This month we're talking about how to build wealth using real estate and
it's back to school time. Lots of kids are going to college right now and I
thought it would be good idea to talk about how to fund a college education using
real estate.
We're going to do a real-life case study here. So, we are going to walk through how to use a
rental condo to fund a college tuition.
This condo was purchased in 1999. In 1999, it was purchased for $77,500.
It just sold this month in 2021 for $155,000, so there was quite a bit of
increase in the equity of this home in the purchase price.
Now taking a deeper look, that home rented for $700 a month when it was
first purchased in 1999. A t the time that it sold, it was renting for fourteen
hundred dollars a month and the mortgage payment was around $700. If the owner never refinanced it and they probably
did as rates went down, but if they never refinanced it, that payment would be $700
all the way through till now.
Now, they held the property for 20 years and rented it for the whole time. The rent started at $700 and escalated slowly
up to $1400. Calculations are that the total rents over the 20 years were about
$75,000. This means they made $75,000 in rent and they have equity of a $112,000. When they sold it, by the time they took their purchase price of $155,000,
paid off their remainder mortgage of $27,000 and some expenses of the sale they
had proceeds at the table of $112,500.
Now add to that the rents they received over the years and they had a
nice nest egg.
So looking at this as a means for funding college tuition it's either $188,000
as a budget for four years of college or if you break that down, it's $47,000 a
year.
You can pretty much go to any college that you want at that price and
especially if you stay in state, it's going to be even more economical.
This is a way to put money aside for your child's college education and
have your tenant pay for it over that 20-year period.
Here's an example of how you can buy real estate and see it appreciate.
I did the math on a spreadsheet and from 1999 at a $77,000 purchase
price until 2021 with an average 3% per year appreciation, which is normal, over
that span of time. That would bring you to a purchase price of $149,000 and it
sold for $155,000. So, the numbers make a lot of sense and you can see
historically over time if you buy a property and hold it long term, it should
appreciate at least three to five percent per year.
And if you rent it, and if you buy smart, you can rent it for your
mortgage payment or more. Now you have an investment that's netting you annual
cash flow and you're getting appreciation on it, and you're taking depreciation
and other benefits of rental properties and you are having your tenants over a 20-year
period pay for your child's college education. Not a bad deal.
I hope you found this information helpful and if you would like to
discuss it further please reach out to me.