Here’s a fun (?) idea for all you real estate investors out there ;)
From a friend of the blog after hearing about my 15 vs 30 mortgage conundrum, which I’ll be updating y’all on shortly…
Have you heard of the concept of using rental properties to pay for your kid’s college? Brandon Turner on BiggerPockets talks about it quite a bit. It’s a neat concept and something I’ve implemented for my three kids’ colleges.
I originally opened up a 529 and started the traditional dollar-cost averaging index funds for my first kid 6 years ago, but after getting into real estate I haven’t put a dime towards any college funds or savings programs since.
The general concept might sound extreme, but the numbers can be fairly straightforward (depending on the market you are buying into). The idea is you purchase a rental property for each child when they are born, and then set the payment schedule to a ~15-year amortization payoff plan, thereby giving you a paid off place to sell or refi later to cover tuition.
As an example:
– Purchase a $150K rental that should at least break-even after rents vs. expenses. (I use $150k as a benchmark because that’s what I feel a decent 4-year education at a regular state school costs today)
– Assuming 20% down payment, this is a $30k upfront investment
– Assuming a 5% annual appreciation; after ~14.4 years the home may double in value (rule of 72; 72 / 5 = 14.4 years to double in value)
– You now have a paid off home with multiple options!
I personally like the idea of doing a cash-out refi of your now $300k home and getting ~80% back, or $240K which is tax-free (cash out refi’s are a non-taxable event).
Other than the initial ~$30k you put into the investment 15 years earlier, your tenants have essentially paid for your child’s college education :) Best part – you still own the property and can now take the tax deductions on the new mortgage again!
Here is a good article on it by Brandon: How I Used Real Estate to Pay for My Newborn Daughter’s College Education
PS: I also really like the idea and plan on purchasing a small multi-family property (duplex or triplex) wherever my kids will be going to school. The idea being of having them live in one of the units and serving as the property/asset manager of the other units responsible for screening tenants, collecting rent, managing contractors for repairs, etc. If you are old enough to smoke, drink, and get drafted into the Army, my feeling is you are adult enough to learn about the trials & tribulations of investing/rental properties, haha.
That’s a good point on the last part there ;)
And honestly, not a terrible idea on the first one either, so long as you have the propensity for real estate strategery and actually enjoy it?!
I can barely wrap my head around owning a personal property again, no less taking on a fleet of rentals to manage!, so it’s not for me, but I know there’s a lot of real estate lovers up in here so wanted to at least pass it by in case you find it worth exploring more…
Anyone ever try this idea before? Or currently trying it? Anyone hacking it even further to get to that end goal faster?
I can’t say I’ve ever heard of this one until now, but I do love the whole “gigs for goals” concept here – something we’ve covered ourselves over the years, just on a much lower, less-passive scale ;)
There really is something gratifying of attaching an end goal to a specific income-generating source though. Whether it be from a simple little side hustle, or something much more grandiose like a rental property (or 10!).
As for me, I’ll be sticking to the boring ol’ 529s for my kids’ future, but I got nothing but respect and admiration for all y’all pushing those envelopes even further.
Lots of ways to cross that finish line, but you gotta be in it to win it! So be sure to GET GOING no matter what your poison of choice! Even setting aside $20 right now can get the snowball rolling!
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!