Is Real Estate A Good Choice For Investing For A Child By A Parent?
Wе hаνе a kid whο јυѕt ɡοt іntο college аnԁ wе аrе thinking οf whаt tο invest іn ѕο thаt whеn hе іѕ out οf college thе investment саn bе handed over tο hіm. Wе wеrе considering Real Estate аnԁ Stocks. Whісh іѕ preferable?
Parents like you should develop a solid plan so that you can support your kids all the way through college. Your decision is very important because you can only benefit from real estate investing over the long term. You can’t expect immediate success in the real estate business. You need to be dedicated, knowledgeable, patient, and hardworking. You need to devise a solid investment plan to ensure that your money will not go to waste. Students often rely on scholarships, student loans, part time jobs, and savings to pursue their studies. Now, there is another option and that is real estate investing. Even the students can take part in the decisions related to real estate investments.
It would take several years before you can see the fruits of your labor. While you’re child is young, you should already consider real estate investing. Learn from the experts and try to contact a mortgage broker. Also, don’t forget to choose a real estate attorney to help you with all the legal matters. Savings is very important and you should already have one named after your child. Your child will surely be able to pursue any college degree if you prepared for his or her future at an early date.
Parents should consider building an investment portfolio for their kids to support the college years. If you already have a savings account, you can earn interest on the real estate investments. Most parents are hesitant to be in the real estate business especially if their children are still young. But this should not be the case; set long term goals and start real estate investing now. When you’re child is already older, you will still need to establish short term goals. By starting early, you can already learn so much from the market conditions.
I think it comes down to your level of comfort and your long term goals for the investment. If you’d simply like to help your child purchase a home, you can help your child when they finish college with the FHA loan program which allows you (as parents) to co-borrower and help with down payment with them and not have the loan classified as an investment property. The advantage here is your child begins building mortgage credit at that time. If you purchase ahead and hand over to your child, you can certainly put them on title to give them ownership but they wouldn’t be building their credit profile in this case…and credit is certainly important.
Certainly, stocks would come down to your level of comfort in this arena, your time investment time horizon and risk tolerance, but stocks can definitely yield gains over the long run and be a very solid way to give your child a head start in the area of finance.
If you have a financial advisor that you trust, consult with them so they can help you take a closer look at both options.
I did this for my son and daughter when they entered college.
Ideally, you put some money in both stocks and real estate. Some good solid mutual funds with a good track record for increasing in value over long period of time, and partial ownership in real estate.
Remember, you can only give him $10,000 per year or he will have to file it as income and pay taxes on it. Be sure to put the mutual funds in an tax deferred account such as College Savings Account or IRA. so YOU don’t have to pay income taxes on the appreciation / interest earned. Your son can pay the taxes when he draws the money out, at a much lower tax rate than you pay (college students normally have low income tax brackets)
I bought a rental and put $10,000 in his name worth in his name. We shared the tax advantages and income from the rental unit based on his % of ownership. When he graduated we sold the rental for twice what we paid. He received a share of the sales proceeds based on his % of investment.
It gave him a nice sum to start out life on and he still has the Mutual Fund Shares to use when needed.
Real estate is the way to go IF you can afford it. They have excellent tax benefits. But since it takes a lot of work managing it, you may want to hold off until you get out of college. Try stocks now. If you’re a rookie in investing or stocks, go to
http://www.finance.yahoo.com.
Open up a portfolio without using real money. You can give yourself as much or as little money to try out the market. The stocks you want to focus on is consumer staples, consumer discretionary, and healthcare. These are DEFENSIVE stocks that will survive through good and bad times. Most of my positions are in these stocks. Some names include 3M, Procter & Gamble, Kimberly Clark, Exxon Mobil, Walmart, Costco. Everybody’s got to eat and wipe their butts regardless of the state of economy. Many of these companies survived through the Great Depression.
That’s the benefits. You can sleep at night knowing your money is doing well. There are NO guarantees that you won’t lose money. It’s just that these stocks are the best. They pay good dividends too.
Then once you’re comfortable and test the waters of the market, you can finally put some real money in. Go to Scottrade.com. They’re excellent for beginners.
I’m a Realtor in a college town. I’ve helped many parents buy a property for there children to live in while they are in school. They have to pay to live somewhere any way. why not in there own place. Many have roommates that help with the mortgage and utilities so it doesn’t cost more, and some times it is less then paying rent. When they finish school after 4-5 years they sell it and use the equity to buy a home where they get a job.
Every market is different, but here we average about 5%-6% annual appreciation. Ever in this down turn, our market has been stable.