Analyzing Cash on Cash Return for College the same as a RE Deal

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Analyzing Cash on Cash Return for College the same as a RE Deal

Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

I recently started a thread on the best investment comparing stocks, real estate, college, and personal/professional development and leadership training. I wanted to see how many people in the forums would state that leadership training was the best investment but the thread devolved into several posts arguing for and against the value of a college education. So let's start a new thread diving deep into the ROI of college. I think it would be interesting if we were to approach it the same that we would approach and analyze an actual real estate deal.

We know that when it comes to real estate investing that it is probably unwise to overpay for a property in a declining area that has negative cash flow. I think we can all agree on that. As we analyze the deal and run the numbers we can see that we would be losing money by buying this property. Unless we had information that lead us to believe that the this particular market was going to shift and prices would increase dramatically, we would know that it would be a bad real estate investment to buy this property.

So let's use the same analysis process to determine if college has a high ROI or a low ROI. Now, each college will have different costs and each program in the college will have different costs too. Also, how active vs. how passive will the income be that is generated from that college education? These are some of the important questions to add up the real costs of the education and how much can one expect to make upon graduation and over the life of the career. I realize this does not take into consideration likes and dislikes regarding career fields but let's take a look at it financially anyway.

So after adding up all of the costs and then looking at the salary one could reasonably expect to make upon graduation, at what point does the cost outweigh the benefit? Or at what point is the ROI so low that it does not become a good investment? And what is the ROT (return on your time) and at what point does that not become a good investment either?

What are your thoughts? ( I would like to invite @Jason D. and others from the last thread onto this discussion.)

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  • Charles Osugo
    Minneapolis, MN · Member since 2019 · 30 posts · 17 votes
    7y

    You know I'd say college is a hard one. With a property I can more easily distinguish which is better or how it performs based off comps. But with people it's not as simple since this thing called "life" can have a multitude of impacts even when similar events happen.

    In all honesty the return of investment isn't met if I don't have a 70% chance or higher of getting the job I want when I graduate. Assuming the desire is reasonable. Being CEO of Tesla may not be possible for a 22 year old waving around a BS in mechanical engineering.  Return of Time deteriorates fast if you're taking longer than you should. Like taking 5 years to get a bachelor degree (about anyone taking 12 credit full time semesters). 

    College actually becomes one of the most important financial decisions someone can make when you think about compound interest. So keeping that in perspective I'd say the best rule is your student loans shouldn't exceed 60% of your career's 25% percentile wage. So if you have a job with a 25% percentile wage of 50k In my eyes your student loans shouldn't be over 35k. I personally follow a 20% rule but I don't want to be too hardline on everyone else. This might make a lot of careers seem impossible, but with the right school choice and work it's not. This is a home school hidden gem: modernstates.org. With that website you can take CLEP exams for free and get a transfer degree (A.A) at dirt cheap price at a community college. Then transfer to a university, while at the university make your part time job scholarship writing and that will make any career possible. Except in rare scenarios like Medical Doctors and attorneys. 

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    7y

    @Shiloh Lundahl

    There are many outliers in trying to calculate your CoC return. If you just take the true cost of the education say it cost $140K after 4 years. You laid out in cash 40K. The rest was parents paying, student loans, grants, scholarships, etc. If we take 40K of actual cash laid out and our job we secured was starting at 50K. After taxes you netted $36,000 (easy math). You stayed at home no rent. You have a car payment of $300/month so $3600 annually. Let's add in miscellaneous expenses of 20%.

    Monthly income $3000

    Car payment $300

    Miscellaneous exp. $600

    Student loan $500

    Cash flow $1600

    Annually Cash Flow 19,200

    CoC return 48%

    You can dive in as to your opportunity cost of what you would have made if you didn’t go to college.  Did you make money in the summers or during school?  What is the long term benefit of the education?  It provided you an overall education, better writing skills, better math skills, communication and connections with professors, class mates etc.  Your education is part of your credentials that no matter what happens it can never be taken away.  As you can see many outliers.

    Great concept on what the return is.  Certainly not a simple math equation

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