Thursday, August 30, 2007

Profit From Your College Student!

As the kids get ready to go back to school, we receive a lot of requests for information about leveraging home equity either to pay for college now or to save for college for later. Using the equity in your home, particularly in this time of excellent conforming rates, can be a good way to go, especially if you're in the planning stage.

As an example, let’s assume you’ll need $172,000 to fully fund one child through college in 15 years. You would need to save $451 per month in a 529 savings plan. Alternatively, you could take just $41,000 from your home equity and invest it as one lump sum into a 529 plan. You would pay $260 per month (the tax-adjusted payment would be just $204 per month), and your investment would grow to $172,000 in 15 years.

If you planned ahead and have that covered, you can also use your college student to make money!

(Maybe that doesn’t sound very nice?)

But seriously, FHA has a great loan program that we refer to as the “kiddie condo.” What you can do is purchase a single family residence near your child’s university, with as little as 3 percent down. You and your student are considered co-owners, making the purchase an “owner-occupied” transaction, so you get a nice low rate as well (today the 30 year fixed rate for FHA is about 6.5%).

Then they get some roommates, who make the mortgage payment for you, and when they graduate you sell. Or you can keep it as a long-term rental if you prefer – it only has to be owner-occupied for the first twelve months after you purchase it.

It’s a great deal – almost sounds as good as some of the crazy (non-existent) opportunities people tell me they learned about at those shady (and useless) real estate investment seminars!

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