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Saving for annual taxes for 4 properties
Old 10-16-2017, 10:07 PM   #1
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Saving for annual taxes for 4 properties

We finally removed escrow on 4 properties we own and will need to save the money for taxes and insurance on our own each year which is significant. Any creative thoughts on how to get a return on this cash in savings each year? Best high interest savings? Thoughts on using all available cash to pay down one mortgage and then use a heloc to pay the taxes, pay off the heloc asap, then continue to pay down mortgage, keep repeating. Invest in a equity or bond fund with a stop loss? Pay for two years worth all at once?
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Old 10-16-2017, 10:23 PM   #2
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We finally removed escrow on 4 properties we own and will need to save the money for taxes and insurance on our own each year which is significant. Any creative thoughts on how to get a return on this cash in savings each year? Best high interest savings? Thoughts on using all available cash to pay down one mortgage and then use a heloc to pay the taxes, pay off the heloc asap, then continue to pay down mortgage, keep repeating. Invest in a equity or bond fund with a stop loss? Pay for two years worth all at once?
The best thing you could have done is just left it in escrow, unless you paid off the mortgage and that is not an option.

I generally just use the current monthly rent surplus to pay the property taxes (~$10K), but as I have more properties paid off, it is a larger pile of cash. So it takes a bit of the previous month's cash flow too, assuming I still live a bit.

That method is similar to a HELOC, but like saving the money in advance rather than taking a loan and saving after taxes are paid (less interest).
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Old 10-16-2017, 10:29 PM   #3
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Every January, when I withdraw my annual income, I set aside funds for paying remaining prior year taxes owed plus estimated taxes during the year.

I put it in a high yield savings account. Currently it is paying 1.25% interest.
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Old 10-16-2017, 10:50 PM   #4
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Because taxes are paid in two installments 4 and 6 months apart, depending on the state, I just reserve the prorated amount monthly in a separate account. I also reserve for repairs and capital improvements in another account. Separating these known or somewhat predictable expenses forces me to track them more closely and make sure the cash is sitting there when needed.

It's a significant amount of money, so I probably should move it to higher yield accounts, but I like seeing the cash ready for deployment down at the bricks and mortar bank branch.
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Old 10-17-2017, 12:10 AM   #5
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.... I set aside funds for paying remaining prior year taxes owed plus estimated taxes during the year.

I put it in a high yield savings account. Currently it is paying 1.25% interest.
+1
I just have it all in a high interest savings account, previously I did use a HELOC when I was short of cash, which happened sometimes because I paid a lumpsum on a mortgage (the highest interest one), and then maybe had some expenses crop up.

Since my interest on the HELOC was always higher than the mortgages, whenever I had a balance on the HELOC I paid that off first, before thinking of working on the mortgages.
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Old 10-17-2017, 07:46 AM   #6
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It's just an expense. I don't know why you are jumping through hoops for this. If you want to keep it like it was, pay yourself the escrow amount and keep it in the highest earning insured savings account you can find and pay the taxes out of that. That whole paying off mortgages and taking out HELOCs (probably at a higher rate) sounds convoluted. If you have the money to fully pay off a mortgage, why are you sweating with coming up with money for taxes?
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Old 10-17-2017, 09:44 AM   #7
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I just suck it up and pay it the day they all come in. It's a business expense so I do what I do with all other expenses , PAY IT
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Old 10-17-2017, 09:48 AM   #8
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It's just an expense. I don't know why you are jumping through hoops for this. ...
This.
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Old 10-17-2017, 10:08 AM   #9
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It's just an expense. I don't know why you are jumping through hoops for this..... ?
Also this. Money is a fungible. You can slice it up with onions and cook with butter in a hot cast iron pan; or no, wait..

We try and keep our money all working. We have faith that we do so and don't mess about with different accounts or buckets. We also don't budget - again, faith in habitually doing the right thing. The calendar has property tax and quarterly payment dates written on it; I know how much will be needed, and just build up enough in the rental checking account to pay them. It is fun and exciting to hold back a month or two of income that would normally be transferred to a working account and have the rental account suddenly drop to only several thousands after check writing.
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Old 10-17-2017, 10:28 AM   #10
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Also this. Money is a fungible. You can slice it up with onions and cook with butter in a hot cast iron pan; or no, wait..

We try and keep our money all working. We have faith that we do so and don't mess about with different accounts or buckets. We also don't budget - again, faith in habitually doing the right thing. The calendar has property tax and quarterly payment dates written on it; I know how much will be needed, and just build up enough in the rental checking account to pay them. It is fun and exciting to hold back a month or two of income that would normally be transferred to a working account and have the rental account suddenly drop to only several thousands after check writing.
We are the same way, that's what I planned but have several friends that have replaced their mortgage with a heloc and use all available cash to pay down the heloc and pay all expenses out of the heloc...keeping the amount on loan as low as possible and plan to pay off mortgage way earlier, eta 5 years. I liked the idea of having no cash so it is always working, basically saving 4% on what would be any cash. Until my mortgages are paid off any money I spend is basically borrowed at 4% if I think about it that way. I agree it is a little convoluted but wanted to ask in case I'm missing out on significant savings over the next 15 years of paying down mortgages, saving lump sums for taxes, etc.
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Old 10-17-2017, 10:31 AM   #11
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P.S. I'm sitting on about 40k cash, taxes and insurance not in escrow will be about 20k.
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Old 10-17-2017, 10:49 AM   #12
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We are the same way, that's what I planned but have several friends that have replaced their mortgage with a heloc and use all available cash to pay down the heloc and pay all expenses out of the heloc...keeping the amount on loan as low as possible and plan to pay off mortgage way earlier, eta 5 years. I liked the idea of having no cash so it is always working, basically saving 4% on what would be any cash. Until my mortgages are paid off any money I spend is basically borrowed at 4% if I think about it that way. I agree it is a little convoluted but wanted to ask in case I'm missing out on significant savings over the next 15 years of paying down mortgages, saving lump sums for taxes, etc.
This issue I have is that you want all your cash working, but your plan is use investment funds to pay off your mortgage such that they are no longer really working for you. Think more about how much you'll really have invested in both scenarios, rather than the smaller picture of having to keep a little bit of cash on hand to pay taxes.

I also believe for near-term expenses (within a year), you should not have the money to pay for them tied up in anything with a short term risk. If the market dips, you're not going to want to sell to be paying taxes or a HELOC.

And again, why are these taxes a special kind of expense? If it is such a good plan, why not pay all of your expenses this way?

Having a paid off HELOC is probably a good idea, but I'd have one for emergencies rather than regular expenses.

It's not really a bad plan, but I don't think it's really doing what you think it is for you if you look at the whole picture.
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Old 10-17-2017, 11:30 AM   #13
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Keep it safe and available but put the tax payments initially on a credit card with
a big promotion. This is how we fund free vacations. Then pay the full balance off when credit card comes. One of my sources for which credit card to get is www.thepointsguy.com
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Old 10-17-2017, 11:37 AM   #14
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Keep it safe and available but put the tax payments initially on a credit card with
a big promotion. This is how we fund free vacations. Then pay the full balance off when credit card comes. One of my sources for which credit card to get is www.thepointsguy.com
Many tax authorities won’t accept credit card payments, so that won’t work for everyone.

I am with calmloki. Money is fungible. Anything else is just mental accounting. Having said that, I think any property owner needs to have access to some cash in case of an emergency. Not that you need much cash lying around, but some liquid resources, e.g. a HELOC or a CD or GIC that can be cashed without penalty.

I manage my property investments using one account. Cash flow in, cash flows out. I know what to expect on the calendar. No “saving” required.
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Old 10-18-2017, 07:03 AM   #15
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This issue I have is that you want all your cash working, but your plan is use investment funds to pay off your mortgage such that they are no longer really working for you. Think more about how much you'll really have invested in both scenarios, rather than the smaller picture of having to keep a little bit of cash on hand to pay taxes.

I also believe for near-term expenses (within a year), you should not have the money to pay for them tied up in anything with a short term risk. If the market dips, you're not going to want to sell to be paying taxes or a HELOC.

And again, why are these taxes a special kind of expense? If it is such a good plan, why not pay all of your expenses this way?

Having a paid off HELOC is probably a good idea, but I'd have one for emergencies rather than regular expenses.

It's not really a bad plan, but I don't think it's really doing what you think it is for you if you look at the whole picture.
I'm not so sure it is a great plan that's why I'm asking for just using the heloc for taxes as a plan to keep all cash working at least a little bit. The friends I know using the heloc to replace their mortgage do use it for all expenses but I don't want to worry about a really large variable heloc balance to pay off. Sounds like good budgeting is the preferred method. We'll also check on credit card payment options!
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Old 10-18-2017, 07:13 AM   #16
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Like I said before, doesn't keeping a mortgage rather than a HELOC that you generally keep paid off let you keep more cash working for you? Lay out the different ways in a spreadsheet and see which method keeps the most money invested, if that's your goal.
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Old 10-18-2017, 01:03 PM   #17
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It seems like it's getting more challenging to find a good "rewards checking" account, but there are still some out there. It requires a lot of fiddling around, but it can be done. The link in the quote (from another related thread) can help you shop for a rewards account.
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If you want to "play the game", you can get 1.5% on chunks of 25K. I've got one account where I need to make 10 transactions, any amounts, per month. That's not too hard, but I've missed it once. Google Kasasa Cash or go to http://www.depositaccounts.com/check...-accounts.html

Some of them are just beyond what I could possibly do. My credit union is in there, but you need to make 30 transactions per month. That means I'd have to use the card 10 times each time I go out of the house, hehe! And some of them require a certain dollar amount, and I just don't spend that much money, especially since DW holds the grocery budget, and uses her card on that.

My HSA account gives me 1%, and I don't feel too bad about that.
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