On March 8, 2012 my son turned eight and now we are exactly ten years out from high school graduation and college! The pressure is definitely on to kick investing into full gear for his college education. There are tons of options: 529 College Savings & Prepaid Plans, UGMA & UTMA Custodial Accounts, Coverdell Education Savings Account (ESA), Savings Accounts, Bonds, Brokerage Accounts, Roth IRAs, Whole life insurance and the list goes on…
They all have their pros and cons. I’ve started and stopped several of them before settling on my investment strategy for his education…rental property! Yup, that’s right I am using rental property to fund my son’s education. A couple of weeks ago I did a guest post on ChasingYourFreedom.com about my plan to use 10 ugly houses as the basis of my financial freedom success plan [Check out my Guest Post]. One of those houses is also part of my plan to fund my son’s scholastic and financial education.
Here is my plan…
I purchased the house for $9,200 and the renovations will be roughly $10,000. The roof is five years old, it was re-decked and covered with 25-year shingles in 2007. I need to make some cosmetic repairs (flooring, paint, landscape, sheet rock), re-wire the house and add a new heating, ventilation and air conditioning (HVAC) unit. But all the big headaches will be relatively new (roof and plumbing) if not brand new systems (electrical and HVAC). The tax assessment is $52,990 and the projected rent is $750 per month. [Note: My general contractor is the greatest! He gives me rock-bottom deals on pricing. We have been doing business together since 2008. These rehab figures reflect my special pricing. :-)]
Gross rental income is $9,000 per year
Estimated repair expense $900 per year
Property Management fees $750 per year
Property Taxes $800 per year
Property Insurance $600 per year
Vacancy Estimate @6% (Lost Rent) $540 per year
Income ($9,000) minus Expenses ($3,590) = $5,410 per year
Projected 10-year Savings: $54,100
Don’t forget the ability to access at least 65% of appraisal value of the home and the continued income generation from the property to help subsidize his income while in college and beyond.
My Strategy: This house is just Phase 1 of my plan. Anyone that knows me, knows that I love duplication of effort and can be a bit insatiable. Phase 2 is of course a similar house with similar numbers purchased at year four (after the accrual of approx. $20,000)
With two houses pulling the college investment plan instead of $5,410 at the end of year five we now have $10,820 that will be tucked away for the next six years. Yielding approximately $64,920 instead of $54,100.
Again these numbers are based on utilization of the home as a single-family rental. It doesn’t take into account the possibility of using the same spaces as an assisted living facility for aging Baby Boomers or even a group home for at-risk youths. The possibilities are only limited by your imagination.
In Episode 5 of Freedom Cipher, I had the opportunity to talk with Rich Dad Advisor Garrett Sutton about asset protection and the advantages of buying property in a limited liability corporation (LLC) [5:46 - 8:03]; the impact of state LLC laws on asset protection [15:52 - 17:26]; and this very strategy of using real estate to pay for your child’s education [19:42 - 20:25].
So, tell me what you think…
Unconventional? YES! It definitely is!
Risky? YES! But, not much more than mutual funds and/or stocks. Maybe even less risky.
Will it work? Maybe.
Can it work? ABSOLUTELY!
Flexible? Oh yeah! Rent it…Sell it…Flip it…Leverage the Equity…Now that is one heck of a college investment plan!
Before you go, let’s take a quick (5 min) look inside a $10,000 house in Macon, GA
Leave your feedback below and let me know your thoughts!