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Originally Posted by LS1-IROC
Wow..lots of good reading here!
I'm curious as to what the best way to save for college is. My wife and I have a little one on the way and want to start right away saving for their college fund. I'm wondering if a 529 plan is better or should I just buy big company stable stocks?
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A 529 plan is definitely the way to go. Look at Utah's, it was one of the best when I was researching them a while back. Neveda's was also pretty good if I recall. You don't have to live in the state to invest in their plan either. If you do happen to live in a state with a good plan and invest in it, you get a state income tax deduction on your contributions but this is not a good enough reason to invest in your home state if another state has a better plan. A nice benefit to these plans is once they are set up, anyone like other family members can make conributions to the plan directly. Most of them also have automatic plans where the money gradually makes it's way into bond funds as the child gets closer to college age, or you can manage your choices yourself within the plan. Check out this link, and the entire website:
http://www.savingforcollege.com/intr...-529-plans.php
A measure I like to use for rental property when borrowing money to pay for it is it's CAP rate . (see here:
http://en.wikipedia.org/wiki/Capitalization_rate). Basically, if you can borrow the money at a lower interest rate than the cap you are earning interest on the borrowed money. This in itself doesn't automatically make it a good investment though, it's just a starting point.
Example:
Property CAP rate 8%
Mortgage Interest Rate 6%
This 2% spread is what you are effectively earning on the borrowed money. The CAP rate is based on the current market value of the property though, not necessarily what you pay for it. Therefore, if the property goes up in value but the rents don't increase the CAP rate goes down which could mean less potential buyers if you want to sell. The flipside to that is if you are able to raise the rents and the market value doesn't increase the CAP rate goes up! Also, the higher the CAP rate, the more risky GENERALLY the property is. Upscale fancy Class A properties usually have a lower CAP rate but a more stable tenant base as well as "pride of ownership" and often times less risk than a Class C or D property which might have a higher CAP rate and cash flow every month but probably isn't something you want to show off to your Lat-G buddies
