HOW TO PAY FOR COLLEGE USING REAL ESTATE!
Did you know that by buying investment real estate, you can pay for your child's college education? With rising tuition costs, it makes perfect sense to buy one property for each child you think may want to go to college. By the time the college tuition is due, the property will be paid off, will have increased in value and you can sell it to fund a college education. Unlike some 527 college saving plans, if your child decides not to go to college, you can do anything you want with the cash that accumulates.
A lot of folks are intimidated by the concept of “Investment Real Estate” and think in terms of huge financial commitments and commercial property. For purposes of my concept, Investment Real Estate is usually a moderately priced small single family home that is easily rentable and more importantly, saleable.
For example, let’s say you want to purchase a $175,000 property. Lenders will require a minimum down payment of 20% or $35,000. This means that you will be financing $140,000 on a 30 year basis with an approximate interest rate of 6%. The monthly payment for principle and interest would be approx $840.00. Taxes and insurance will increase this to $965 per month. A property is this price range should rent for approx $1150.00, giving a $185.00 per month positive cash flow before taxes. By making one extra $840 payment per year, you will pay off this property is approximately 15 years! And remember, someone else (the Tenant) is paying off the mortgage.
The $35,000 needed for a down payment is generating a substantially better return than the ½% interest ($175.00 interest for the WHOLE YEAR!) currently being offered by the local banks. In my example, the extra $185.00 per month times 12 months equals $2220 per year, or a 6.3% return.
In addition to the cash flow, there are numerous other benefits to owning Investment Real Estate. They are: 1. Appreciation: Properties in our market area have traditionally incrased, on average, 5% per year. Despite the current economy, there is no reason to doubt that they will continue to do so. 2. Tax Deductions: The interest paid, property taxes, and all expenses associated with the property are tax deductible while the property is being used as a rental 3. Depreciation: This is a "paper" adjustment that in theory says that as every year passes and the property ages, you can take a specific dollar amount as a depreciation and use it to offset taxes that would be due. 4. Someone Else Pays For It: As long as the property is rented, and the rent exceeds the monthly payments, the tenant will, in essence, be paying for the property for you. The key to doing this is very simple yet it needs to be set up correctly.
Remember, Real Estate is ON SALE, rates are historically low and there are great values available. Contact your local Real Estate Professional who owns or handles Investment Real Estate and he/she will be happy to guide you through the process.
Submitted by Jerry Strusowski, Help U Sell Real Estate at 302-234-7653.