Could real estate as an investment pay for your child’s college tuition?
I cannot tell you how many parents, at various stages from prenatal to early childhood and onto the high school years, who have talked with me about the angst of college tuition. There’s a heady conversation to be had about the availability of affordable education but for the time being the reality is education is expensive and only increasing in cost as the years go by.
So, how do you plan for this and how can you take the best advantage of the years before college arrives or are you there already and you want to use your money wisely?
There are two approaches that use real estate as an investment to help offset or fully fund the cost of college. Neither of these are new concepts, both are tried and true approaches for funding your child’s education. They take some creativity and some planning and some capital to get started.
If your bundle of joy has not arrived yet, just got here, or is wild and crazy wee young thing keeping you up days and nights then this first strategy could work for you:
1. Purchase an apartment, condo, or small house near where you live and rent it out to cover the costs of mortgage, maintenance, and insurance. How does this look? Well, you could purchase a good condo in Burlington, Vermont or the surrounding towns for as little as $175,000. Two bedroom condos in Burlington, Vermont are currently renting for approximately $1650/per month and the rental market in Chittenden County, Vermont is very strong right now. The rental income can cover the majority, if not all, of the costs associated with ownership and over time your equity in the property increases. Fast forward the 15 years and your kids are looking at college. Your equity in this condo or small house will now help to pay for your child’s education. It’s a nice, slow growth approach to saving money for education.
2. If your kids are older and are already looking at college, then the second option to consider is purchasing a condo or apartment near where they are going to college and provide them with a place to live and the ability to cover your mortgage through their roommate’s rental fees. This option makes sense for the responsible kid who can also take on some of the management of the condo rental with his or her peers. Your college kid will need to be able to take on responsibilities of collecting rent, paying utility bills, and maintaining the facility. As an approach to financing the living portion of college it is a real estate investment and educational tool for your young adult. At the end of their four plus years in higher education, you have the choice of holding onto the property and continuing to rent it out or selling it and covering your initial investment costs.
Nick Parent, The Mortgage Guy at Spruce Mortgage had this to say about the current rates:
“Mortgage rates are still very low and we are seeing people begin to take advantage of the low rates to purchase investment properties and second homes. A typical investment property rate will be a little different from your primary residence but they are still very low. We are seeing investment property/ second home mortgage rates run anywhere from 3.5 to 4.125% on a 30 year fixed with 0 points. (3.531 to 4.212% APR) Rates can fluctuate based on the daily current markets and everyone’s individual situation.”
If you live in or around Burlington, Vermont or have children attending The University of Vermont, Champlain College, Burlington College, or St. Michael’s College, then you might consider looking at some of the following condos and small houses as investment opportunities:
What do you think about creative real estate investing as a way to cover your child’s college costs? Do you know anyone who has tried this approach?
As always, thanks so much for stopping by!