"Going Away to College" by Blink-182
Most people have lots of things to save for but not always enough discretionary income after life essentials have been met. A relatively small monetary investment in a rental home or small plex can control a good property that will easily rent, generate positive cash flows and pay for itself. The borrowed funds create leverage that earn a return on the total value of the home and not just the amount of cash you have invested. And, (carefully and sensibly) leveraging other people's money is a very good strategy! The plan is to find a single family, small multi-plex or condo that will rent well in a good location. (I have a personal philosophy to purchase where you would've lived yourself...perhaps a younger version of yourself, and you will relate to your tenants plus appreciate the real estate more). I have also found that multi-plexes tend to have a better ROI (return on investment) than other types of real property. But, your personal situation and goals may demand a different strategy!
Rent the home and maintain its condition over the years. As the loan amortizes (is slowly paid off) and the value increases, the equity will grow. When your student is ready to start college, you'll actually have several options. You can sell the property; pay the tax on the gain at the reduced capital gains rate and fund the education. (We won't know until after congress fully negotiates the upcoming "fiscal cliff" what the new capital gains tax might be, but it has traditionally been less than normal tax rates). Another option would be to refinance and take the proceeds to pay for the tuition (I have a lead on a lender in town that will "cash-out" refinance investment properties). This would allow you to continue to own the asset but would free your equity and under current tax laws is a non-taxable event. Or you could keep the property and simply utilize the growing passive income (as rents increase) to pay college expenses!
Regardless of whether you're trying to plan for your children's education or your own retirement, rental property offers many solid investment opportunities and can be a great addition to an existing financial plan! Contact me if you want more information.