In recent weeks, we’ve been covering the topic of Investing in real estate for your child’s college education.
In today’s article, we will offer you a simple 3 step process to follow for evaluating potential rental properties so you will know if they will make the best investments that you can ultimately use for your child’s college education.
Step #1 – How Much Cash Out of Pocket Will It Cost You?
The first step to follow when buying an investment property in Southern California to use for your child’s college education is to know how much cash out of pocket that rental property is going to cost you, especially when it comes to paying your down payment and closing costs.
A typical down payment can be up to 20 percent, and average closing costs can range from 2% to 5% (up to $7,500) of a home’s purchase price.
Step #2 – What Is Your Cash Flow Going to Look Like?
After knowing what your cash out of pocket is going to look like for purchasing a rental property the next step to follow is to evaluate what your cash flow is going to look like over the next 15 to 20 years.
This step is important because, as a Real Estate Investor you want to know how much of the principal balance that your tenant is going to pay off during those 15 to 20 years so you can ultimately sell the rental property and use the cash to pay for your child’s college education.
Step #3 – Learn More About Appreciation
Last of all, but most important, the final step to following evaluating if a rental property will make a sound investment to use for your child’s college education is to calculate basic appreciation of the rental property over 15 to 20 years; ideally, appreciation should be 3 percent annually.
When you follow these three basic steps for reviewing a potential rental property you will know if the investment makes sense and can be used for your child’s college education.
At Fred Sed Realty, our team is highly trained at helping investors purchase the right rental properties that they can use to build their investment portfolios or ultimately use those rental properties for their children’s college educations.
The formula used in this article has worked well for us over the years, if you need assistance with purchasing a rental property in Southern California contact us today by calling (800) 921-9231 or connect with us online.