Saving for the baby's future

My Son-in-law mentioned to me he was wondering how best to save for his son's future, or in his words, how to jump start his then six months old sons future. I always found it interesting how young folks get interested in other peoples future after they have a kid of their own.

We talked about how much money it would take eighteen years hence, for his son to go to college and have a little financial start in life. Maybe $200,000 there abouts? If the young couple saved that, how much would it take a month in savings to get there? Let us assume the interest rate would be 5% compounded quarterly the needed investment would be $560.00 per month. At an 8% interest rate the monthly the amount would be $400. As my son-in-law said that's not going to happen.

So I asked him if he would keep an open mind I would suggest another method to reach the goal he wanted for his son. With in blocks of were we where sitting there are homes in the $60, 000 to $80, 000 dollar price range. The houses would rent for about $750.00 per month. Lets say we buy one of them with $4,000 down and finance the house for 15 years. We rent it out with you doing any light maintenance and we save any profits to pay the income tax and repairs. At the end of fifteen years the house will be paid for, we then save all the rent towards college. At age eighteen your son will have a house renting by then for at least $1,000 a month, he will have some money in the bank, say about $40,000 and a paid for house worth by then about $120,000.

We solved the savings problem using OPM (other peoples money) the rent. The tax payments and maintenance cost all from the rent collected. We reach the goal without personal savings. Our cost is $4K up front and some labor maybe a few head aches along the way.

Here are the numbers

buy house $70,000

finance $66, 000 (Fifteen years at 6.5%)

Payments $574.93

Rent $750.00

net cash flow after payments, taxes, insurance and expenses $50

taxes; none after depreciation, at least in early years.

Notes:

Raise rents 3% a year

build up a cushion for repairs and vacancy

The problem with innovative solutions to problems is getting people to implement them. I will have to work on my son in law and help them get started but it beats any other solution I can think of. I'll let you know how it goes.

By the way, I got rich without saving any money, this is pretty much how I did it. OPM.