Start early and pay for your child’s education with one rental property.

College Tuition = One Rental Property.

These past couple of months, the prospects of becoming a landlord have become brighter for those of us in Carmel and Fishers.  Mortgage companies have tightened their belts on approving loans for those with credit issues that were approved in the last few years.  The buyer’s monthly income may be high enough to purchase, but a blemish on a credit report may result in a denial from the bank.  Instead of purchasing a home, these people in the market will likely turn to renting a property.  There is a demand for suitable housing for those affected by the recent changes.  You can help rent to these people and at the same time pay for your children’s college education.

Today, $15,000 is the typical annual cost for an Indiana resident to attend a public university.  This cost includes in-state tuition, books, room and board.  Recent trends show that it takes most students five years to graduate.  Here are the minimum costs of college education assuming a five year graduation estimating a 5% college cost increase per year.

Now                        5 years                   10 years                 15 years

$75,000                 $95,721                 $122,167               $155,920

Equity created from purchasing a single family rental investment at $160,000 with 20% down payment and a 15 year loan (assumed 7% annual loan rate).

Now                        5 years                   10 years                 15 years

*$32,000               $61,486                 $102,234               $160,000

**$32,000            $86,970                 $185,484               $249,274              

*Assuming no increase in property value.

**Assuming 3% annual appreciation                            

Compare the same investment in the stock market with a 10% annual return.

Now                        5 years                   10 years                 15 years

$32,000                 $51,536                 $83,000                 $133,672

Even in the unlikely event of no appreciation over 15 years, the real estate investment has advantages over a stock market investment.

Why do it?

• Paying for college out of ordinary income results in 25% to 40% tax on that future increased amount.
• Kids working full time at school will extend time to graduate and may increase probability of dropping out.
• Student loans supply the college graduate with a diploma and years of post graduation debt.
• You are in control.  Buy a rental property and pay tuition with the debt free property. It is your home at the end of the day so if your child decides not to attend the university, you increase your income in retirement.