<p>We are just beginning this process as I have a rising senior. We do own rental real estate that has not been profitable through the crash, and we have had losses every year, though we do fortunately have good long-term tenants that are covering costs.</p>
<p>I’m wondering how this affects EFC, if at all? Are we expected to sell real estate or is that side business simply examined for profitability (none, because of the past few years!)?</p>
<p>Does anyone know how all of this works when you own rental housing? If we were expected to sell, after the government took the bite of capital gains and selling costs, there wouldn’t be a lot of money left.</p>
<p>I am replying based on my experience. We own a condo with no mortgage. Like you we have long term tenants who pay market rent. after taxes and HOA we have about $700 a month in profit. Our income is less thank $200k yearly. Our EFC each year for the last 3 years has been $63K a year which would mean we would not eat etc. since it represents almost half of our take home income. When you take $63K per year and multiple it by four years you get exactly what the value is of the condo we owe. So to answer your question they do expect you to tap into that assest and if means selling your rental property to meet your EFC then that is what you have to do. </p>
<p>Be sure to run your numbers in the EFC estimator that is available online now. When we got such a high number (and we didn’t want to sell due to tax reasons as well as this would mean child #1 got all the money so where does that leave child #2) we then had child #1 focus on schools that would offer merit scholarships for his grades and test scores. Fortunately he received a lot of merit money and attends Ohio State on a full-merit ride. We are now in the college admission process with child #2 and like her brother she has had least 8 schools on her list that will offer her merit money. We made a deal with both of them that if they got into their “dream” schools which offered no merit we would be willing to sell the condo to help pay for their education. Child #1 did not get into his dream schools so it wasn’t an issue. In fact he loves his current college so much that he always said what he thought was his dream school back in high school really wasn’t and that his current college is really a much better fit. He loves that he doesn’t have to worry about how to pay for college each year. </p>
<p>Since you are just beginning I strongly suggest you read “The College Solution” by Lynn O’Shaughnessy and that you read the articles on her website by the same name. [The</a> College Solution | The College Solution](<a href=“http://www.thecollegesolution.com%5DThe”>http://www.thecollegesolution.com) This book is one of the best on the financial aspects of college admission and we used her suggestions with our son. Our children were not valedictorians and did not have super high SAT scores but they were good students with good test scores who had some nice EC’s. Also and this is very critical; have your rising senior do his/her college applications this summer and apply early. Most colleges give our merit money for those that apply early. My DS had his apps for merit schools all done and submitted between August and Oct. His sister will do the same. So for any school your rising senior is interested be sure to ask about merit money and what it takes to get awarded those scholarships. </p>
<p>Good luck. Trust me the more you and your child become educated about the process and really do the research into colleges and how to reduce your cost the better you and your child will be next year.</p>
<p>Unfortunately, the answer to this question is going to vary from college to college. It’s this sort of issue where financial aid policies vary, a lot, especially if you also have younger kids.</p>
<p>Some colleges don’t take asset values into account at all, just income, but those tend not to be the colleges that guarantee significant need-based aid. Some colleges effectively say “Liquidate the asset and use it all for kid #1, then we’ll give aid to kid #2 if he happens to come here.” Some will divide the asset value among all of your kids, and even consider it in the context of your retirement savings. But even most of these would essentially ask you to borrow against the value of the property to pay tuition.</p>
<p>It might help if you think about this from the college’s perspective. If they allowed families to leave assets such as rental real estate untapped, it would encourage applicants to move their cash into these assets.</p>
<p>Say a family has $200k cash saved for college. A school that uses CSS Profile would require 5.6% of this amount (roughly $11k) each year. If the family could instead simply buy a beach house and rent it out enough to break even on paper, then the money would have effectively disappeared. Upon the student’s graduation, the family would still own the beach house free and clear without having incurred any out-of-pocket expenses and have saved over $40k in college expenses. In fact, they likely would have enjoyed appreciation of the real estate as well.</p>
<p>JHS…I think all colleges consider assets over a certain limit. AND real estate in addition to your primary home would absolutely be an asset.</p>
<p>RML…that 5.6% used for assets is a FAFSA number. Colleges using the CSSProfile can assess parent assets at any %age they choose when determining parent contributions.</p>
<p>Our experience was that some schools expected one to liquidate such an asset and pay it towards tuition over 4 years. In our case, that resulted in an EFC according to them of about $20K on a roughly $30K income. Since we could not in fact sell or borrow against the asset–of which H owns only a third, and which just breaks even, and which we can’t even use–this placed us in a difficult position. Luckily, some schools were willing to listen to reason. Others were not.</p>
<p>itsv, are you saying that if a school’s RD deadline is January 15, 2014, an applicant that applies on October 1st, 2013 has a better chance for merit aid than an applicant that applies on January 14th?</p>
<p>sschickens, that is true at some schools, especially those with rolling admissions that award scholarships with acceptance. My D had one that admitted her in November and offered the scholarship then. For kids applying later, the merit money can be gone. Another school had a ‘priority review’ early date and said if you were looking for scholarships you should apply by the early date. It doesn’t seem to be true for those who wait for March to notify of acceptances, but you need to do your research on each school.</p>
<p>UMD-CP has a “priority app” and it must be submitted by that date to be considered for merit $$. It was 12/1 for my older S and 11/1 for my younger one. We still didn’t hear til late January about acceptances, and mid-late March for merit $$. </p>
<p>You can check those things on the schools’ websites now, but <em>check again</em> at the end of the summer, because sometimes schools change their policies over the summer as they do post-mortems on the previous admissions cycle and upcoming budget analysis. Several big CC schools modified their guaranteed packages over the past couple of years and some folks didn’t find out til later in the game that the rules had changed.</p>
<p>Thanks, Mamabear, I’ve heard ‘whispers’ that it might be true of some schools, but I’ve never heard it verified. I’ll keep that in mind moving forward.</p>
<p>Yes, some schools run out of “merit” money for the later applicants. If you are interested in Univ. of Pittsburgh, apply as early as you can. The application is available in July.</p>
I think it’s misleading to suggest that they expect you to sell such an asset. Schools don’t specify what they expect you to do with it other than pulling money from it one way or another. In many cases, one could do so by taking home equity loans or cash-out refinancing, rather than outright selling of the property.</p>
The amount of equity you have in the property is counted as an asset and a higher rate is applied to it than to income for computing EFC. The rent itself is counted as income according to what you put on your 1040. If a lot of your 1040 Schedule E deduction is Depreciation, some may be added back in depending on the school. For FAFSA, they did not ask what the depreciation numbers were, so I’m assuming they just use your net 1040 rental income.</p>
<p>Are you required to sell assets? Well, that is up to you. We intended to “sell” our rentals back in 2007 to supplement the college funds, but the market dried up and no one would write mortgages in michigan for rentals (and many insurance companies stopped writing insurance policies) and rentals that people did want to sell were sitting on the market for over 400 days at fire sale prices, so if you don’t want to tap into a particular asset, then you have to find it somewhere else…as someone said, colleges expect you to pay from savings, current income and future income but they dont’ tell you how to make that work, that is up to you. You are in the driver’s seat as far as how much you are willing to pay for college and how that plays out when determining where to apply. </p>
<p>And yes, at many colleges the early bird gets the worm. For all three of my kids they had colleges that had Dec. 1 application dates for “scholarships” many of which had a need component.</p>
<p>SSchickens as mamabear and others have stated-some schools do run out of merit so it behooves your child to apply early. Other schools may have a RD decision of 2/1 but if you look at colleges’ merit scholarship page on their website you would discover language to the effect of “for merit scholarship consideration students must apply by an earlier date” Thus for Ohio State with my son he had to apply by Dec. 1. In helping child #2 get organized this week we are seeing deadlines as early as Oct. 15 for merit scholarship consideration. </p>
<p>Many students and parents blow this deadline difference therefore I urge you and the OP to be mindful of all dates. So if you are doing a chart for all aspects of college admissions be sure to include “application deadline” and “scholarship consideration deadline.”</p>
<p>Also if you look at admission rates between early action and regular decision you would see that EA always has an better rate of acceptance versus RD. Therefore if you child is in a position to apply EA at a school they should.</p>
<p>That 5.6% for assets is a FAFSA number. It does NOT necessarily apply to schools using the Profile which can assess assets using any %age they choose to use!</p>
<p>Sally…that 5.6% is for assets. The FAFSA formula is heavily weighted towards income. Your income is used far more than your assets…again FAFSA only! And the FAFSA doesn’t even ask about primary home value.</p>
<p>Not so little for all 4 years. And then if you have more than 1 kid the 5.6% keeps on going for the second and possibly more although you are depleting the asset. Also presumably assets are on top of parents funding a 401K or IRA or some retirement vehicle that is exempt and could theoretically BE what is being saved for college.</p>