Give Your Kids a Chance
FACT 1 | “The Haves And The Have-Nots”
The gap between the rich and poor is growing rapidly across the United States. The richest 20% of US households receive a greater share of national income than the middle three-fifths combined. The bottom 40% are worse off in inflation-adjusted terms than similarly situated people two decades earlier. (Source: US Department of Labor)
FACT 2 | “A College Education Is The Difference”
Earnings of full-time workers who have a college degree continue to accelerate faster than those with just a high school diploma. The average college graduate earns 89% more a year on average than a worker with only a high school diploma. Each year of formal schooling after high school adds 5% to 15% to annual earnings later in life. (Source: US Department of Labor)
FACT 3 | “College Costs are High and Rising”
Today, the minimum per year cost for a student attending a 4-year, in-state university is about $20,000 per year. This cost includes in-state tuition, books, and room and board. It now takes an average of 5 years to graduate. Only about 40% graduate in 4 years. Here are the minimum costs of a college education based on 5 years to graduate and college costs rising at 5% per year.
Future 5 Years: $127,628
Future 10 Years: $162,889
Future 15 Years: $207,892
FACT 4 | “You Have Four Choices”
- Pay college costs out of ordinary income. Add 25% to 30% to cost for taxes.
- Student works to pay part of costs. This could take longer to graduate with the higher possibility that the student will dropout.
- Student loans. College graduate starts out in life deeply in debt.
- Pay college costs out of assets. Buy a rental property that will be free and clear.
The easiest way to pay for a college education is to buy a rental property when your child is young, and put the property on a 15 year loan. Here’s the equity created in a $300,000 rental property with a 20% down payment and a 15 year amortized loan at 5.0%:
*$60,000 = **$60,000 (Equity Now)
*$121,063 =**$203,947 (Equity in 5 Years)
*$199,429 =**$388,097 (Equity in 10 Years)
*$300,000 =**$623,678 (Equity in 15 Years)
*Assumes no increase in property value
**Assumes 5% per year appreciation
Copyright © January 2018 The Group Real Estate
If your child is already a college student, purchasing a property is still an excellent solution to curbing the high cost of education. The investment property can be a place for the student to live and provides a source of income (roommates) to help pay the mortgage.