escrow for taxes/insurance

is it better to have your taxes and isurance included in the mortgage payment on rental properties or better to pay them on your own. thank you

I prefer to have my lender waive the escrow requirement for taxes and insurance and pay these items myself. It keeps the cash working for you throughout the year and not the bank. But you must be diciplined as the annual bill for taxes and insurance can be quite hefty in some areas.

It can also save some hassles, example. A colleague purchased a new condo conversion, single unit in nine unit building. Since there were no previous tax assessments on the single unit only the entire building his lender picked up this amount from the tax roles and required him to set aside monthly amounts to pay for the taxes on the entire building. An obvious clerical/computer error which took months to resolve including phone calls to the president of the bank.

Normally, from a budgetary point of view, I find having the bank escrow and paying for it to be extremely convenient, and the 1099’s at the end of the year gives me a summary of taxes, insurance paid.

Having said that, I found that you should from time to time audit the tax payments, getting and reviewing taxes due and paid from the taxing jurisdiction directly. When I did this, I found one bank paying my taxes late (with thousands of others) and the bank paid the late charges and penalties out of my escrow, only to tell me that they have to take more out of escrow due to higher taxes.

I tried chasing after them, but I found out about it a year too late. The bank was taken over by another out of state bank, and I gave up on it as it only ran less than a thousand dollars. But it could’ve paid for a nice TV set for me.