Help Parents—or Yourself—Tackle Rising College Costs
Help Parents—or Yourself—Tackle Rising College Costs
Four years of tuition and living expenses at a state university easily costs $80,000, and the bill for four years at many private institutions can exceed $200,000. Parents turn to college 529 plans, stocks, savings accounts, Treasury bills, and mutual funds to save for this expense, but they still often fall short of what’s needed to meet rising college costs.
Money doesn’t guarantee happiness, but the ability to manage what you have can provide a windfall of security during uncertain times. This collection of articles will put you on a path toward greater financial control:
No wonder parents of young children feel stuck. The traditional methods of saving and investing for their child’s future education aren’t working, and they desperately seek a viable alternative. They don’t realize that the answer might be rental real estate, but that’s because they haven’t met the right professional, competent buyer’s agent.
The concept is simple enough. Acquire a property with a 20 percent down payment and borrow the rest. Tenant rent can cover the loan payments and expenses and, over time, help build up equity. The result is a paid-off asset that can help with future college expenses. No “flipping.” No predictions of appreciation. Just old-fashioned, rental real estate.
Why Should They Buy?
It’s critical for you, as a buyer’s agent, to provide clients with information about the advantages of owning a rental property and how tenant rent can contribute to equity and help cover future college expenses. You must become a gatekeeper of information, an educator, and the go-to person for answers. Remember, parents have a financial need and you have a solution.
Here’s how to explain the advantages of investing in rental real estate to your clients:
- Leverage: Invest a small amount of money (the down payment) and control an asset worth much more.
- Forced savings: Each mortgage payment reduces what’s owed on the loan and increases the owner’s equity.
- Tax benefits: Taxes, loan interest, repairs, improvements, and depreciation can all be eligible as write-offs.
- Inflation hedge: Historically, housing value has increased at the rate of inflation or more.
- Potential appreciation: There’s no guarantee, but buying a property in the right location can increase the chances of profit.
- Psychological security: You own and control the asset and make the important decisions. With mutual funds and other investments, you’re at the mercy of managers and hidden fees.
- Tenant rent: Tenant rent pays the loan principal, interest, taxes, insurance, expenses, and increases your equity each month. With a 15-year loan term made at the correct time, that rent could pay off the real estate debt as your child is entering college.
How a Buyer’s Agent Can Help
Purchasing a rental property is not the same as buying a personal residence. A residential purchase is based more on emotion and family needs. A rental property should be approached with a business mentality, where numbers displace emotion.
Finding the right rental property at the right price in the right location is important. It isn’t necessary to own in a community where a child plans to attend college. It’s more important to find a property that the buyer can comfortably afford and where tenant rent can cover the mortgage and expenses. A buyer’s agent should be able to target good rental opportunities in their local area. If the search extends outside that area, agents should refer buyers to others with the geographic expertise to make the right call.
You should gather the following information for clients who are interested in this opportunity:
- Rental rates in the area of interest. This will help determine a price range, as rent should cover the PITI of a loan and potential expenses.
- A list of lenders who grant fixed-rate loans to investors with a 20 percent down payment.
- Potential growth areas and neighborhoods where rental vacancies are low and demand is growing.
- A list of property management companies for buyers who may not want to manage.
- A list of competent agents to which you can refer potential buyers and pre-prepared referral agreements.
Prospecting for Clients
There are a number of ways to go about finding clients who may be interested in this proposition. Here are some good places and techniques to try:
- Workshops. Hold a workshop or seminar to explain the advantages of investing in a rental property and how tenant rent can help pay for college expenses.
- Networking. Develop a network of real estate agents in other areas where prices to buy a rental property are different than your market area. This is helpful if owning in another area is more feasible. Work out a commission referral fee with your network ahead of time.
- Advertising. Include a “college investment idea” in your normal advertising targeted to parents who are seeking ways to help pay for college.
- Talk it up at the PTA. When attending PTA meetings, start a conversation about paying for college. Mention that owning a rental property is a fine way to accumulate wealth to help pay for college. Offer to give a seminar to answer questions.
- Reach out to partners for equity sharing. Family members, other parents, and friends might have an interest in buying property together, sharing in any eventual equity from a rental investment.
You can also gauge support for this value proposition in your own network. Conduct an informal survey with friends and family who have young children by asking two key questions:
- What would you like most for your child upon graduating from high school?
- Will you be able to save enough money to pay for your child’s future education?
If the answers are overwhelmingly “a college education” and “Uh…” then you may have another new opportunity as a buyer’s agent in your own backyard. And if you have future college students in your home, perhaps you should consider investing yourself.