A Sweet Valentine Present For Your Children
Valentine Day 2006 comes tomorrow. Billions of dollars will be spent on cards, flowers, candies, dinners, and parties. Here today gone tomorrow. How many of you remember when as a school child you left your school with a box of Valentine cards from your classmates? Where are those cards now? Dust in the wind probably.
If you have children why not buy them a house, or a condo for Valentine Day? Of course not to live in, however as an investment, as their college fund. For you who are in the higher priced markets this may not make sense. For you who live in central Illinois it does make sense with an average sales price for a home in 2005 of $119,700, and a median sale price of $100,000 (a record).
I am not a financial planner, or an attorney, or a tax expert. I am a real estate broker. It seems to me that if you were to purchase say an $80,000 home today and keep it for rental, you would have quite a bit of equity, if you have a child currently 5 years old or younger, when they graduate from high school.
Most banks want 25% down on investment property, however many mortgage brokers and banks will loan over 75% of value on non-owner occupied homes. For the sake of example, let's say you put $15,000 down, borrowing $65,000 on a 15 year amortized loan.
You find a tenant that covers the initial mortgage payment, property tax, and insurance escrow. For the first couple of years you cover maintenance out of your pocket. You raise the rent as the market allows, not taking any cash flow from the rent, you place the increased rental amounts into principal reduction on the mortgage. Do this for 10 years and you'll be amazed with the results.
A paid for house. You purchased this home in 2006 for a Valentines gift for your five year old child. By increasing principal pay down each time you increased the rent, the home is now paid off between the 10th and 13th year of the loan. Who paid off the loan? Your tenants or you? What has the properties value risen to by 2016? $100,000? Most likely you can count on 2% annual appreciation. What is the result?
You have a paid for home valued at $100,000 which you now refinance, receiving $75,000 cash at closing to put in your child's college fund. You continue to rent the property, and the tenant again pays off the mortgage over time. This next time it's for your vacation home when you retire!
Of course if the home was purchased for your child, you could gift the home to them following college graduation as they begin their professional career. What a start that would provide them! Just like your parents did for you!
Happy Valentine Day.
If you have children why not buy them a house, or a condo for Valentine Day? Of course not to live in, however as an investment, as their college fund. For you who are in the higher priced markets this may not make sense. For you who live in central Illinois it does make sense with an average sales price for a home in 2005 of $119,700, and a median sale price of $100,000 (a record).
I am not a financial planner, or an attorney, or a tax expert. I am a real estate broker. It seems to me that if you were to purchase say an $80,000 home today and keep it for rental, you would have quite a bit of equity, if you have a child currently 5 years old or younger, when they graduate from high school.
Most banks want 25% down on investment property, however many mortgage brokers and banks will loan over 75% of value on non-owner occupied homes. For the sake of example, let's say you put $15,000 down, borrowing $65,000 on a 15 year amortized loan.
You find a tenant that covers the initial mortgage payment, property tax, and insurance escrow. For the first couple of years you cover maintenance out of your pocket. You raise the rent as the market allows, not taking any cash flow from the rent, you place the increased rental amounts into principal reduction on the mortgage. Do this for 10 years and you'll be amazed with the results.
A paid for house. You purchased this home in 2006 for a Valentines gift for your five year old child. By increasing principal pay down each time you increased the rent, the home is now paid off between the 10th and 13th year of the loan. Who paid off the loan? Your tenants or you? What has the properties value risen to by 2016? $100,000? Most likely you can count on 2% annual appreciation. What is the result?
You have a paid for home valued at $100,000 which you now refinance, receiving $75,000 cash at closing to put in your child's college fund. You continue to rent the property, and the tenant again pays off the mortgage over time. This next time it's for your vacation home when you retire!
Of course if the home was purchased for your child, you could gift the home to them following college graduation as they begin their professional career. What a start that would provide them! Just like your parents did for you!
Happy Valentine Day.
