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Let Your Tenants Send Your Children to College

With home prices and mortgage rates at all time lows, now is the best time to consider using a rental property to help pay for their college tuition.

It can be hard to save for your children’s college so why not leverage your savings.  With home prices and mortgage rates at all time lows, now is the best time to consider using a rental property to help pay for their college tuition.

A relatively small down payment on a rental property can control an asset that will easily rent, generate positive cash flows and pay for itself. The borrowed funds create leverage that earn a return on investment on the TOTAL value of the home and not just the amount of cash you put down.  To clarify, if the rental property is worth $100,000 and appreciates 3% in one year, you will have gained $3000 in equity on the TOTAL, not just the $600 on your down payment (the equivalent cash outlay to purchase the property)

The strategy is simple. Find a slightly below average priced home that will rent well. It will appeal to a larger group of people while it's rented and when it's ready to be sold.  If you are looking for Oswego, Naperville or Plainfield rental properties in this condition, there are many!

Rent the home and maintain its condition over the years. As the loan balance declines and the value increases, your equity will grow. When your child is ready to start college, you will actually have several options.

You can sell the property, pay the tax on the gain at the reduced capital gains rate and fund the education. Another option would be to refinance and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity and under current tax laws is a non-taxable event.

You can even take this a step further.  You can perform a 1031 Tax Free Exchange and purchase a rental property in your child’s college town.  Your child can live in the property, you can pay them to be your property manager (which is a tax deduction for you) and you can write off your college visits since you will be checking on the status of your investment property! (ie airfare, hotel, food, etc).

Regardless of whether you're trying to plan for your children's education or your own retirement, rental properties offers many solid investment opportunities.

Contact Rich Ayers at The Ayers Team for available homes for rent in Oswego, Plainfield, Naperville and the surrounding Chicago suburbs.

Here are some of our current clients who are renting out their properties right now!

838 Shandrew Dr, Naperville, IL 60540

3412 Butler Walk, Naperville, IL 60564

475 Dancer Ln, Oswego, IL 60543

445 Dancer Ln, Oswego, IL 60543

405 Bluegrass Pkwy, Oswego, IL 60543

Rich Ayers is a licensed Real Estate Managing Broker in Illinois.  Ayers Realty Group has EXPERIENCED Brokers who specialize in Residential and Investment real estate in NapervilleOswegoPlainfield and the surrounding suburbs of Chicago. We also own and manage multiple investment properties and help real estate investors find, buy, fix, rent and sell their investments. We are experienced Short Sale experts and hold the CDPE (Certified Distressed Property Expert and SFR (Short Sale and Foreclosure Resource) Designations. Visit our website at www.AyersTeam.com

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Jen January 17, 2013 at 10:37 PM
@ Evelyn......100% of those homes waiting to be sold are being leased out illegally according to the homeowners mortgage contract with their bank. If they were to actually read the fine print, they'd know that. But, leave it to a real estate agent to mislead whomever they can to get a sale.
oswegoannie January 18, 2013 at 12:12 AM
I'd worry about renting a place that's for also sale...it might be in foreclosure. Nothing like paying rent to someone who is not paying the mortgage on your rental!
Katt January 18, 2013 at 07:08 PM
Good point.
Walt Hines January 19, 2013 at 05:11 PM
I called my mortgage company yesterday to see if I could lease out my home. I was given an absolute "NO' unless I close the first loan and take out another that was for leasing purposes. I was also told that your homeowners insurance must be changed to leasing status or you won't be covered if it should go up in flames, etc... I think anyone looking to do a lease should check with their own lending institution to see what their able to do.
Amy Miller Jackson January 19, 2013 at 05:15 PM
Jen How do you know that 100% of those houses are being rented illegally? Based on what sources did you come up with that number?

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