Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
I just found out from my mortgage folks that I have the option to not escrow taxes and insurance on my upcoming investment property purchase. I’ve never been given this option before and always assumed you had to escrow taxes and insurance on a financed property. With that said, I am planning to quit claim to my LLC once closed and am wondering if there is somehow “less risk” of the loan getting called if I choose NOT to escrow and pay the taxes and insurance directly from the LLC account. I’ve heard that the lender often finds out about LLC transfers from insurance and property tax info. I’m assuming that even if I choose NOT to escrow that the lender is obviously still going to want to know the property is insured (for them to loan on it) and I’m almost wondering if somehow this could “backfire” and cause them to keep an even closer eye than they otherwise would since they’d likely require (potentially) more documentation for proof that insurance is in force, etc., since they’re not the ones paying it from the escrow account. Thoughts? Anyone here to NOT to escrow? If so, why? If not, why not?
@Mark S.
As an insurance broker, I think it's best to escrow as it keeps everything organized so you don't miss an insurance payment or tax payment. Saves you the headache in the long run. I have clients that opted to pay their insurance by themselves and often times see them lapse because they frankly just forgot. Having a home with no coverage is not ideal as it exposes yourself to claims and lawsuits..
The flip side however, if you choose to be billed directly instead of billing your escrow, you have a good idea whether or not insurance rates went up over the years..and decide whether or not you want to shop it..
Hope this helps.
Denny
If you pay taxes and insurance you have the use of the money and may be able to put it to work instead of it sitting there lazily in an escrow account.
When you get insurance make sure both you and the LLC are insureds and bank won't catch it.
It is generally easier to have it escrowed and one less thing you have to be concerned with as @denny wu suggested
@Denny Wu, @Carl FischerThanks, gentlemen. The insurance premiums and taxes are fairly low on the properties I'm buying, so putting the money to work in between annual payments likely will not yield a significant amount to make it worth it for that reason alone. As you both stated, it sounds like escrowing everything makes it simpler and I'm all about streamlining the process. Carl, to your point, I currently have the policies in my name and asked to have the LLC listed as an additional insured. When I request the insurance company add the LLC as an additional insured, they send it back and it has the LLC added as "an additional interest." I'm assuming it's the same thing, as they know my intentions. I guess the bank would more likely find it via property tax info from the PVA (as it only has the LLC listed, although with my primary residence as the address - not sure if that matters).