There are many owners of Fairfax, Va real estate who are concerned right now about how to afford one of the larger price tags of parenthood: funding your child’s college education. As homeowners, we have a lot of things to save for and invest in, but not always enough discretionary income after the family essentials have been met. In almost any economy, wise real estate investors have an interesting option…
With a relatively small investment in a rental home, you can create rental income that generates positive cash flows and pay for itself. The borrowed funds create leverage that will earn a return on the total value of the home and not just the amount of cash you have invested.
The strategy is simple. Find a slightly below average priced home that will rent well. Find one in a popular school district, or near other desirable community amenities. It will appeal to a larger group of people while it’s rented and when it’s ready to be sold.
Rent the home and maintain its condition over the years. As the loan amortizes and the value increases, the equity will grow. When your student is ready to start college, you’ll actually have several options.
1. You can sell the property; pay the tax on the gain at a reduced capital gains rate and fund the education.
2. Alternatively, you can refinance the home and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity, and under current tax laws is a non-taxable event.
Regardless of whether you’re trying to plan for your children’s education or your own retirement, rental property offers many solid investment opportunities. Contact me if you want more information about purchasing Northern Virginia real estate as an investment.