Parents! Do you have children getting ready to go to college either this year or shortly thereafter? The average cost of the 2015-16 school year is $32,405 for a private college, $9,410 for state resident of a public college and $23,893 for out-of-state residents.
If you had begun a college savings account when your child was born, you needed to save $4,608 per year for the first 18 years of your child’s life and then get 5% interest to save up $129,620. But if you wait or waited until they were 10 years old, the price per month goes up to $13,574 per years to have enough. If you planned ahead then saving the money you need in the time alotted would work, but if you didn’t plan ahead then saving that sum of money can seem daunting.
Letting your student rack up the debt is one way to handle the tuition costs but most parents don’t want their children to be paying for the rest of their lives. Some stats; current outstanding student loan debt is over $1.2 trillion across 40 million borrowers who have an average debt balance of $29,000. Some experts suggest that this high amount of debt is stopping younger would-be buyers from buying their first home.
Another solution for paying tuition is to invest in rental property. Rent prices are continuing to go up, homes in mostly owner-occupied neighborhoods are appreciating and the leverage due to borrowed funds can be a huge help in building the equity to pay the tuition.
Invest in a rental home and maintain it in good condition over the years. As the value of the home increases and your loan on the home amortizes, the equity you have in the home will grow. When your child gets ready to go to college you have several options.
- Sell the home, pay the tax on the sale at the reduce capital gains rate and fund the education.
- Refinance the home and take the extra to pay for tuition. You can continue to own the rental but free your equity.
With current tax laws, it is a non-taxable event with your tenants paying to send our children to college.
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