College Planning...529 or Real Estate?

Good afternoon,

An interesting thing occurred to me this week in talking with a few of my clients.

Have you ever considered how to fund the rising cost of college for your children's education? Last night, I was posed this question, "No one funded my college. Is it wrong for me to make my children fund their own college?"

Wow! That is a big question. One worth looking into.

There really is no right or wrong way to plan for our children's educational costs in the future. There are only many different choices. For example the Buzz word for College Funding these days is the 529 Plan offered by many financial advisors across America. I have many friends invested in these plans for their children's future education. Congratulations to them for taking action.

The 529 plan is simple. Save a set amount with tax free growth as long as the money is used for education costs. You get the tax deduction on the front side and grow the fund tax free for all intensive purposes. Similar to the old traditional IRA set up for our retirement. This is very easy to set up and beneficiaries can be changed any time if your child does not use the money themselves.

In this type of funding plan, a person can set up monthly allotments that can be automatically invested without having to think about it. Very nice feature. The investment is tied directly to the stock market in the vehicle of your choosing. If you have the stomach for the up's and downs of the market, this is a great vehicle for you.

Example: You have $2000 today and your child is 3 years old. You've got 15 years until the money will be needed. You have an extra $150 per month you can invest. With an 8% return on your investment, this account will grow to $58,520 over the next 15 years. Estimates show that a year of college in 15 years will escalate to $30,000+ per year for a state school. There is a gap and need for other types of funding to help with this rising cost.

Another option for funding education costs is Real Estate. Take for example a $200,000 home today that can rent for $1,250-1,500 per month near the university. A mortgage lender will require a 10% investment of $20,000 to buy the home. Over the next 15 years the same $200,000 home with a $180,000 loan will appreciate using 6% to $490,800. The mortgage balance (paid by the renter) is $132,000 leaving a net equity of $358,800. It is quite a difference from the other plan.

Neither plan is right or wrong. Keep in mind that with Real Estate comes other responsibilities, so it may or may not be right for you to help fund your child's education. It is meerly an option to consider.

If you would like to sit down to look at your personal scenario, please feel free to call me to schedule a time. 505-884-8600.

Have a great day!
Joshua

BE - DO - HAVE

I've been reading The Cash Flow Quadrant by Robert Kiyosaki lately. In his book and in most of his teaching, Robert addresses the issue of how we think about money in a variety of different ways. I've heard this analolgy used a few different times, but I think it is very important to bring up here.

It is a very simple idea called BE - DO - HAVE

Think about it like this. As human BEings, we live in a society and world where competition and keeping up with the Joneses is so important. The Joneses HAVE the house, the cars, the job, the toys, and etc. that we so badly want, so we invite them over for dinner to find out how they acheived this great success. Now we know what we need to DO to get what we want to HAVE, right?

So why is it that when we DO all the "right" things, we still don't HAVE the Joneses success? Well the one thing the Joneses may not have told you is that you have to have the right mind set about what you want. This is the BE part. It is the most important part that is missing most often. Therefore, we become a great culture of human DOers rather than human BEings.

Think about all of the great athletes you've known in your time. They all say that they "saw" the victory before they competed. What about you? Do you have a long term vision of success?

See, acquiring great wealth is a matter of thinking and seeing things differently than the DOers in our world. Amazingly enough, I am at the begining of Seeing more clearly for the first time.

Can you relate? Questions like: I'm smarter than him, why can't I get the breaks he gets? I've got my degree, but why does the guy who barely finished high school make more than me? It's not fair! I work hard, why can't I seem to get ahead?

The difference is not so much in what you do, it is in how you think about what you do. See, your thoughts are very powerful and will ultimately determine your actions. You can't determine any kind of action without first thinking about it. Think about that for a minute...LOL...

We have clearly exited the Industrial Age and entered into the Information Age. In the Industrial Age, hard work was key to long term success. Today, Information is key to long term success. The rules have changed! Have you?

My suggestion to you is quite simple. Get a new education. Find mentors who are living the way you want to live and learn how they think so you'll know how they did it. Read Books. Go to seminars and learn from people who have been there.

A good friend of mine told me yesterday it's like Fly Fishing. Why would you stand in the rapids, the busiest part of the river where you can't see the fish, when you can follow the stream down to the calmer pools of water where the fish are hanging out. It's all about knowing how to think or you'll spend a lot of time in the Raging Rapids not getting anywhere quickly and wearing yourself out doing it.

If you'd like to discuss this in more detail, please call me 505-250-1944.

Buy or Remodel?

So lately, the mortgage industry has been a bit unstable and volatile in lending standards and guidelines. People who work in the industry can't give a straight answer anymore about what lenders will or will not do. When I take a loan application these days, we have a moving target that we're shooting for to acquire loan funding.

So where does that leave us?

Have you been to Home Depot or Lowes lately? The last few weekends as I've gone over, the places are packed. My neighborhood has truckloads of lumber, roofers, and contractors running all over the place.

A couple of years ago people were selling their homes and moving up to bigger homes. With the mortgage and real estate markets the way they are currently, many people have chosen to remodel thier existing homes to weather the storm.

What are some things to consider?
1. Why are you considering selling/buying? Is your family growing, so you need more space? Is your job relocating you? Are you facing divorce or medical problems? Whatever the reason, be sure to weigh this carefully.

2. Do you have a home to sell before moving? Go back to question 1 and decide if selling right now is the best option. If it is, be sure to work with a reputable Realtor to help you market your home. Do not try to do this on your own in our current market. Statistics show that "For Sale by Owner" homes sell about 10% below what they should and take longer to do so. Be realistic in your asking price. If you're basing your price on the other homes in the neighborhood, chances are you are priced too high just like them.

3. What is your budget? Most of the people I know who go into purchasing a new home or remodeling start their desired project without a budget in mind. They "wing" it. Thousands of dollars are lost in this process. Give yourself a solid plan before running to Home Depot.

4. Do you know how to do the work? Sometimes doing the work can be a lot of fun, but if you don't know how to do it, you'll have to hire a contractor who will charge you double to triple the cost. Can you recoup this cost if you sell next year? If not, perhaps selling at a slightly reduced price will allow you to move to a home with the desired features you're looking for.

So, whether you are going to buy or remodel, keep these four simple truths close to you when making the decision. It is a fantastic time to buy a new home if you consider everything is on sale! In Real Estate, this really is the most affordable time to buy.

Have a plan. Talk to your advisers who can help you make the decision that is right for you and your family.

Good luck! Call me if you have any questions. 505-884-8600

Joshua