We’re now in the final quarter of the year and depending upon where your investment properties are located, you may already be gearing up for property tax time. But for those who escrow for property taxes don’t have to do anythingProperty Tax Impounds? as the lender will take pay the property taxes for them. This brings up a question—is it a good policy to escrow or impound property taxes and for that matter hazard insurance or is it better to handle those payments on your own?

 

That’s a common question but it may be nothing more than personal preference yet there are good arguments for either side. When you first purchase and finance a property and you choose to escrow for taxes and insurance, you will bring any prepaid interest to the closing table as well as your first months’ tax and insurance payment. Each month as you make your mortgage payment included in that amount will be one-twelfth of your annual insurance premium and property tax bill. Then, when taxes are due, the lender makes the payment on your behalf. You don’t have to do anything and you don’t have to be concerned with an insurance policy lapsing or late penalties applied on our property tax bill. This happens more often with investors who own multiple properties.

However, others prefer to keep their funds to themselves and pay independently when due. The thinking is those funds could be used for other purposes or invested in some other asset to keep the cash working for them. In today’s market, there really isn’t a whole lot that will provide any significant return over such a short period with a relatively small amount of cash, but some investors like to keep their money with them and only let it go when they absolutely must.