Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
I used to set it aside, but now I escrow. The huge cash swings just after Christmas suck without escrows! I hate dealing with the taxing authorities too. Sending in several checks to multiple taxing authorities is a PITA.
Investor · Los Angeles, CA · Member since 2011 · 30 posts · 9 votes
15y
I am also thinking to escrow everything as well, just for the convenience factor and also that I won't have to come up with a huge amount when taxes are due.
But what happens when your taxes and insurance changes.. Does your lender review these amounts yearly, in order to adjust the monthly contribution?
I have two that are held in escrow and two that are not. We just put aside the money at some point during the year to cover the taxes and insurance. Not the best way but it works.
If you are good with money then it may make more sense for you to save and put that money in a savings account. IF you are going to escrow depending on the type of property I would probably just escrow taxes and pay the premium in full for rental insurance. You do have to make sure the lender is taking enough out to cover taxes if you do escrow.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Tiffiany Smith :
... You do have to make sure the lender is taking enough out to cover taxes if you do escrow.
Actually, you don't have to do this if you escrow! The lender will cover the shortage, and then in the next year they will increase the monthly impound amount by some factor to compensate for having given you a "loan" to cover the prior year's expense. In other words, the lender will do that (or else they will be losing money giving you free loans).
Also, you want to get your tax bills to the lender during any discount period that you get (typically 2% discount if paid before the actual due date) and instruct them to pay that discounted amount. Lender is required to pay the discounted amount. I once had a loan where the lender neglected to make that payment as instructed - they were forced to pay the difference. This is something you DO want to keep track of, whether the lender took any discounts you were entitled to receive.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
RESPA has policies about how the escrow changes annually and when the lender has to refund money. You can find this quite easily doing a Google search if you want to.
Countrywide's site used to break this down in detail. They are now BOA and this functionality is gone.
Accountant · Hyattsville, MD · Member since 2011 · 120 posts · 44 votes
15y
I have about 10 properties and I only escrow on 1. The rest I pay myself and it helps me with the the ups and downs of tenant vacancies sometimes and a couple of years ago, I was able to defer the tax payments more than 1 year until I had the cash reserve to pay it off. When the bank pays it, it automatically comes out every month. It's more of a cash-flow issue for me and having the cash to juggle things around if I need to.
One of my properties, I actually asked the bank to pay it and then made payment arrangements with them spread over 60 months. This worked out for my short term cash flow needs when one of my properties flooded and these crazy insurance company did not cover it because I did not have "Sump Pump" addendum in my policy
Accountant · League City, TX · Member since 2010 · 23 posts · 3 votes
15y
I don't escrow my rental or my home property taxes. For me, it is a control thing because I got hosed on my very 1st mortgage when the escrow kept swinging between $100 - $300 during those 1st six months. Talk about headaches. I forget why that occured because it was a long time ago and the chnaces of it happening again are slim. Still, I like the sense that I am "locking in" my payment to the bank, which allows me to manage my CF's a little better. I found the variability from the yearly escrow analysis annoying, basically.
Investor · Los Angeles, CA · Member since 2011 · 30 posts · 9 votes
15y
I am thinking that escrowing would be more of a convenience factor. Especially when you build up your portfolio of multiple properties, in different counties and states.
Each area may have different due dates, and methods of payment.. so its just a lot of administrative over head to keep track of each one and put aside enough funds for each property?
Also, if you choose to opt out for escrowing... can you opt in at a later stage and vice versa?
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
15y
It is easy to set up sweeps at the bank to budget of escrows out of each project's operations account.
I really just like the convenience factor of someone else pissing with the taxing authorities for me. The minor cash flow difference isn't really significant enough for us to worry about with lines and investors to draw from so the cash isn't dear enough to offset the PITA factor for me.
Accountant · League City, TX · Member since 2010 · 23 posts · 3 votes
15y
I agree that escrowing would be more convenient and perhaps even more cost-effective as one's portfolio grows. I am small potatoes at this point so not escrowing is helpful for me, specifically.
sirck- I looked into getting out of my escrow arrangement with Chase a few years ago and they did not allow it. Not sure if all banks are like this. I do not recall pressing the matter for some reason, so you asked a good question. I do not know why banks do not let you opt in/ out midway into the mortgage. My guess is that is due to the original agreed-upon mortgage covenant where you said you would escrow. Maybe it is that legally they can't and won't waste time with such a request.