Escrow is a neutral account, run by a third party, that holds money on behalf of two sides until an agreed condition is met. As a landlord you will meet it in two very different places: the closing escrow that parks a buyer's deposit during a purchase, and the mortgage escrow (also called an impound account) your lender keeps to pay your property taxes and insurance.
The two share a name because they share a job, which is holding someone's funds in trust so neither party can grab them early. They behave nothing alike on your books, though, so it helps to keep them straight.
In practice
Say you buy a duplex for $340,000. At the offer stage you wire $5,000 of earnest money into a closing escrow account held by the title company. That cash sits there, untouchable, while inspections and the appraisal run. At the closing table it gets credited against your down payment, so it is not an extra cost, it is early money parked safely.
After closing, a second escrow starts. Your lender estimates the annual property tax at $4,200 and the landlord insurance premium at $1,800, which totals $6,000. Divided across twelve months, that is $500 added to your mortgage payment every month. The lender holds it and pays the tax bill and the insurance renewal when they come due. Your payment is now principal, interest, taxes, and insurance rolled into one number, which is why people abbreviate it as PITI.
Why it matters to a small landlord
Mortgage escrow trips up the books because the $500 is not all an expense. The tax and insurance portions are deductible when the lender actually pays them, not when you fund the account, and the principal and interest are separate again. If you log the whole payment as one expense you will overstate your costs and understate your net operating income. The clean way to record it is to split each mortgage payment into interest, principal, and escrow, which is exactly the discipline covered in the 10-minute monthly close. Get that split right once and your mortgage interest, principal, and escrow stay correct all year.
The closing escrow matters for a different reason: that earnest money is real cash out the door before you own anything, and it can be forfeited if you walk without a valid contingency. Treat it as part of your acquisition math, not a throwaway deposit.
Escrow rarely travels alone. The closing version starts with earnest money and ends up folded into your closing costs, while the lender version becomes the T and I inside your PITI payment. Knowing which escrow you are looking at tells you whether the money is yours coming back, or a cost going out.