Creating “Wake-Up” Money for College Savings

Financial freedom occurs when your annual investment income (your money at work) exceeds your annual lifestyle expenses.  At this point, you have “Wake-Up Money.”  Wake-up money can also be used to pay for the future educational needs of your children or grandchildren.  Here are 10 tips for creating a real estate investment savings option. 

1. Buy residential properties – houses and condos. Stay away from land and commercial real estate unless you are an experienced investor or are buying as a business “user.”
2. Buy “mainstream” houses and condos. Buyer properties that are at or below the average sales price. Buy properties that appeal to most buyers. Avoid high priced or unusual properties. Buy houses with at least three bedrooms and condos with at least two. If possible, buy properties with a garage.
3. Don’t buy with partners, unless you have to. If you have to have partners, make sure they have the same goals and values, are of similar age, and have job, geographic, and marriage stability.
4. Believe in the long run.  Real estate markets are cyclical but the long term trend has been up. Hnag in there for the long run. The great investor’s lament is “I should never have sold that property.” The other investor’s lament is, “I could have bought that property for $xxx!”
5. Take care of your property and it will take care of you.  It’s your “golden goose.”  If you don’t like property management or are too busy, either hire a professional property management firm or buy condos or townhouses. They take a lot less management. The homeowner’s association takes care of most of the property maintenance.
6. Get started early.  Put time on your side. Albert Einstein was once asked what he thought was the most powerful thing in the world.  His reply, “compound interest.”  Don’t wait to buy real estate.  Buy real estate and wait!
7. If you don’t have the money, make a plan and commitment to get it.  Consider borrowing your investment money out of the equity in your personal residence.
8. Know your “enough.”  How much investment money do you need?  Know when you are ready to stop accumulating property and start paying off what you have – and enjoying life!
9. Work with knowledgeable people. Pick Realtors, accountants, attorneys, and property managers who know what they are doing.
10. Have a goal and a plan. Contact your agent and begin to develop a customized plan to start creating investment wealth.

Even if your child or grandchild does not go to college, you have still created “wake up money” for your own retirement.

Buying Rental Property Has Benefits

With foreclosures on the increase (read: Rampant) right now, people who are losing their homes also have to find a place to live and are turning to rental properties to move their families.  This opens a great opportunity for potential buyers with good credit and down payment money to create wealth through residential real estate investment.  Whether you’re looking to have wake-up money in your retirement years or starting a college fund for your children or grandchildren, real estate in the long run is one of the best investments there is.

I shared this list with my friend Kathy who has published it on Banks.com.  We’re telling a national audience about the Benefits of Residential Real Estate Investments, and I wanted you to hear about it too.

1. Cash Flow.  The rent provides income.  A wise real estate investment will pay for itself on a monthly and annual basis, while paying the note. Your ultimate goal is to own property “free and clear,” which creates maximum cash flow.
2. Leverage.  You can own $150,000 worth of real estate with only 15-20% cash. You can borrow cash from one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties “free and clear”
3. Debt Reducation.  Real estate is one of the few investments where someone else will make your payments. In essence, the tenant makes the payments and reduces your debt.
4. Tax Savings.  You are allowed to depreciate the house and write off your expenses in order to reduce your taxes*.
5. Appreciation.  Over time the value of houses and condos have risen. The average value of home has traditionally doubled in value every 15 years**.

*Consult your accountant or tax attorney to specifics related to the tax benefits of investing in real estate.

** The government Office of Federal Housing Enterprise and Oversight figures appreication rates for Metropolitan Statistical Areas around the county. Check this site to see what appreciation rates have been in your area.  Using their figures, the following data shows appreciation of a $100,000 home purchased in 1982:

1982 – $100,000
5 years – $135,800
10 years – $150,100
15 years – $196,000
20 years – $243,600
25 years – $316,700

I will talk more in the future on the college saving aspect.