Commingling Real Estate Guidelines for Investors

This article explains commingling in real estate, covering what it is, why it matters, and how to avoid it. We explore the legal aspects, challenges, and prevention strategies for different real estate professionals, including landlords, property managers, and investors. The guide also touches on how technology can help reduce the risk of commingling so that you can maintain financial integrity and compliance in your real estate investments.

Nichole Stohler
Last Updated
July 8, 2024
Commingling Real Estate Guidelines for Investors

At a value of $637.80 trillion, the global real estate market dwarfs most national economies. It's a diverse ecosystem where small landlords and corporate giants vie for their property pie. With all this money floating around, you can bet there are rules to follow. Commingled funds stand out as one area for real estate professionals to address.

What are the guidelines for rental property owners, real estate partners, and property managers regarding commingled funds? How do you implement best practices to protect your business?

This article covers commingling, why it matters in real estate, and how to avoid it. Understanding commingling helps landlords manage a single property, fund managers oversee multiple investments, and everyone in between maintain financial integrity and legal compliance in their real estate operations.

What does commingling mean in real estate?

Commingling in real estate means mixing funds that should be separate. Say you're a landlord and toss all your rental income into your personal checking account, or maybe you're raising money for real estate transactions but not bothering to keep your investors' cash separate from your personal funds.

These are messy situations that can cause issues. If you're not keeping rental income or security deposits in separate accounts, how are you going to keep track of what's what? It's not just about being organized; it's also tough to figure out how your real estate business is actually doing.

Come tax season, you'll be in for a challenge just trying to sort out what was business and what was personal. It's also an ethical issue — if you're handling other people's money in real estate, you have a fiduciary responsibility to keep it separate and accounted for.

Is it legal to commingle funds?

The legality of commingling funds in real estate isn't black and white. It depends on the situation and the perpetrator. Most states have laws that require real estate professionals to keep client money separate from their own. This applies to things like security deposits, rent payments, and investment funds.

While the specific rules can vary by state, the general principle is that if you're handling money for clients or tenants, you need to keep it in different accounts. Mixing funds isn't just a legal issue — it can also get you in trouble with professional organizations. You might face penalties or even lose your license.

However, there are some situations where commingling is legal and necessary for certain types of real estate investments. Let's break down when commingling is legal and when it's not.

Legal commingling

Real estate investors who pool funds to buy real estate in crowdfunding, real estate investment trusts, or syndications typically commingle funds. This allows them to purchase larger commercial properties that individual investors couldn't acquire alone. Other common examples of legal commingling include:

  • Pension funds
  • Mutual funds
  • JV agreements

Investment managers handling these projects rely on combined funds to purchase and operate real estate properties within the fund. Investment managers have a fiduciary duty to oversee these pooled client funds responsibly.

Suppose the fund managers fail to separate client funds from their personal assets. Now, it becomes illegal commingling. This is the line between legitimate investment practices and financial misconduct.

Illegal commingling

Illegal commingling occurs when financial managers don't separate client funds from personal expenses or from other client funds that must be separate. Some example scenarios of commingling funds include:

  • Security deposits: A landlord mixes a tenant's rental security deposit with their personal accounts.
  • Rental income: A property manager places rental income from multiple properties with different owners into a single commingled fund.
  • Real estate transactions: A real estate broker fails to separate a client's escrow deposit into a dedicated account.
  • Investment funds: A real estate syndication manager using funds raised for one property to cover expenses for another unrelated project without investor consent.
  • Renovation funds: A contractor may mix client payments for a specific renovation project with their general business bank account, making tracking expenses for each job difficult.

Challenges with commingled funds

Commingling funds in real estate can lead to several significant issues:

  • Financial complications: Mixing personal and business funds makes it difficult to track income and expenses accurately for each rental property or investment. This makes tax season more challenging since you'll need to separate deductible business expenses from personal spending. Commingled funds can result in missed deductions or trigger an audit if the Internal Revenue Service sees discrepancies.
  • Legal risks: Failing to keep client funds separate can violate fiduciary duties, potentially leading to loss of licenses or certifications. In case of an audit, commingled funds make it nearly impossible to provide clear, accurate financial records. This can raise red flags with auditors and may result in penalties or legal action.
  • Cash flow problems: Without clear separation, it's easy to overspend or misallocate funds, leading to cash flow issues for your properties or real estate operations. This blurred financial picture makes it challenging to figure out the true performance of individual properties or investments, hindering decision-making and potentially hiding underperforming assets.
  • Investor trust issues: For those managing others' investments, commingling can erode trust and potentially lead to the loss of clients or investment opportunities. It may also damage your professional reputation in the real estate community, making it harder to attract future business or partnerships.

Consequences of commingling security deposits

The consequences of commingled funds vary depending on the situation, but some of the most serious impacts occur when landlords mishandle a tenant's rental security deposit. Twenty-one states have specific rules requiring separate bank accounts for security deposits or explicitly prohibit commingling these funds, including:

States that require a separate account

  • Connecticut
  • Delaware
  • District of Columbia
  • Georgia (more than 10 units or using third-party management)
  • Illinois (for landlords with 25 or more units)
  • Kentucky
  • Maryland
  • Massachusetts
  • Minnesota
  • New Jersey (for landlords with 10 or more units)
  • New Mexico (if the deposit exceeds one month's rent)
  • New York (for buildings with six or more units)
  • North Carolina
  • North Dakota
  • Oklahoma
  • Pennsylvania
  • Washington

States that prohibit commingling

  • Florida
  • Maine
  • Missouri
  • Tennessee
  • Michigan (separate account beyond the claim of landlord's creditors)

Strategies to prevent commingling in real estate

What can real estate investors do to avoid commingling funds? Here are guidelines for landlords, property managers, and other real estate investors.


Here are tips specifically to help landlords avoid commingling funds between their rental property and their personal accounts:

  • Separate bank accounts: Open different bank accounts for each property or investment to track income and expenses easily. This also makes things easier when you need to get taxes ready for your real estate investments.
  • Property management software: Use specialized property management software to keep detailed records and separate income streams. The best solutions include automation that can document every transaction related to your business for clear financial tracking.
  • Automatic transfers: Set up rent payments to go directly into your business accounts, reducing the chance of mixing funds. Online rent collection allows tenants to pay rent electronically, and you can easily set up different accounts for various purposes, like one for rent and another for security deposits.
  • Professional help: Work with an accountant or a qualified real estate attorney to establish a system that prevents commingling and follows best practices.
  • Regular reconciliation: Check your accounts often to catch and correct any accidental mixing of funds early. Set a schedule to review all transactions, which also helps you spot trends in your cash flow, identify any unusual expenses, and keep an accurate picture of your property's financial health.

Other real estate investors

If you use a commingled fund to invest in real estate projects through partnerships, syndications, or other group investments, you should:

  • Create separate LLCs: Create distinct legal entities for each investment to maintain clear boundaries between projects.
  • Open dedicated investment accounts: Open a separate bank account for each investment opportunity to track contributions and distributions accurately.
  • Use a document management system: Keep detailed records of each project's investment agreements, capital calls, and distributions.

Property managers

Property management companies must set up a different account for each of the individual clients they work with. Best practices include:

  • Trust accounting system: Property management software separates funds by owner and property.
  • Financial reporting structures: Develop standardized reports detailing income, expenses, and account balances for each property owner.
  • Vendor payment process: Set up a system for paying property expenses that clearly tracks which property each payment is associated with.
  • Training: Be sure all team members understand the importance of fund separation and proper handling of client money.

HOA or community associations

Association managers can leverage the following tips to prevent commingling funds:

  • Multi-tiered account structure: Set up separate accounts for operating funds, reserves, and special assessments to provide a clear allocation of resources.
  • Automated monthly dues: Use a system that automatically categorizes incoming payments into the appropriate accounts based on their purpose.
  • Financial statements: Generate regular reports for homeowners that show the allocation and use of their monthly and assessed payments.

Technology to help reduce the risk of commingling real estate

Azibo's all-in-one property management platform helps landlords, property managers, and HOA associations avoid commingling funds by:

  • Banking: Set up separate accounts using Azibo's banking services tailored for landlords and real estate investors, featuring no monthly fees and real-time expense reporting.
  • Accounting: Azibo's accounting capabilities include an out-of-the-box chart of accounts designed for rental properties, automated transaction management, and smart categorization with automated rules to simplify bookkeeping.
  • Financial management: The platform provides real-time financial reporting, including profit and loss statements, balance sheets, and cash flow statements, essential for assessing properties' financial health.
  • Rent collection: Use Azibo's platform to automate rent payments, collect late fees, and send rent reminders. You can set up the system to deposit a tenant's rent, security deposit, or other funds into your dedicated business account for each property.

Sign up for free Azibo account today.

Commingle real estate

Commingling funds may seem like a minor issue in real estate, but it can have significant consequences. For every real estate professional, from individual landlords to large property management firms, good fund management supports your success.

Investors and managers must maintain separate accounts, keep detailed records, and follow best financial management practices. This applies whether you're handling rent from one single-family property or overseeing multiple investment portfolios.

By implementing the strategies discussed here, you can verify compliance and set a strong foundation for your real estate operations. Proper financial practices help you avoid problems while building a sustainable and profitable real estate business. In an industry worth trillions, getting your fund management right is a smart investment in your future.

What is commingling in real estate? FAQs

What is an example of a commingled asset?

An example of a commingled asset is mixing personal funds with rent in the same bank account. This practice can lead to difficulties in financial tracking and legal issues.

What are the consequences of commingled funds?

Commingled funds can lead to legal penalties, fines, and the loss of a professional license, such as a real estate or property management license. It can also cause financial mismanagement, hurt client trust, and complicate tax reporting and audits.

Why is commingling illegal?

Commingling is illegal because it violates the fiduciary duty to separate client or tenant funds from personal or business funds. This separation prevents misuse, verifies accurate financial tracking, maintains transparency, and protects the interests of everyone involved. 

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of, a blog dedicated to real estate investing.

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