Real Estate College Funds
Thinking of having kids? Thinking you may want to pay for their college someday?
Well - this can be an incredibly kind and equally daunting task to think through and plan for. However, with college prices rising each year and degrees becoming more common and expected across numerous roles, wanting to help your kiddos out and help keep them from having to pay a hefty price, aka have student loans, is a noble idea and may be more plausible than you ever suspected.
There’s a few routes you can go but today we’re going to focus on Real Estate. Make sure to look into the others to see which one may fit your situation best.
529 Account
Roth IRA
General Savings Account
Real Estate
Diving into the Real Estate option.
Before you start thinking this idea is crazy, consider yourself in a midwest (not Chicago) market.
Getting a rental property is easier than every before thanks to all the resources and flexible options available. Check out some of our other resources (coming soon) for more information on affording that property.
I once heard my friends parents using this method for their three kiddos. When each of them was young, they would find a way to purchase an investment property, often a smaller one for under $100,000 with between 15-20% down, that was rentable.
You can also get one for 3.5-5% down then move every two years, turning it into a rental at that time.
They would use the rent each month to pay for the mortgage, save for repairs, and pay down extra mortgage or pocket the rest.
Then, as each of the kiddos grew over the next 10-20 years (depending on how old each kid was when the property was purchased), the kiddo, now university age, could decide if they wanted the few hundred dollars each month’s profit to help pay for college, ($200 monthly is $24,000 a year, a good price for many state schools as of 2021) or sell it and take the lump sum to pay off their costs.
Financial Benefits
Unlike a 529 account, this money could be used on anything.
If they want to go to college - awesome, here’s some cash.
If they want to go to trade school - awesome here’s some cash for classes and any licensing costs.
If they want to build up their own portfolio of houses - awesome, here’s some regular cash you can use to save up for your own down payment.
If they want to travel or take a gap year - awesome, here’s some cash.
If they want to start a company - awesome here’s some cash
And tag on Chris Guillabeaus The $100 Start-Up book so maybe they don’t spend it all at once
Even better - if they choose the monthly cash flow, they can continue using the rent to pay down the mortgage each month and soon enough go from making $200 monthly to $700 monthly and let the real cash flow begin. Solid lesson on patience there.
Even better than better - they might make their own money moves thanks to the extra $200 monthly and be able to give the house back to you the parents (or grandparents) to live off off for added retirement payments.
Life Benefits
Wanna teach your kiddo some hard work or how to fix a house? I love encouraging kids to go to university, but they should also be comfortable changing lightbulbs, painting a room, helping tear up carpet between renters, or laying new floors.
They can learn about power tools and fixing up their home, all priceless skills as they head into adulthood.
This can also make them feel even closer to the property and want to take care of it, knowing it’ll help pay for their adult life one day.
On the flip side, they might also hate it so much they sell it immediately. But they still probably learned something like Real Estate is not their ideal form of income!