Home inspection & Escrow accounts

[Jordan Turner]

Good day all,

My name is Jordan and I am in the process of buying a triplex in Philadelphia pa. My agent and I recently sent in a offer to a potential seller in on the 120,000 triplex I plan on buying. 

I spoke with my realtor about the process after buying the house but I am still a little fuzzy on some of the parts..

Such as the Home Inspection. On the contract that I signed it stated that I would need a home inspection within 10 days of the seller accepting my offer. I informed my realtor that I did not know of a home inspector in my area and he said he would provide me with one... 

Do you think its smart for me to use a Home inspector my realtor recommended to me? or should I find my own? My realtor is a great guy but a seasoned investor in Philadelphia gave me advice and told me to find my own..  What do you guys think? and also does anyone know where I can find a great independent contractor? or have a recommendation?

Another question I have has two parts. 

I am struggling to understand what escrow accounts are and where to place my tenants monthly payments at?

If i understand correctly, the seasoned investor that I have been speaking to informed me to think of the escrow account as the "middle man" where I pay my mortgage and bills for the house. 

My question is does the escrow account come with a debit card? Is the account through my lender (which is a brokerage)? If it is a debit card, should I have my tenants pay straight to that account or open a bank account with a whole new bank?

The seasoned investor tried his best to explain it to me he also told me that usually the bank I am using will let me open a account with them with a discount where my tenants can pay. I am confused about this and having trouble trying to understand the process.

Can anyone lend a hand? I`m probably overthinking it but any answer helps thanks guys! Looking forward to your feedback.

[Richard Jahnle]

@Jordan Turner A lot of these questions should are best answered by your realtor and lender as they are the experts that should be guiding you through the process. In the meantime, maybe this will clear it up a little:

1. It's up to you if you want to use the home inspector provided by your realtor. If you trusted him/her enough to help you locate a property, then I would think you could trust him enough to provide an inspector. If you trust the seasoned investor you talked to more and he recommended you a specific inspector, than go with that one. 

2. Great contractors can be hard to find but they are out there - there are many resources on this site that give great advice on selecting a contractor. My recommendation is to reach out to contractors who have been used by people in your network already, that way you know you will get a legit reference.

3. There are likely two different types of escrow accounts that you will have when you purchase this rental property. The first escrow account (the "middle man" that the investor was talking about) is set up when you purchase your house, and it holds funds that are used to pay your property taxes and homeowners insurance. The lender sets this up, and you should definitely reach out to him (the loan officer assigned to you) so that he can explain it to you, I'm sure it's something that he does all the time. Basically, each month, you make a payment for your mortgage, taxes, and insurance. The portion of that payment that goes towards the taxes and insurance in put in an escrow account, which is controlled by whoever is servicing your debt, i.e. the lender. Once a year, when your taxes and insurance are due, the lender pays it from the escrow account. The amount in this escrow account doesn't really matter much to you - the key thing to understand is the amount that you owe each month in taxes and insurance.

The second type of escrow account you are talking about is completely different. This is an account that you can set up and control when you get tenants in the property, and you collect security deposits from the tenants. The seasoned investor was telling you that your bank likely will allow you to open a separate account where you can hold the security deposit funds from your tenants, until they need to be returned to the tenant when the tenant moves out. 

Hope that helps - talk to your realtor and lender though, they will answer these questions much better than I can and more specific to your situation.