Taxes & insurance escrow accounting ... and Stessa

2 Replies

I'd love to hear others' approach to accounting for property taxes and insurance. I have about two years experience managing my two triplexes with separate loans for each property. Currently my T&I are escrowed with the lenders and the lenders pay those bills directly on my behalf. I use Stessa for accounting and analytics. The process Stessa recommends for separating out T&I from the monthly mortgage payment is cumbersome. I'm thinking about contacting the lenders to close the escrow accounts and pay the bills myself. I like Stessa's analytics tools but the monthly numbers are a bit useless when it doesn't account for property taxes every month, and then the giant property tax bills get paid in December and the performance numbers for the past year are drastically shifted. Same issue but to a lesser degree with my annual insurance payments that happen other times of the year. 

How do you all handle your taxes and insurance?

If you're a person who doesn't use lender escrow for T&I, do you open your own separate account to put money into each month or do you just let that money accumulate in your main rental business account and pay from there?

Originally posted by @Kent F. :

I'd love to hear others' approach to accounting for property taxes and insurance. I have about two years experience managing my two triplexes with separate loans for each property. Currently my T&I are escrowed with the lenders and the lenders pay those bills directly on my behalf. I use Stessa for accounting and analytics. The process Stessa recommends for separating out T&I from the monthly mortgage payment is cumbersome. I'm thinking about contacting the lenders to close the escrow accounts and pay the bills myself. I like Stessa's analytics tools but the monthly numbers are a bit useless when it doesn't account for property taxes every month, and then the giant property tax bills get paid in December and the performance numbers for the past year are drastically shifted. Same issue but to a lesser degree with my annual insurance payments that happen other times of the year. 

How do you all handle your taxes and insurance?

If you're a person who doesn't use lender escrow for T&I, do you open your own separate account to put money into each month or do you just let that money accumulate in your main rental business account and pay from there?

I use QuickBooks for bookkeeping, and T&I has never been a problem.

Your monthly payments consists of Principal and Interest, your loan, and escrow, that pays your taxes and insurance. 

The way I book it monthly is:

1. Principal: Credit Cash/Debit Loan Principal

2. Interest: Credit Cash/Debit Interest Expense

3. Escrow Account: Credit Cash/Debit Escrow account

The principal and interest should be in the monthly statement. The bank adjust the escrow amount semi annually though it could be more frequent.

The challenge is to have the correct escrow balance. Once that's done, T&I is done this way:

1. Tax payment: Credit Escrow/Debit Tax expense

2. Insurance Payment: Credit Escrow/Debit Insurance expense

At the end of the year, the bank sends you the 1099 summarizing the Principal paydown, interest expense and your escrow balance, which should match the escrow balance on your books. I use the "class" function to differentiate properties, and each asset and expense is labeled when booked. 

I find the bookkeeping for T&I to be extremely easy, and even more so when I use the memorize transaction function, so it's automatic, except the payment of taxes and insurance.

I don't know whether the bank would allow you to stop escrowing, as you probably agreed to it when you got the mortgage. If Stessa is such a pain, I would switch to QuickBooks. In QB, all I have to do is set up a "escrow account", and the rest is just simple debit/credit bookkeeping.

You set up a system to either do it monthly or annually. I done it both ways and find doing it annually easier, especially when they change the escrow amounts.