What Your Bank Doesn't Want You to Know About Short-Term Rental Financing

As real estate investors, we have a lot of things going on, especially if we're renovating properties, especially if we have short term rentals. There's a lot of transactions coming in and there can be a lot going out. This week I want to talk about smart banking solutions for your short term rentals. And I don't think this episode could be any more timely given that we just had some major banks fail. So stay tuned as we jump into all the things that I've learned after working with lots and lots of different banks. Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick actionable items to acquire, manage and scale your portfolio. I'm your host, Tim Hubbard.

Welcome back to the Short Term Rental Riches podcast. Today we're going to jump into some banking features that you definitely want to be using or that are going to make your life easier. We're going to talk a little bit about what exactly makes a bank safe, but banking options. If you're working with a team, some of my personal struggles. And then we're gonna leave you with two of my personal bank recommendations, one that I'm currently using. But before we do that, I just want to get your opinion. I know we just had a few interviews on the podcast and that's kind of new. For the Short Term Rental Riches podcast, here we are in episode 181 and we haven't done a lot of interviews, but but I want to bring you the best content possible. So if you enjoyed the interviews and you want to see more of those, head over to Strict scroll down. You can see there's an option there to get in touch with us or request a topic if there's something that you want to hear about. And I'd be happy to bring on a lot more interviews. If you missed the one with Dave Zook and Leon, I think that's a great one. By the way, it's on park model homes. It could be the easiest short term rental solution that I've uncovered in, gosh, eight years since I started investing in short term rentals. So if you missed that one, go back and check it out. We also met with my friend Danny, who wrote the book Optimize youe bnb, another great one. And then another friend of mine, John Farber, who's a master in the space. So go back and check that out. We do have a couple more interviews scheduled, but I want to find out if you like those type of episodes better or if you prefer, just These quick, actionable episodes let me know. And without further ado, let's get into this week's topic. As a short term rental owner. As a short term rental investor, there's a lot of things going on with our properties. And you know that if you have your first short term rental already, there's a lot of transactions coming in and there's a lot of payments that we need to make. And so this has been a struggle for me in the past. Paying contractors, for example. Some contractors make it really easy for us. They, they let us pay with a credit card or they let us Pay through their QuickBooks setup online. They make it real easy. But other contractors, maybe your local handyman, maybe they don't have those things set up yet. And so it's not quite as easy to pay them. And they ask you to pay via cash app, or they ask you to pay via Venmo or hopefully not in cash or with a check because that makes your bookkeeping just a little bit more difficult. But we still have an occasional contractor that asks us for one of those. So we have to have good ways, good methods to be able to pay all the people that we're working with with. Now, of course, this gets more difficult the more properties you have, the bigger your portfolio gets. But if you're doing a renovation, for example, from top to bottom, there's a lot of expenses going on there. You might be working with a lot of contractors and getting set up with a good bank that has a lot of good banking and payment options from the beginning can make your life a lot easier. So before we get into a few of the features that I think are a must and that are just going to make your life much more easier, let's talk about bank safety in general and this real timely, I guess, because we just had a couple banks fail, didn't we? Some big banks. And this isn't the first time in our history, at least here in the US that we've had large banks fail. So I'm not an expert on this. If you want to get the real nitty gritty, check out my friend George Gammon, the rebel capitalist. His podcast is incredible and he really gets detailed on these things. But just in a nutshell, if we look at a normal bank, they have what they call fractional reserve banking, which means that if they accept $100 in the bank, they don't need to keep all that $100 in the bank. In fact, they loan out a lot of it, most of it. And that's what allows them to make money. Aside from all of the fees that they charge, some banks charge more fees than other. The two options that I'm gonna give you at the end of this episode charge very little fees. So stay tuned for that. But let's think about that. If a bank is receiving $100 and they're loaning out, you know, almost $100, and everyone comes up to the bank and they want their money out, well, that bank's gonna be in a world of hurt. Right now, most banks in the US have what they call FDIC insurance, which is going to insure you by the government, up to $250,000. But what if you have a bank that has the majority of its clients with balances of $2 million or $5 million, and they all show up to the bank on the same day to pull out their money? And, well, that bank's going to be in trouble, and the government is not going to back up all of that bank's clients. So that's what's happened with some of these bank failures more recently. What makes our banking a little more safe is if the majority of the depositors, clients like you and I, have balances of $250,000 or less, because those are all going to be protected by the government. So if we look at a big bank like Wells Fargo, for example, 70% or more of their depositor have less than $250,000 in the bank. So that makes that option a little more safer. Although I'm not here to recommend working with the big banks, I have worked with them in the past. I have a Wells Fargo account, but it's definitely not one of the ones that I use the most because of some of the features that they're lacking and because of the payments and the charges that they have for a lot of their features. So another thing to keep an eye out for is if you're putting your money with one of these banks that's offering a really high interest rate or really high interest rate for your savings versus traditional banks, which is basically zero, Right. If you're looking at one of these banks that offers a 4% interest rate or even a 2 or something like that, we got to think about how are they paying that interest out and still holding a balance that's going to allow them to pay all their customers the money that they want if everyone wants it at the same time. Right. So those banks, in my opinion, are definitely going to be a lot riskier. And we're what I would do with your leftover Savings, especially right now, is just put it in some treasury bills. The rates on US treasury bills are higher than they've been in a long, long time. And actually one of the bank options I'm going to refer today has a really easy way to do that. This is the same bank that I'm using. So stay tuned. We'll get to that in just a second. So a few more struggles that I've had in the past that you might run across are in regards to things like payments and how long they take. Now, we don't always the option of choosing whatever bank we want. Sometimes when we're buying a property, especially if we're using a local lender and it happens to be a commercial property, maybe five units or higher, sometimes they require that you keep a bank account with them that has a certain deposit in it as a customer of theirs in order to get a loan from them. So sometimes that's a requirement. But if it's not, we should be using one of the banks that treats us the best, that we have easiest access to make payments, wire payments, all of these things. So I'm going to get into those specific features. But specifically in regards to short term rentals, we need to pay a lot of contractors usually. So this could be our housekeepers and our maintenance crew, you know, an H vac technician, whoever it happens to be. And again, if they don't have their own payment system set up, then we need to find another way to do that. And a really easy way, if you have the right bank account, is through an ACH payment where you just program their routing number and bank account into your bank and it allows you to pay them. Sometimes it's deposited in the same day, sometimes it takes two, three days. That depends on the bank. But then we also have to remember that sometimes banks have holidays that we don't really consider holidays. Right. And if they're closed, then that delays these ACH payments. So we need to know or have a good idea of when our actual payments are going to be deposited. Now, this isn't crucial for everyone, but a lot of times if you're working with housekeepers, for example, and you happen to have hired them directly, they might be living more paycheck to paycheck. And if their money doesn't show up on a Friday or whenever it was supposed to, that could create a lot of hardship for them. So it's something that we need to be weary of. The other thing is that as you grow, you want to be able to grant access to your banking Options and we need a team to be able to help us with all these transactions and making sure things are getting accounted for properly. And some banks don't offer very good sharing or team ability. So I'm going to get to that in just a sec. So before we get into that, let me just read off some features that I think are really important and that have really helped my banking processes with all the short term rentals that have built my portfolio. First one we just talked about there is ACH payments. But the faster the ACH payments the better and even better if your bank offers free ACH payments. So a lot of banks offer this feature but they charge for it, some charge a percentage and so that can really add up. So we want to look for fast ACH payments and ideally free. We want to look for a bank that offers free wire transfers because sometimes we need to send a larger payment. I still work with a whole bunch of banks. As I mentioned, some of the local banks require that you have an account with them. I tried to make a wire transfer last week and I swear it took like three days. I filled out the form they wanted, I signed it, I sent it over to them via email and they said, oh, sorry, we need this in wet signature. Okay. So I printed it out, I signed it, I sent it back to them and then they have a phone verification. I'm down here in Brazil, so I am guilty of missing phone calls from time to time. But I missed the phone call and then I missed the end of the day cutoff. So by the time I got the wet signature back, by the time I answered their phone call verification, it was like, you know, three days later. Now I'm not saying that sending a wire transfer should be super easy because we want to make sure that our, our money is safe. But I also don't think it should be super, super complicated or overly complicated. Right. So having access to wire transfers is nice. And again, free wire transfers are even better. Most banks still charge wire fee for outgoing and incoming. And so the options I have for you don't have wire payment fees depending on the size of the transfer. So that's another good one. Team sharing access. We're going to get to that easy transaction identification. So what do I mean by this? Sometimes we get a transaction that pops up into our bank account and we're trying to remember what that charge was for, but it's just a bunch of numbers and letters and it doesn't really describe where we made the transaction. So some banks are better at this than Others by providing more detail. So that's another feature that we want to look out for. New account creation. So sometimes it's easy for us to keep our properties, each individual property with its own account. But to open a new account, we don't want to have to go into a bank branch office or jump through a whole bunch of hoops. And so the easier we can open up a new bank account, the better. It's nice to have a bank that allows us to have multiple accounts under one login. So as we grow our portfolios, maybe we're holding properties under different LLCs. We want to be able to access all of our banking information really as easy as possible. So if we're working with a bank that we can use one login and see all of that information still separated out, that's going to be a lot easier for us. Automatic transfers. So this could be an ACH payment, but one that you set up automatically. Maybe you have a manager or someone that you're working with and you send them the same amount of money each month, a marketing person, whoever it happens to be. If you're sending them the same amount of money each month, it's nice if there's an automatic feature set up in there to where you just program it in and it automatically pays that bill or that person each month. Another nice feature that you'll see with some banks, but not all, is a contractor information request. So inviting someone to provide their banking details for you so that you can pay them via ach. So this isn't a feature that we see with a lot of the older banks, but some of these newer ones popping up, it's a little more common and it does save us quite a bit of time. The alternative to that is having the option to just ask the contractor or whoever it is for their banking information. Make sure you get it plugged in right, and then you can do that from your end too. So having the option to add a contractor or add banking account information for someone either from their end or your end makes things a lot easier too. So let's get to teams now. As we grow our portfolios, there's no way that we can manage everything ourselves. It's just there's too many moving pieces and we can't do it. And banking is one of those things. So if we have the ability to easily share access to our accounts, secure access, then that is a thumbs up for that bank. And so we want to have options for limits. Of course, a lot of times if you're working with A bookkeeper, then you'll just share view only access. But sometimes we have someone helping us make payments. But maybe we don't want them to be able to to transfer $10,000. Maybe we want to cap that at $500. While having the option to share access to your bank accounts and limit the amount of a transfer is a really good feature that's going to help you a lot with your short term rental business. Sometimes we want our team members to have their own credit card or their own debit card. So having a bank that'll easily issue those for one of your employees or for one of the contractors you're working with, again with the ability to set limits, well, that's really helpful too. And it can also help if you have a separate card, a bank card for example, for each property, and you always use that card for those transactions. Having the ability to separate those out can make things a lot easier. When it comes to reconciling your banks, sharing information, the more options we have, really the better. So these are some of the basic features that have really helped me. I'm sure that I missed a few. I'm going to get to the exact bank account that I'm using and an alternative option here in a second. But before I do that, our bookkeeping and our banking doesn't really stop with these features in a bank account, right? Maybe with you it stops with an Excel sheet, or maybe you're using a program like QuickBooks Online and you want the ability to integrate your bank transactions with your accounting software. And so that's another feature to keep an eye out for. Make sure that whatever bank you're using, if you're planning on growing your portfolio and your expenses are getting a little complicated, make sure that that bank is going to be able to link with the accounting software that you're using so that when you transaction with the bank, it automatically shows up in your accounting system and you never miss any transactions unless you are paying someone or taking payments in cash, which I highly do not suggest because it just becomes a lot to track. And of course, if you're living remote, far away from your property, then that's not even a possibility to pay someone with cash. So those are some of the features, definitely not all of them, but those are very common features in the two banks that I spent quite a bit of time researching. Again, I've worked with a lot of different banks. I still have a lot of different banks that I work with, but the two that I really spent a lot of time researching before I made my decision was Relay bank. That's the first one. And you can find them online. I believe it's just relay.com I'm not sponsored by them in any way. But they have all these features that I just mentioned. They have a paid version for their banking, but it's very minimal and allows for really fast ACH payments. And they also allow you to have a lot of accounts under your, your one login, I think up to 20. So check out relay. It's actually relayfi.com we'll leave some links in the show notes so you can get quick access to them. But they have all of these features. Really good option for someone in the short term rental space or as a real estate investor looking to easier looking to manage their transactions just a little bit easier. The bank that I actually went is called Mercury bank and they have again they have the FDIC insurance up to $250,000. But they also have some other features that I found really interesting. One of them is what they call their, their vault and it's actually insured up to $5 million. So if you have a lot of extra savings and you want to make sure it's secure, you want to keep it liquid, you can move it to their vault by just opening one account. It's not like a separate account that you have to open. You can keep it in there and keep it safe. The other thing that they have that's really helpful for anyone out there that has a lot of liquid savings and wants to earn a safe return is that they have a direct link with the treasury or a way to invest in treasury bills at those rates, whatever they happen to be. So around 4% at the moment. And you can do that without opening another brokerage account. I also have an account with the Charles Schwab actually and they're a really good account for anyone that likes to travel a lot because they have a checking account comes with a debit card and they reimburse you for ATM fees worldwide. So no matter where you are in the world, they will reimburse your ATM fees. But you can also buy T bills directly through Charles Schwab. So that's one option. But if you happen to have a Mercury account, it's. It's another way to store some of that savings and earn a high interest rate and also be a little safer. So Mercury and Relay, they both have pretty much all the features that we talked about today and they make things much easier for sharing access with your team, for tracking transactions, for setting up recurring payments for paying your housekeepers for wire transfers. Mercury bank also has free wire transfers and free international wire transfers if it's in the US dollar. So a lot of good features. They also link in with QuickBooks and with Stripe, which a lot of us in the short term rental space are using Stripe for our payment processor for sites like booking.com and vrbo. So check these out if you're not super happy with your bank right now. I think they'll be really good options. It's also really fast to open an account with them. So I'm down here in Brazil, I open the account up, no trouble, so check them out. I hope that gives you a little more insight into banking and kind of how it can get more complicated the bigger we get. And this is one of those things that's kind of nice to get set up right from the start, right. So that as we grow it doesn't become a hurdle point. So I hope that helped you. And if you're finding the podcast helpful, please head over to itunes or Spotify and leave us a review. I gotta say, I love reading those reviews. It's just like reading a glowing short term rental review, but almost better, I feel like, because it's a little more personal. So I hope you've been finding some value in the podcast. If you have a specific episode that you would like to request, head over to Strict. You can request one there. You can also see all of our past episodes. If you have a favorite episode, you can take a quick screenshot of it, maybe send it to one of your friends or family members if you think it'll help them. And it's also going to help us and we'd really appreciate it. So until next time, I hope you're having a fabulous week and I'll talk to you soon. I've dedicated years figuring out how to manage my personal portfolio remotely and it wasn't always easy and it took a long time. But now my amazing team can professionally manage my properties without me. And good news, our team can also manage yours. Let us save you the stress and and headaches and some money by offering you an industry low fee. 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