What purpose does an escrow or reserve account serve?

An escrow or reserve account serves the essential purpose of accumulating funds for large expenditures that may arise in the future. These accounts are typically set up in the context of property management to ensure that money is set aside for significant capital improvements, maintenance, or repairs that cannot be funded through regular operating income.

Maintaining a reserve fund allows property managers to plan for these larger costs without having to rely on short-term cash flow. It provides financial stability and ensures that the necessary funds are available when needed, which can prevent disruption to the management of the property and protect its long-term value.

The other options describe different types of accounts or financial strategies. For instance, covering daily operating expenses is generally managed through the property’s operating account, while managing tenant security deposits involves adherence to separate regulations regarding their handling and use. Mortgage payments, on the other hand, are usually covered through a different financial structure related to the ownership of the property.