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How To Pay For College By One of many investing strategies used by parents is the strategy of investing for the purpose of having a college fund available for their children. Just as some people will open an IRA for the same purpose, or even a standard savings account, or purchase other ‘securities’, these parents want to insure that their child has funding for their higher education waiting for them when they are of age. The difference in using real estate, though, is multi-faceted. Firstly with real estate, the parent will usually ‘pay in’ just as they would with a savings account, stocks, bonds, mutual funds, securities or an IRA. But with real estate, it’s in the form of a mortgage – often a 15-year mortgage, or other accelerated type of plan to match the age of the child vs. college age. The real difference with real estate, however, is at the other end – when it’s time to receive the payoff. Once a property is paid for in its entirety (partially through the parent paying in, partially through the rent money collected), the monthly cash flow is available to fund the education indefinitely! Only when the owner chooses to sell the property – or no longer rent it out - would the cash flow stop. Obviously with savings accounts, stocks, bonds, mutual funds & IRAs there is a point when you simply run out of money – it is a finite amount available. Also, now the owner has the properties entire equity built up to do with what they choose. Often parents, having structured a plan like this, will use the monthly cash flow for the payment of college tuition and books, with one (or more) property(s) per child. Then continue to hold the property for the purposes of well-deserved retirement income – either holding the unit(s) for cash flow, or selling it outright to take out the monetary value of the home. The parents who choose to hold the units for the cash flow will often give a property for a wedding gift or simply have them in their will to be passed to children, grandchildren, or other charitable organizations. Is there a “down side” to all of this? Well, real estate investing is more work than any stocks, bonds, mutual funds or savings account. That is the price paid for all the extra benefits. There is more paperwork involved to purchase and establish the mortgage on a property. And, if you are managing the property yourself, there will be the renting and maintaining of the unit. Plus there will be additional paperwork at tax-time to account for the multiple deductions provided by your real estate. If you can except a little extra work – and can see the value of the payoff, than this may be a perfect strategy for you. It is certainly a strategy growing in popularity with college costs having increased around 40% in the last decade, increasing the stress on both parent and child to find creative solutions. Author: Alex Anderson is a licensed RE/MAX Advantage-Plus agent. She specializes in helping people to build wealth and prepare for retirement with property investments. |
