Principle Two: Investments – Xers, 529 Plans, and Real Estate

Two of the challenges for gen Xers are college savings and retirement.  As a lot, we tend to be cynical about social security, and even pension systems for those of us lucky enough to have them. We are mixed about our 401(K) contributions. We are, however, as a group, fiercely committed to college education for our kids.  Along with getting them on the preschool list while still in-utero, many of us started college savings at the same point we started baby sign language, underwater swim classes, and flash cards.  (That’s what happens when latch-key kids parent… big pendulum swing)

So, like many, my husband and I socked a big chunk away when our daughter was one (2004). At that that time with the market and current investment thinking, we felt pretty confident that our 20K investment would be a solid base for college and we could breathe easily for a while.  Then it went to 25K (great), then 27K (on track), then 15k (panic and hold) and finally in spring of last year 2009 is settled in at 22K.  So five years, $2000 gain.  Treading water? Hello community college two-year plan? Summer Euro rail pass and then you are on your own? Better earn your living as a musician like grandpa did?

I work in higher education and am watching fees rise at unprecedented rates.  This was never going to work.

So we changed course.  When our daughter turned seven in June 2010, we pulled the money out of the 529 plan (paying 10% penalty on the interest = $200, they make it sound so much worse), and jumped into investment real estate. When I say jumped, I mean researched, obsessed, gathered info, learned from friends’ horror stories, poured over blogs and stats, researched some more, found the best experts in the business, ignored or debated the naysayers, and then jumped.

We bought a 90K home in Memphis, TN from a high integrity, reputable company that specializes in offering positive cash flow real estate to investors.  They specialize in Memphis because of the 400 metro areas in the U.S., the numbers in Memphis work best.  High rents, low home prices, low insurance, low incidence of severe weather/natural disasters, great local economy (Fed Ex, health care), Elvis and good BBQ.  O.K, the last two are my own additions.

Our 3Br/2Ba home in Memphis rents for $1000/month.  So with total expense of $670/month (mortgage, insurance, taxes, property management, maintenance), we are cash positive $330 per month.  We bought in June with a down payment of $23K +4K in closing costs (27K). Since that time, we have already earned over $2300 in cash (mostly tax free due to depreciation). 

20 K Investments, $2200 Return in 6 Years

Vs.

27 K Investments, $2300 Return in 8 Months

This is just cash in hand. This does not take into account equity buildup or appreciation (modest 5% is historical average) that will help ensure we have additional cash upon exit.

So, Principle Two "Invest in sound real estate and business opportunities" -  check. We plan to purchase another home this June with the cash flow and the money saved from Principle One.  And Mila will be going to college, or shredding on the drums in a blues band in one of her several homes in Memphis…..