sure your tenants have the name and physical address of the bank where their security deposits are held. We do this by incorporating these details into the lease agreement, in accordance with state regulations.
Simplify Your Finances, Maximize Your Returns
In a nutshell, a two-account banking structure is the cornerstone of effective financial management of your properties. Keep your finances clear and organized so you can focus on the things that truly matter—like growing your investment portfolio and providing excellent service to your tenants.
Remember, your operations account can reap interest benefits, while your security deposits account should remain non-interest bearing to save you time and effort. Embrace these practical strategies, and you'll find yourself well-equipped to navigate the complexities of real estate investments.
If you have any questions or need further guidance, I am here to assist you. Reach out anytime.
Thank you for reading. I’m Kym Ottaviani, here to take the pain out of your daily investment along with the stress and put more profit in your pocket.