Buying a house is a long and difficult process. Buying a house to rent out to others is even more complex. But, when done successfully, it can really pay off. In fact, Washington State dad Brandon Turner says he’s completely shored up his daughter’s college fund with one savvy real estate investment.
Turner is an experienced real estate investor and VP of content at BiggerPockets.com, a real estate investing social network, and he’s written books about real estate investing. While Turner is a little more qualified than most of us when it comes to making money on real estate, his college-savings plan is definitely something to consider.
Here’s how this savvy new dad did it (important to note, his daughter, Rosie, is not even a year old, so he’s got time on his side to make this scheme work):
- First, Turner bought a four-unit property in his neighborhood.
- He renovated it, and now estimates it’s worth around $160,000 in today’s market.
- Rent collected from tenants will be used to pay off the mortgage over the next 18 years while little Rosie is growing up.
- When the time comes, he will sell the property for a profit (at least theoretically). Turner estimates it will be worth $275,000 in 18 years—which means Rosie should have ample funds to attend college (or start a business, an alternate path that Turner says he supports).
“The beauty is, I’m not the one paying for it—my tenants are,” Turner wrote in an article for Forbes.
If you’re trying to figure out how to save up to send one or more kids to college, Turner’s plan probably piques your curiosity. If you have the capital to get into the real estate rental game, then it could definitely work for you. But, there are obviously pros and cons to consider.
Here are some of the best things about owning rental properties:
1. Passive Income
If everything goes as planned, rental properties should provide a nice, steady stream of income, without requiring too much work from you.
2. Tax Benefits
You can’t write off everything, but you may be able to write off a sizable amount of expenses on your next tax return. Be sure to consult a tax professional about the tax ramifications before you start investing in rental properties.
Depending on your income needs, you could turn real estate investing into your main business—which means you’re the boss and you set your own schedule.
But, there are some significant downsides to being a landlord, including but not limited to:
1. Terrible Tenants
You’ve probably seen news stories about irresponsible tenants destroying rental properties within a couple of months. Turner solved this problem by rehabbing the house to make it look more pleasing to awesome tenants who will pay the rent on time and not install a stripper pole in the middle of the living room.
2. Unplanned Expenses
From leaky faucets to broken water heaters to property tax hikes, property owners can be hit with a big bill at any time. And, if you have tenants, you have to keep the building in working order, or you could end up in legal trouble.
Like all investments, buying real estate carries risk. In a worst case scenario (i.e., a major market downturn), you could end up losing money on your investment. In most areas, real estate prices have stabilized (and increased) since the lows of 2008. So you either have to be able to get a good loan from a lender or have the cash and resources to rehab a lower-priced property that needs a lot of work.
If, after considering the cons, investing in real estate still appeals to you, here are a few other guidelines to follow:
- Location, location, location. Familiarize yourself with the area where you plan to buy, so you can make an educated assessment about the likelihood of your property gaining value over time.
- Account for all expenses. By earmarking different funds for taxes, emergencies and other miscellaneous expenses, you will be more prepared when that roof inevitably needs to be replaced or when your tax bill goes up.
- Have fun. If real estate is something you enjoy, you could have a very lucrative hobby! Hey, you may even be able to pay for your kids to go to college.