Let’s face it: college tuition is one of the largest expenses parents can face while raising a child. It is also one of the main causes of debt in America. What’s more, it’s difficult to discipline yourself to start saving now for something that won’t occur for eighteen years down the road. Sure you can get a loan or refinance your house. Hey, that’s what the government wants you do because DEBT is what drives the economy. According to www.zeromillion.com however, there are other ways. And one of the most gratifying may be for your child to “rent their way through college.”
Think about it: property near college campuses has always been a prime investment arena, and now with a little planning and hard work, it can be the key to funding your child’s education. Genworth.com recommends the following:
Three-to-five months before your son or daughter starts college, purchase a well-maintained home within two to three miles from campus. When choosing a house, keep the following in mind.
– Make sure the home has at least four bedrooms. This creates a maximum rental because you can rent to four individuals.
– Take out the largest mortgage possible.
– Furnish the home from second-hand stores.
– Make your son or daughter the property manager of your rental property.
This last step may have you scratching your head. But according to www.zeromillion.com, making your child the property manager allows you to reap tax and business benefits, not to mention it’ll teach your child about the business world. Responsibilities your child would incur as property manager include:
– Collecting rent
– Inspecting the property weekly for cleanliness and damage
– Renting the property when there is a vacancy (probably the most important step, cuz if there are no tenants there’s no money and without money you can’t attend college)
– Contracting any repair work that is needed
– Reporting to you on the property’s financial and physical condition
And remember, the salary you pay your child for being the property manager is tax deductible. This deduction can go towards your child’s books, supplies, or food expenses.
Zeromillion.com points out that the depreciation deductions you claim each year on your rental property give you immediate cash, which can be used toward college expenses, so those real estate Tax Deductions can generate extra cash.
So now let’s fast-forward four years: your child has finally graduated and its time to sell your property. Kiplinger.com recommends you use the profits from your investment to pay off your loans. At 8% per year appreciation, the property will be worth $ 20,000 – $40,000 more at the end of four years, depending on the original price. Or you can maintain the property, hire a student to be the property manager (you have just provided a student with a job — always a good thing) and continue renting.
The idea of course is to have your child occupy one bedroom and rent out the others to other students.
Speaking of down payments, instead of a home equity loan, a loan from your IRA or retirement plan as the source of the down payment is not such a bad idea, as you will see later.
The rents from the other bedrooms should more than cover the mortgage and operating expenses of the house and perhaps provide Junior with a little tax deductible spending money, as management fees are tax deductible; in addition to write offs for the mortgage interest, insurance costs and real estate taxes.
This way, the house can finance Junior’s education and help finance your retirement, especially if it were 10-15 years away.
As you can see, it’s not impossible to “rent your way to a college education” and it sure beats going into debt or refinancing your home!