Learn to avoid bank service charges.
A serious real estate investor needs a serious bank account. Right? Wrong. When you are in business to make money, you are also in business to avoid paying for things you don’t need. And when it comes to banking, that includes fancy business cheques, important-looking bank statements — and good-for- nothing fees that add nothing to your bottom line!
Get personal. If you’re the sole proprietor of your business, a personal account may be the best way to go. A personal account will generate the records you need and generally have lower fees.
Interest vs. No Interest. Bank options are never as straightforward as you might think. If you want to earn interest on your real estate business bank account, you may need to maintain a balance as high as
$10,000. A no-interest account may need a much lower balance. When interest rates are low, a no- interest account may offer all you really need: free cheques, free stop payments, free travellers’
cheques, free bank drafts. Overdraft protection. This provides some protection when an outgoing cheque clears faster than an in-coming cheque. It can also help improve your credit rating, another bonus.
Be aware of systemic discrimination. Sophisticated investors can share horror stories about being denied preferential rates or even overdraft protection for reasons that really boil down to gender or youth. Yes, it is illegal to discriminate; yes, it still happens; and yes, if you do the work involved with selling your business to a lender, you will likely find someone who wants your business.
Look for a better deal. It pays to stay on top of what different banks are offering. You do want to build a good working relationship with a lender, but it’s always good to know what the competition is offering ... and then ask for it!
KEY INSIGHT
Sophisticated investors know it’s good to have money in the bank. If you can carry a sizable bank balance (say, $25,000), you may be able to negotiate a bank deal whereby all fees are waived. Better yet, you have a great rainy day fund for contingencies (and a lot less stress!).
SOPHISTICATED INVESTOR TIP
If at first you don’t succeed ...
by Connie Campbell
One of the things I learned when I was just starting out was a way to get the most out of my bank account.
My original bookkeeping business was named Connie and Co. Mobile Office Services.
I had a cute business card with a logo that showed angel wings attached to a briefcase that was landing at full speed. I reckoned that briefcase should be flying into your business and not out of it. I soon learned to keep an eye on bank service fees, too, since it looked like money was flying out of my account and into the bank’s pocket!
I was also very independent, as Don can attest. I wanted to re-invent the wheel back then, forging ahead and through. Lucky for me my instincts were great and I always landed on my feet (with my flying briefcase no less).
Instead of getting a joint bank account when we got married in the late 1980s, Don and I maintained separate ones. I firmly believed that I needed to retain my identity and credit rating. That made me a bit of a crusader, but I was fine with that.
At the time we were living on False Creek in Vancouver. I ventured up to Broadway and to the nearest bank. I had received my first loan from that same bank at the tender age of 18 when I purchased my first car with a loan co-signed by my father. I got a credit card at that time and presumed I was well on the way to my own identity.
No service fees
I opened a separate bank account for my flourishing bookkeeping business. As a sole proprietor, I was able to manage with a second personal account, which generally has lower fees. I also chose an account that would pay interest and waive all fees as long as you maintained a $10,000 balance.
If you maintained a $2,000 balance, there was no interest, but fees were still waived.
Looking ahead, I figured the $2,000 balance was a greatway to maintain a rainy day fund. I didn’t get the whopping 1.5% rate of interest I would have got with a minimum $10K balance, but I did not pay any fees and enjoyed numerous benefits including free cheques,
free stop payments, free travellers’ cheques and free bank drafts.
After a couple of years in business, I read an article that said overdraft protection would help build my credit rating. I thought $5,000 overdraft protection was a done deal with this account, so re-visited the bank to get things set up.
Much to my surprise, I was rejected. An appointment with the bank manager revealed my approval was contingent on putting my husband’s name on the application. I refused.
The bank refused. I was devastated. The bank didn’t care.
And then I fought back. By this time, Don and I were building a relationship with another banker. When I shared my tale and said I didn’t want to be lumped in with Don’s credit, this banker said he’d take care of it.
He immediately set up my own bank accountwith $5,000 in overdraft protection. But he also took it one step further. Because the other bank had gone in and “looked” at my credit without extending it, I now had a blemish on my credit report. This banker went so far as to make the opposite entry. He also filed a special note at the credit bureau saying credit had been extended, so the effect of the first inquiry was now offset by his extending the credit to me.
I closed all my accounts with the first bank and have been a loyal customer of the other bank ever since. I did eventually need that first bank’s Merchant Services for a credit card, but this time the relationship was entirely on my terms. Today, we keep a $25,000 balance in return for having all fees waived. By operating as if the $25,000 is a zero balance, we have a healthy contingency for emergencies — and still avoid unnecessary bank fees.
SOPHISTICATED INVESTOR TIP
It pays to stay on top of what the banks are offering. With a little digging, you can find the account that matches your needs and you may be surprised at how little effort is required to get your fees down to nothing.