Tag Archives: christmas list for college students

Would you Pay for a FAFSA Prep Service

A few weeks ago I posted a review of Dave Ramsey’s College Planning Service. You all had mixed reviews of the product, and many people have come down hard on Dave for the product.

So, because I am not Dave, and because I do not have a cushion of millions to fall back on if a product/idea goes bust, I wanted to float an idea by you all before pursuing it any further.

Considering a FAFSA Prep Service

A coworker of mine was talking to me recently about how the lines at our local community college’s financial aid office are out the door each semester. Their office is woefully understaffed and the people who truly need help filling out a FAFSA, or answering their financial aid questions, are swamped.

Do you think these same people would pay to have help completing their FAFSA? Rather than wait in a long line in a financial aid office, would they rather go sit in a cushy chair across from a personalized advisor, and pay to have help filling out the FAFSA?

Consider this, FAFSA.com, the non-government entity run by Student Financial Aid Services, Inc. completes tens of thousands of FAFSA applications each year and they charge $79 for each application. People still pay this fee even though the FAFSA can be completed for free at www.fafsa.ed.gov.

Why do people pay this? To be fair, I know that many folks stumble across FAFSA.com and think it is the official government site, even though it clearly states it is not. SO a portion of these customers are there because of a lack of knowledge.

The rest however, have made it very clear that they are willing to pay for this professional service, and to have personalized assistance in completing their FAFSA.

In talking with a number of these folks, they view it as no different than paying someone else to complete their taxes each year. They know they could do it themselves for free, but they are too busy/confused/lazy to do it themselves.

Does it Defeat the Entire Purpose of Financial Aid?

Does a service of this kind defeat the entire purpose of financial aid? Most often, the people submitting a FAFSA application are the ones who need to qualify for need-based aid. They don’t have $79 lying around to throw away on professional FAFSA assistance.

Would it be highway robbery to provide this service at a cost to college students and their parents?

These are the questions that I am wrestling with. There are many other physical limitations to a service of this kind, but before I move any further in the planning phase of this business, I need to iron out the ethical dilemmas.

I am looking forward to hearing your thoughts!

I’m Writing My First Book – Help Keep me Accountable

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Part requirement for my Master’s thesis, part lifelong dream, part income generation tool, and part social promotion strategy; my first non-fiction book is currently under development. As part of my Master’s course work, I have known that this day would come for a few years now. Getting to this point however, has been a struggle, and it is hard to believe this is actually happening.

Regardless of all of that, the first pages have been written and my book is under way!

I don’t have a title chosen yet, although the working title is “The Smart Way to Pay for College, Post Great Recession”. Please let me know if you have any brilliant ideas for a title.

As you can likely deduce from the working title, the book is a non-fiction guide to helping students, parents, and other family members make smart decisions with college financing. I introduce some unconventional means of raising money to pay for college, and hope to provide a great resource for anyone struggling with the rising costs of college.

I hope that this book can be a handbook to paying for college in 2013 and beyond. The college finance landscape has changed dramatically in the last 5 years, and old tactics won’t work any more. We need to re-tool our thinking if we want to have any hope of being able to afford college when our children decide to go.

As much as I would like, this book’s goal is not to battle the high cost of college tuition. That is a separate beast and one that I can’t tackle alone. My goal however, is to help you manage those rising costs and find ways to negate the rise in college tuition.

Where You Come In

The entire purpose of my book is to help you (students, parents, grandparents, or others) understand and better manage the college finance system.

This is my full-time profession so I feel like I have my finger on the pulse of the hot button issues, but I crave your help in letting me know what questions you have!

What are the burning questions you have about paying for college?

What makes you the most angry about the college finance process?

If you could change one thing (besides getting free tuition…) what would it be?

What are your views on working while going to school?

Do you plan to take out student loans?

I also plan to post outlines, chapters, and excerpts from my ongoing book project here on Money for College Project. My goal is to hold myself accountable to you through my blog, and I hope you will help by calling me out on my progress, and checking in to see how things are coming.

Oh, and if you would be up for an interview let me know because I need to conduct a number of them!

Student Loan Interest Rates Doubled! Are You Ready?

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By now you have likely heard that last Friday, Congress failed to pass an extension which would keep student loan interest rates low. Because of this failure, yesterday, Stafford Subsidized student loans doubled in interest rate from 3.4% to 6.8%!

Yes, these are the loans that are made available to students who come from low to middle income families and also qualify for the Federal Pell Grant. Yes, these are need based loans that just received a doubling of their interest rates.

Both isles of Congress seem fairly set on passing legislation that will reduce these interest rates back to their former levels, but for now, the infighting has prevented any actual measures being passed. Until Congress takes action and changes this interest rate back, any new Stafford loan disbursements made after July 1, 2013 will be under the new interest rate increase. The good news is that if Congress does pass this measure, it would be retroactive in time for the upcoming Fall 2013 semester. So please let your Congressman know how much you would like the interest rates to stay at 3.4%.

What Should You Do?

Unfortunately, if you are in a situation where you need to take out student loans, there is really nothing that you can do. Stafford subsidized and unsubsidized loans are the most competitive interest rate student loans available, and their repayment options are by far the most flexible of any loan type you will find. If you need a student loan, this is still your best choice for a loan.

You can however, try to guard yourself from having to take out student loans at all. You should always max out any “free” financial aid before you consider student loans as an option. Many financial aid award packages automatically bundle student loans in with your financial aid award, but you do not have to be so quick to borrow.

You can maximize your scholarships searching by checking out the free listings at your local library, your high school guidance counselor, your department at college, or your professors. These resources are often excellent resources for scholarships, that not many other folks think to explore.

You could also consider becoming an entrepreneur and starting your own business to pay your way through college. You could buy and sell used textbooks, you could start a furniture moving company moving stuff into and out of dorm rooms, you could start a computer repair service on campus, you could start a mobile coffee cart business, or you could freelance write online for some extra cash.

All of these methods will earn you money which you can then use to pay your tuition outright. In my mind, there is not much more satisfying than working hard and paying cash for something you are passionate about. Paying your own way through college also makes you appreciate what you are paying for and will likely help you be more invested in your education. You will also pick up some very valuable business skills, and develop an entrepreneurial mindset that will benefit you throughout your entire life.

Weekly Roundup: Writing Inspiration Edition

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I had dinner with an old friend last night, and during our conversation he told me that he had published a book last year. I was floored. It was a fiction novel, and he wrote the entire book in about 9 months. We started talking about his writing and publishing experience, and I found out that he has published using a print on demand service, and is currently selling about 125 books a month on Amazon!

As we talked further, he told me that he has hired a narrator who is currently recording an audiobook version of his novel, and he has even been approached by a producer who is considering purchasing the rights to the book to make a movie. Needless to say, I had to find out more!

We talked for a few hours about the entire process, and before the night was over I was completely inspired to go out and get published myself.

I’ve had dreams of being published before, non-fiction rather than fiction, but I have never felt I had the motivation to actually do it. Rekindling an old friendship and knowing someone who is very similar to me has gone through the process successfully, was all the motivation I needed to start typing words into my new non-fiction book.

So here is to keeping up the progress, and hopefully I can report back within the next year that I have published my first book!

Here is what went on at Money for College Project as well as with my Yakezie friends. Enjoy!

Money for College Project

[button link=”http://www.moneyforcollegeproject.com/2013/06/24/weekly-roundup-expensive-landscaping-edition/” color=”red”]Weekly ROundup[/button]

[button link=”http://www.moneyforcollegeproject.com/2013/06/26/10-ways-to-earn-1000-extra-per-month/” color=”red”]7 Ways to Earn $1000 Per Month[/button]

Yakezie Friends

[button link=”http://www.edwardantrobus.com/2013/personal/blue-collar-money-manifesto” color=”green”] Edward Antrobus – Blue Collar Money[/button]

[button link=”http://funancials.biz/how-i-started-investing-in-the-stock-market/” color=”green”] Funancials – How I Started Investing[/button]

[button link=”http://www.ontargetcoach.com/winners-wake-up-early-im-joining-the-5-club/” color=”green”] On Target Coach – The 5 Club[/button]

[button link=”http://www.debtroundup.com/this-is-why-i-save-money/” color=”green”]Debt Roundup – Why I Save[/button]

[button link=”http://knsfinancial.com/traffic-light-camera-scam/” color=”green”] KNS Financial – Traffic Light Camera Scam[/button]

[button link=”http://fatfreepersonalfinance.com/2013/06/12/stop-comparing-your-rent-payment-to-a-mortgage-payment/” color=”green”] Fat Free Finance – Stop Comparing Rent to Mortgage[/button]

[button link=”http://momanddadmoney.com/2013/06/liebster-award.html” color=”green”] Mom and Dad Money – Liebster Award[/button]

[button link=”http://www.stackingbenjamins.com/planning-your-future-sketch-out-your-goals/” color=”green”] Stacking Benjamins – Sketch Your Goals[/button]

[button link=”http://tiethemoneyknot.com/should-you-use-money-to-bribe-your-adult-kids-to-behave-the-way-you-want-them-to/” color=”green”] Tie The Money Knot – Bribe Your Kids[/button]

7 Ways to Earn $1000 Extra Per Month

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Wouldn’t it be great to earn $1000 per month, or more, extra each month?

What freedom would that open up in your monthly budget, in your savings goals, in your wealth creation scheme, in your retirement planning, in your vacation or new car fund?

Regardless of what you would use it for, all of us could use an extra $1000 per month. The trick, is figuring how to actually make that happen. I don’t have any magic formulas here, and certainly no tricks or scams. The ideas I have listed below are all ones that I have either personally tried, or know of folks who have done successfully. Many of these ideas may not be full-time business material, but that is not our goal. Our goal is to create a “muse” or an income generating vehicle that will produce at least $1,000 extra per month, while not take consuming all of our time.

Here are my ideas:

1. Rent Scooters and Bicycles to College Students

College students hate bringing their bulky bicycles down to campus and they hate bringing their expensive scooters from their homes. They also hate having to drive a full size car onto campus, and pay for the ridiculously high parking pass and the unavoidable parking fines. The solution is to buy a collection of used bicycles (both mountain and road bikes) and rent them out to college students. You would charge an upfront fee that would cover the lease for the entire 9 or 12 month school year. You could also rent out scooters, although these would take much more of a significant upfront investment. Your quickest path to profitability is to buy used bikes, and rent these out for $20 to $30 per month. At $20 per month, you would only need to rent out 50 bikes to reach your $1000 per month income goal.

2. Sell Informational Products

You can sell an informational product on any topic, to virtually anyone. If you think hard enough, I can virtually guarantee you that you have a skill that someone would pay you for. Even if this is a physical skill such as woodworking landscaping, plumbing, or fixing cars, these skills can easily be transitioned into informational products. The key to making at least $1,000 per month selling informational products is just that, the ability to sell them. You will need a vehicle for selling, such as a website or a blog, and you will need to understand internet marketing. The upside is huge with this route, and I believe one of the big futures in internet marketing.

3. Create a Membership Site

Similar to the information products above, a membership site allows you to bring in members who pay a monthly subscription fee to be in your special club online. They are willing to pay this fee for the value they receive. This could include exclusive material, private mentoring sessions, one on one examples and coaching, or access to the private membership community. You can base this membership site around any products or genre, but be sure it is one that you are confident you can add value to. Membership sites can be an excellent way to make money, but the members can also be fickle and turn on you if they do not receive the value they expected.

4. Buy and Re-Sell on Craigslist

Last year I was trying to buy a small pressure washer off of Craigslist. I found one I liked, went to the guys’s house, and bought the machine. WHile I was there, I noticed a Stihl chainsaw in his garage. I asked him if this was also for sale, and for how much. He told me yes, he would take $40. I knew the real value, so I offered him $40 and took both machines home. The next day I turned around and listed the Stihl chainsaw for $200 back on Craigslist. I had over 10 calls/emails, and sold it that next day for $190. I made a $150 profit within 48 hours. This can be done consistently through Craigslist as long as you are knowledgeable about the products you are buying. If I was able to replicate this resell 6 times, I would have almost reached my $1,000 mark.

5. Re-Sell Used Textbooks

I do this every semester, and generally make between $1500 to $2000. The trick is to buy textbooks from college students at the end of each semester. I usually hang around the book buy-back trailers around any college campus and find the students walking away from the trailers with books still in tow. Campus bookstores will not buy back a book that has not been requested for the next semester, but that book is still valuable. Often times college students are willing to get a fraction of the value for the book because they are so mad they cannot re-sell their book. Once you have purchased these books from the students, you can then turn around and list these books on Ebay, Craigslist, Amazon, or any number of other book retailers. It involves shipping the books, but it is a great way to make some extra cash.

6. Create a Directory Website for Local Businesses

This is an idea that I have been experimenting with, and am excited about for the future. If you can create a directory website for a local niche business, then you can easily sell marketing space on that website to these same local businesses. The key is to ensure that your website ranks well in search engines for the search terms your customers care about. For example, if you build a website around Nashville Wedding Photography, and your site ranks on the first page of all Google search results for that term, then you can easily sell ad space to all Nashville wedding photographers. Depending on your traffic, you can easily charge anywhere from $30 – $200 per month for a business listing. With a large amount of traffic, you could easily reach $1,000 per month.

7. Perform SEO Services for Real Estate Agents

This sounds like a very niche market, but I can guarantee you that if you spend any amount of time as a blogger, or content editor online then you undersand SEO much better than a real estate agent does. However, for them, their livelihood is increasingly dependent on SEO. Internet traffic now drives the largest percentage of home buyers to their prospective homes. A realtor’s website is their golden ticket. If it ranks well for their local area they can easily see their business double or triple from what it had been previously. This is where you come in. You can offer your SEO services to a real estate agent for a monthly fee. This could include submitting their sites to listing directories, writing blog posts, ensuring their site is optimized properly, tagging their pictures with meta tags, and installing SEO software into their website. Even though you may not be an SEO expert, you will be viewed as one by the vast majority of Real Estate Agents.

Weekly Roundup: Expensive Landscaping Edition

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My wife and I really enjoy having a well kept yard. We enjoy a yard where the grass is mowed, the beds are neatly arranged, the flowers are pruned and orderly, and the beds are freshly mulched each spring. This is a priority for us, and we have built money into our budget to pay for these expenses every year. The biggest expense in maintaining a well kept yard though, is time!

I often do not feel like working in our yard in the evenings when I come home, and I find myself running through blog post ideas as I am mowing our grass. I am great at multi-tasking, but there has to be a balance. A person can only do so many things in one day.

In the end, it comes down to priorities. My wife and I have decided that we are ok to let our yard slip a bit to focus on more income generating tasks (like blogging, and our side businesses). We also enjoy these things, and the freedom/money these extra activities affords us more than compensates for never winning another “yard of the month” sign again…

Here is what went on at Money for College Project as well as with my Yakezie friends. Enjoy!

Money for College Project

[button link=”http://www.moneyforcollegeproject.com/2013/06/18/my-first-fathers-day/” color=”red”]My First Father’s Day[/button]

[button link=”http://www.moneyforcollegeproject.com/2013/06/20/how-to-negotiate-your-financial-aid-package/” color=”red”]How to Negotiate Financial Aid[/button]

Yakezie Friends

[button link=”http://www.edwardantrobus.com/2013/personal/blue-collar-money-manifesto” color=”green”] Edward Antrobus – Blue Collar Money[/button]

[button link=”http://funancials.biz/how-i-started-investing-in-the-stock-market/” color=”green”] Funancials – How I Started Investing[/button]

[button link=”http://www.ontargetcoach.com/national-small-business-week-small-business-is-america/” color=”green”] On Target Coach – Small Business Week[/button]

[button link=”http://www.debtroundup.com/the-weekly-personal-finance-digest-just-trying-to-keep-up/” color=”green”]Debt Roundup – Weekly PF Digest[/button]

[button link=”http://knsfinancial.com/have-a-budget-account-to-keep-you-from-raiding-your-emergency-fund/” color=”green”] KNS Financial – Have a Budget Account[/button]

[button link=”http://momanddadmoney.com/2013/06/bad-for-the-budget-good-for-the-soul.html” color=”green”] Mom and Dad Money – Bad for Budget Good for Soul[/button]

[button link=”http://www.stackingbenjamins.com/shopping-for-nearly-free/” color=”green”] Stacking Benjamins – Big Drugstore Discounts[/button]

[button link=”http://tiethemoneyknot.com/reasons-why-people-buy-life-insurance/” color=”green”] Tie The Money Knot – Why Buy Life Insurance[/button]

How to Negotiate Your Financial Aid Package

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This is the time of year when the rubber meet the roads for college admissions. At this point in the year, most college freshman have already committed to their college of choice. You have paid the admission deposit, you have signed up for Orientation, you are registering for classes, and you are making plans to move into the dorms in August. The final piece of this on-boarding process is your financial aid and your student bill.

Most colleges send out their incoming freshman financial aid award letters well ahead of their returning students. This is done for a number of reasons, but mainly for recruiting purposes. Incoming freshman need to know what financial aid they have been offered in order to accurately assess the best college for them.

SO what do you do when you receive your financial aid award letter? It is negotiable? Can you contact the financial aid office and request/demand that they give you more funds? Are there awards that you can swap out or adjust?

The answer is yes to all of the above.

Demand More Scholarships and Grants

This process will vary from one school to the next but if you have received competitive academic scholarships, you will likely have room to negotiate these amounts. The trick is that you will need to determine who awards the scholarships and who sets their levels. Often, the financial aid counselor you will speak with when calling the financial aid office, cannot adjust anything for you. They will tell you that your awards were ran though the “packager” which looks at a large list of criteria, and you were awarded everything you qualified for. This is true, but there are ways around it.

If you received scholarships from a department, from a program (such as the Honors College, or Graphic COmmunications…) you can contact that department or program directly to request an increase. As these programs manage their funds independently, they are often more flexible in increasing awards than the financial aid office is.

This process also depends on the type of school you choose to attend. A large public institution will be much less likely to be able to adjust your awards than a small private school would be.

The key here is whether or not your school is an enrollment drive school. This means that your school does not receive any state funding and relies solely on the tuition paid by their students for their operating budget. Enrollment drive private schools have a quota of students they must reach each semester, and they will go to great lengths to keep you on their campus. You have a much more powerful negotiating position at a school of this type, than a large public institution.

Loans are Always Adjustable

If you have gone through the negotiation process and requested all of the free grant and scholarship money that you can, you can always adjust your student loans. Decreasing the amount of your student loans is as simple as putting this request in writing or an email to your financial aid office. Increasing this loan may be a bit trickier.

If you receive Direct Stafford Loans, and you have not reached your yearly maximum, you can contact your financial aid office and request an increase. As long as you have not met your cost of attendance for that semester, they will be able to increase your loan.

If you receive private student loans, or a Parent PLUS loan, and they have not certified the entire amount that you or your parent were approved for, then they can go back to increase this amount up to the maximum that was initially approved by the lender. This can be as simple as putting a request in an email and sending it to your financial aid office.

The Bottom Line

Negotiating your financial aid package is all based on your negotiating position. If you are a highly recruited students, or if you attend a small private school then you will have a much greater negotiating position.

However, every student has the right to negotiate their financial aid package. As with job offers, it is much easier to get the free money before you begin your college career than it is to ask for raises once you have already started.

It never hurts to ask!

My First Father’s Day

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This year I had the opportunity to celebrate my first Father’s Day! I just missed it last year as my daughter was born in July, so I had to wait a long time, but it was well worth it. Some of you may know, but my wife and I adopted our baby girl last year. She is a miracle to our family and I could not be more proud as a Dad.

She is not even one yet, so there was no traditional breakfast in bed or washing my car, but she did decorate a really nice coffee mug for me (Thanks to my wife!). I can now start my collection of gifts that have little to no monetary value, yet hold a very special place in your heart.

As I reflect back on Father”s Day it’s interesting to see how my priorities have already shifted. I think much more about saving for college, having good health insurance, noticing what schools we are zoned for, lamenting the fact that our driveway is as steep as a ski slope and my daughter can never safely ride her bike down it, and dreading the day when she becomes a teenager.

My reflections did however, drive me to jot down a list of a few things I need to take care of on behalf of my daughter. I suppose it is the Dad in me now, but I find myself thinking about protecting my daughter quite often. Not physical protection (Although I certainly would it is ever came to that) but financial and life protection.

Here are a few things I plan to do in the next month to protect my daughter’s future.

Open a 529 College Savings Plan

The only reason I have not done this yet was because we were waiting on my daughter’s social security number. The adoption paperwork took a bit longer than anticipated so opening a 529 college savings plan has to be put on hold.

I have been evaluating 529 plans however, and I have narrowed it down to the plans offered through my state (South Carolina) and those offered through Utah. The Utah plans are managed through Vanguard, and I can participate in the plan even though I don’t live in their state. The Utah plan also received an exceptional rating from MorningStar, which is a good enough reference for me!

I plan to invest a bulk of money up front that we had been savings from gifts and presents for my daughter over the past year. After the initial deposit, I plan to invest a small amount each month to take advantage of dollar cost averaging. Working in college finance, it is interesting to hear stories from parents about a 529 plan. One of the main questions I receive is: “How long does it take to process withdrawals?” We charge late fees to students ever year because their 529 college savings plan check arrived late. You can bet I will be asking my prospective plans how long their withdrawal process takes!

Changing my Beneficiaries

This is again something that would have been taken care of much sooner, but we were waiting on my daughter’s social security number. However, now that we have it, we can properly add her as beneficiaries to our private term life insurance policies, my life insurance policy through work, my retirement accounts, and all of our savings/checking accounts.

It is hard to keep track of every place that has you designate a beneficiary, so it is a good idea to keep a running list of those places whenever you are asked to designate one.

Create a Will

Finally, my wife and I need to create a will. It will be very simple, but to avoid a lengthy stressful court process, should it ever be needed, a simple will will save a lot of trouble.

I have looked at services such as LegalZoom.com but I chose to go with a lawyer in town who will create a simple will for my wife and I for $120. The ease of being able to ask him many questions and draft our will just as we want it, is worth much more than $120.

Also, knowing that my daughter will be well cared for should something ever happen to my wife and I lets me rest easier at night.

The Bottom Line

There is no way to protect our children from all harms that will come to them. In fact, many trials are often great teaching experience for children. However, I want my daughter to be protected and well cared for should something ever happen to me.

What ways to you plan and save to provide and protect the future of your children?

Weekly Roundup: Crazy Weather Edition

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The past few weeks have made for some miserable weather here in the southeast. We have had storm after storm, and one tornado warning after another. The northeast has seen high winds, flooding, and power outages, the west coast has seen wild fires, strong storms, and flooding, and how can we forget about the deadly tornadoes cycling through Oklahoma!

Weather can be unpredictable, which is why it is a good idea to be prepared. You should have an emergency evacuation plan, a survival kit/first-aid kit, a remote location to seek shelter in, and emergency food and communication supplies. Your finances can also be unpredictable, which is why you should listen to the awesome financial advice from my friends below!

Here is what went on at Money for College Project as well as with my Yakezie friends. Enjoy!

Money for College Project

[button link=”http://www.moneyforcollegeproject.com/2013/06/07/review-dave-ramseys-custom-college-guide/” color=”red”]Dave Ramsey’s Custom College Guide[/button]

[button link=”http://www.moneyforcollegeproject.com/2013/06/05/how-to-manage-the-career-transition-from-non-profit-to-corporate/” color=”red”]Non-Profit to Corporate[/button]

[button link=”http://www.moneyforcollegeproject.com/2013/06/12/how-to-build-a-rental-real-estate-empire/” color=”red”] How to Build a Real Estate Empire[/button]

Yakezie Friends

[button link=”http://www.edwardantrobus.com/2013/personal/financial/how-much-money-need-retirement” color=”green”] Edward Antrobus – How Much Money for Retirement?[/button]

[button link=”http://funancials.biz/how-to-quickly-double-your-money/” color=”green”] Funancials – How to Double Your Money[/button]

[button link=”http://www.ontargetcoach.com/why-you-need-an-emergency-fund-reason-1-blown-tire/” color=”green”] On Target Coach – Why You Need an Emergency Fund[/button]

[button link=”http://www.debtroundup.com/what-the-banks-know-about-you-credit/” color=”green”]Debt Roundup – The Credit History Check[/button]

[button link=”http://knsfinancial.com/how-to-negotiate-with-collection-agencies/” color=”green”] KNS Financial – How to Negotiate with Collection Agencies[/button]

[button link=”http://momanddadmoney.com/2013/06/coffee-and-debt.html” color=”green”] Mom and Dad Money – Coffee Habit = Debt Habit?[/button]

[button link=”http://www.stackingbenjamins.com/how-to-become-a-great-saver/” color=”green”] Stacking Benjamins – How to Become a Great Saver[/button]

[button link=”http://tiethemoneyknot.com/fathers-day-financial-lessons/” color=”green”] Tie The Money Knot – Father’s Day Financial Lessons[/button]

How to Build a Rental Real Estate Empire

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This past weekend I had the opportunity to sit down with a friend of mine to talk about real estate. Specifically, I was picking his brain about how he built his successful rental real estate business. He currently owns 22 properties, all mortgage free, and he is buying more properties at a rate of 2 – 3 per year. He has acquired all 22 of his properties in the past 12 years.

Here is how he did it…

The First Rental is the Hardest

Getting your first rental property is the hardest. My friend, let’s call him Jack, bought his first property seven years ago as a “fixer upper” foreclosure. He had saved up around $15,000 in cash from working extra jobs, and from a bonus at work to have the money needed for the down payment. He bought the house for right at $100,000. He then did most of the repair work himself, and spent $5,000 getting the house cleaned up and move-in ready. His mortgage payment, with higher rental taxes and insurance, was $600 per month. After doing a good bit of rental market research he listed his rental property at $800 per month rent. He listed on Craigslist, through social media, and by placing a sign in the front yard. He had signed his first tenants within two weeks of listing his home for rent.

Jack now had a tenant in his home, paying the mortgage for him, with an extra $200 per month. He made the wise decision of putting $50 of that surplus into a savings account to pay for any necessary repairs to the home. He then put the additional $150 towards extra mortgage principle payments. Just by adding that additional $150 to the mortgage payment, he was able to shave 12 years off of the estimated 30 year mortgage repayment schedule. But that was not fast enough for Jack. He also continued to work extra jobs, and put every extra paycheck, every bonus check, every tax refund, every gift that he received towards the principle down payment. Fast forward two years, and he was able to pay off his mortgage in full.

Jack now had one rental property, free and clear, that was giving him $800 per month income.

The Dominoes Started to Fall…

Dominoes falling is a good thing right? Well, for Jack it sure was. Once he had paid off his first rental property he was hungry for more. He began saving the $800 per month from his first tenant, and soon had enough funds for another down payment on a new rental property. He again bought a house through foreclosure, but this home was practically move-in ready and he did not have any expenses in repairs. He spent $80,000 on this new home, but because it was in a better neighborhood, with 3 bedroom and 2 baths, he was able to charge $1000 per month in rent. He had new tenants within a week. Between the two properties he was now bringing in $1800 per month in rental income that he applied entirely to the new mortgage principle. Again, with the combination of extra side job paychecks, he was able to payoff the mortgage on this new property within 2 years.

Jack’s third home purchase went a bit differently. He was trying to figure out a way to generate more cash quickly, so he could use that as seed money for additional rental properties. He decided he would buy a house and try to “flip” it. He again bought a small bungalow as a foreclosure, and spent about 2 months doing repairs himself, and getting the home move-in ready. With a very quick turnaround, he ended up netting almost $60,000 when he re-sold the home. Please remember that this was in 2005 at the height of the real estate market. I think it is still possible, although much more difficult, to “flip” houses for this sort of profit in today’s real estate market.

However, he used that $60,000 to purchase a third rental property. Paid it off in full in a few months, and now had three properties generating rental income each month.

From that point, his system went as follows: Take rental income from all properties and apply towards mortgage payoff, once mortgage on new property is paid off apply the rental income towards down payment for next home, buy next home, apply rental income towards mortgage payoff, save for downpayment, buy next home, apply rental income towards mortgage payoff, etc….you get the idea! He was also saving a little out of each rental check to pay for repairs on any of the houses that the security deposit would not cover.

Fast forward to today and Jack now has 22 properties generating net rental income of around $20,000 per month. He can now payoff a brand new $100,000 rental property within 5 months, and rent it for $1,000 per month. He has literally built a rental real estate empire.

Can We Replicate This?

Jack’s system makes a lot of sense, and I REALLY appreciate his stance on paying off very rental property before purchasing a new one. This virtually eliminates the risk from investing in real estate. If a rental property were to sit vacant for a few months due to repairs or to finding a new tenant, there is no mortgage payment to front.

Jack was also blessed with the ability to work extra jobs and generate significant extra income to put large extra payments towards the mortgage principle. I think this is entirely possible for anyone, maybe just on a more extended time frame. 6-8 years may be a more realistic mortgage payoff schedule. However, once you have one rental property free and clear, you have an instant boost to your mortgage payoff plan.

Jack is also a very handy man. He has taken on almost all of the home repairs himself, or has contracted the work out to people to knows well. This has saved him a lot of time and money in arranging and paying for repairs. Now that he has such a large number of properties however, he is contemplating hiring a part-time handy man to handle all of the repairs for him. I told Jack I thought he would be crazy not too.

One option that may be a bit more attainable for you and I, is to apply these same principles towards our primary residence. We can apply all of our extra income towards paying off the principle on our primary residence. Once we are able to pay off our primary residence we can move homes and rent out the old house. You can then apply the rental income from the old house, with your regular mortgage payment, plus any extra income, and payoff your new home mortgage very quickly. Rather than moving again so quickly, you could then buy a new house as a rental and continue applying your regular monthly mortgage payment plus all rental income towards paying off that property.

Whatever route you decide to take, please understand that there is risks involved, and everyone is not cut out to be a landlord. However, if you make smart decisions, there is serious wealth to be made!