Real Estate Taxes and Hazard Insurance

I know, I know, I said I would share the inside scoop on the last and a very good keypad lock. However, I only share tips and opinions when no real rental work is going on. I'm doing real rental work tonight! I will finish the lock talk soon. It's rent time again so I'm making out deposit slips and planning to make the deposits during my lunch break tomorrow. Honestly, recording the deposits only takes a few minutes. One other monthly banking task is keeping track of the escrow amounts which are used to pay real estate taxes and hazard insurance when they are due. If I had it to do over again, I would let the bank add the escrow amounts to my payments and I wouldn't need to worry about it. The banks add an amount to the payments to pay the real estate taxes and insurance when they come due. They don't pay any interest so they get to use the money all year long for free. I used to be young and stupid and thought I could keep track of my own escrow money and earn some interest on it. In reality, the interest doesn't amount to anything and it takes time trying to keep track of it all. The taxes for the first half of 2009 must be paid by April 1 2010. The taxes for the 2nd half of 2009 must be paid by August 1st 2010. The only time keeping my own escrow account has paid off is when I sold something and wanted to offset the income by pre-paying the real estate taxes. For example, pretending I sold a property in 2010 and actually had a gain (profit) and wanted to avoid paying the taxes this year, I could pay the first 1/2 of 2009 taxes by April 1 and the 2nd half of 2009 taxes by August 1 of 2010 and pay the entire year of 2010 taxes before December 31, 2010. This would provide additional tax deductions in 2010 to offset the gain for the pretend sale. The only problem with this is the tax deduction wouldn't be available for next year to offset 2011 income. Maybe you will be lucky and won't have any income to tax. My recommendation when buying a rental property is to let the bank escrow for the taxes and insurance and keep your life as simple as possible. There will be that unfortunate day when the properties are paid off and you will then have to keep track of the escrow amounts yourself.

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