Should I Bother with College?

31

There have been a number of conversations on BiggerPockets.com relative to the validity of college education in today’s economic environment, and how this type of education can help or hinder one’s chances as a real estate investor.  The question posed by some of the younger visitors on BP is:

Should I go to college, or should I just dive into real estate since that’s what I really want to do with my life?

Let me see if I can get to the bottom of this…

This Used to Be an Easy Call

A few years ago this question was a no-brainer.  Education was more or less affordable and the job market was healthy.  College education resulted in better income-potential and job security.  This is why most of us grew up with our parents and teachers repeating to us the same refrain – get good grades in high school; get into a good college; do what you love and believe in, and money will follow.  They weren’t lying to us; it really was like this in the past.

The Problem

There are two obvious problems with this, which young people are intuitively sensing more and more.  I could provide you with statistics relative to unemployment and underemployment among college grads – I won’t do that.  Instead, next time you drive through the pick-up window at you local coffee joint, pay attention to who hands you your Latté, because chances are it’ll be a college grad!  Do you see what I am saying?

Kids posing these questions on BP know exactly what I am saying!  They also know that unlike the yesteryears, college education today is expensive.  In fact for most of them it is no longer achievable without assuming substantial levels of debt.  As such, the question can be frames like this:

I’d like to go to college to pursue the thing I love, but does it make sense to spend $60,000 for tuition, books, and room & board for 4 years just so that I can graduate and make $35,000 pre-tax – that’s if I can get a job in the field?  Or worse, does it make sense to graduate with $25,000 on average of debt into a career that affords $2,000 of monthly take-home pay?

All of this is giving young people a moment of pause – as it should…

If you are interested in pursuing real estate investing; if you feel that real estate is going to provide an answer to the economic realities of today, here are some things you need to realize:

A Job Helps You Save!

The reality of real estate investing is that it is a cash-intensive sport.  Even if you follow my lead and pursue 100% financing, you’ll still need access to some amount of capital with which to manage your assets.  This gets easier after you’ve built a sizable portfolio, but when you buy your first 4-plex, this is very much an issue.  Having W2 income helps.  If it’s high enough, and if you learn to live below your means, W2 income will allow you to save some money with which to start out in real estate investing.

A Job Helps You Get Loans!

Unless you’ve inherited a boat load of money, you will need to utilize leverage in order to buy real estate, which is a function of your ability to borrow.  Institutional lenders have numerous qualification requirements for lending, of which W2 income is at the top of the list.

This makes sense – the lender’s thought process is that if something goes wrong with the one and only 4-plex that you own, then you will at least have your W2 income to cover the mortgage payment.  Their approach changes once you own a large portfolio of real estate, because at this point it is your portfolio that’s qualifying for the loan more so than you personally.  After all, if you have a $50,000 annual W2 income, you could never cover debt service on 1.5 million dollars worth of debt.  The lenders know this, and so they give W2 income much less weight once you grow larger.  But, in the beginning you will have to prove stable and sufficient W2 income, and having a good job helps!

But, Not Just Any Job!

The reality, though a bit bitter, is rather straight forward if you chose not to ignore it.  Not just any job can provide you with stable income that is high enough to facilitate significant savings – you know this.  Not just any job can provide you with high enough salary to facilitate borrowing – you know this too.  This means, when discussing validity of college education we must reference the fact that just because you pursue a major in the field that you love and are good at, doesn’t make it a good financial choice, specifically if your intention is to leverage it into acquisition of investment property.  Let’s face it – you could count on one hand the professions that will fit this bill.  You know what those are as well as I do, and unfortunately none of them are in the liberal arts, history, or social work…

Conclusion

College education can be very helpful to you at the beginning of your real estate pursuit; it can help you achieve higher W2 income and significant income stability.  Sadly, it is certainly a statement as to the moral fiber of our society that the above mentioned fields do not facilitate financial gain.  I, for one, believe that we need the arts for proper development of humanity and we need skilled social workers to properly address the needs of our aging populace.  But, it seems that the society at large has decided otherwise…

I am a big believer in trying to make a difference wherever I can.  And yet I also believe in recognizing and respecting the rules of the game that is being played.  As such, I humble suggest that if you are going to try to leverage your income into real estate investments, you do not have the luxury of pursuing a field solely on the premise of personal and professional fulfillment.  If you spend the money to get a degree, and especially if you go in debt for a degree, you must make sure that it is in a field with high income-potential and above-average employment opportunities!

Have anything to add?  What are your thoughts on this?
Photo: Will Folsom

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name
Share.

About Author

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.

31 Comments

  1. Great article, Ben!

    I have a 9 and 6 yr old kids, went to a private 4 yr college, majored in Chem and Psych, and I run a real estate company!

    I love tax and legal and contracts, marketing and sales and negotiations.

    Is it worth it? I sincerely do not know. I know my drive is suited for entrepreneurial endeavors, not corporate.

    I see the movie Office Space and I want to puke. “You took my stapler!”

    I do realize having 7 different businesses, 1 failing, 6 profitable and 3 being resold for a profit has taught me more than any other feat to be successful in business, including the college degree.

    Having entities like LLCs and Corps allow travelling write offs and other benefits. But not having the golden handcuffs of matching 401ks and health insurance make the entrepreneur realize he – she must sell or not eat.

    But on the other hand, some strong college friendships and being a NCAA athlete in lacrosse were wonderful events too as a college student

    Bottom line, The debt today to graduate makes the decision very difficult for both parents and college bound teenagers. I did not have this magnitude of debt when I went to college.

    And I do want my kids to have the entrepreneurial skills of being able to persuade – negotiate – sell, and discern legal contracts.

    Getting a real estate license at the earliest age possible is a step I think I will be taking with my kids!

    Again Ben, thanks so much the the wonderful article!

    Brian

    • Thank you Brian,

      You are my brother from another mother. I was trained as a violinist. They forgot to let me in on the knowledge that bread costs money :) There is who we are; and then there is what we do for money. A few lucky people discover that for them it is one and the same. The rest should read and take to heart my article..

      I have 3 year old twins and so these issues hit close to home. Thank you for your comment. We agree!

  2. Jeff Brown

    Do you want a degree, or an education? We all know highly educated folks who have trouble with the simple things in life. Getting a real education culminating in a college degree clearly doesn’t hafta be hitched to staggering student loan debt.

    Take SoCal for instance. In San Diego one can remain living with their parents while attending a junior college, which is not expensive by any measurement. Then they attend San Diego State which is also not gonna run up huge debt. Those who insist on the ‘right’ schools, living on campus, know what they’re gettin’ into, right? There’s an alternative many young people are now pursuing, which is the plan I just laid out.

    Education is education — it’s what the individual does with it that matters.

    • No disagreement here Jeff. There are alternative avenues. Apprenticeship programs, for instance, are trying to make a comeback as well. But I have seen tuition at state schools double in the last 10-15 years. Not surprising since education loans are cheaper than dirt. The debt associated with education is now greater that credit cards. Why Jeff? Because people are buying a lie…

  3. I myself am a college student, and believe it doesn’t hurt to get your college education. While there are people who are unemployed or underemployed that are college grads..to me it depends on what they went to school for which could hurt or help them. For instance, if you went to college for acting, art, creative writing or something like that. More than likely you will be unemployed after school. In my job search I’ve found more jobs that require a college degree than those that don’t require one.

    • Jamela,

      You are exactly right. You researched and made choices based on the availability of post-schooling opportunities. Smart – exactly the right approach. Many people, however, just follow their heart only to be disappointed. While many others simply just go because they’ve heard all their life that going to college is better than not. Devil is in the details :)

  4. Ben –

    I believe that no matter what you decide to do, the better education you have the better off you will generally be in business. Maybe that is at a university that has entrepreneurial studies or a good business school.

    Not too long ago, the postion called “administrative assistant” was actually a secretary with no college. Today that very same job with a big company is always held by someone with at least a 4 year degree.

    Many people without a college degree go on to be successful. But there are also more people in dead end jobs due to a lack of higher education. Most jobs require a college education today.

    Instead of worrying about going to an expensive school out of town where you will have dorm fees, meals etc., why not stay in your city and attend a local university. Just get an “education” as affordabily as you can. It is after all the “education” you need if you plan on being an entrepreneur.

    Sharon

    • Sharon,

      I do not disagree with going to a local college and living at home. There is, however, an underlying deficiency in institutional education – it teaches kids how to be employees. Don’t you wish that kids could learn to be entrepreneurs and business owners? I do – in fact I am passionate about this.

      Yes, traditional college education opens one’s horizons. Absolutely it does, and this has value. But, the professor in front of the classroom at one of these schools hardly knows any more about financial success in the real world than his students – he gets his paycheck just like any other employee. Do you not see a conflict here? At the end of the day, currency is the medium of exchange in our society, not passion and not widened horizons.

      There is truly a difference between who we are, and what we do for money. Kids need to know this.

      Thank you for your thoughts Sharon!

      • Ben –

        That might be true in some cases. But there are some schools that even teach entrepreneurial studies. A good business school will teach you business principles which may or may not lead you to a “job”.

        I don’t think college is a good fit for everyone, but I also don’t think anyone should justify ending their education with high school because going to college “will cause them to have an employee mindset”. Education is just that; learning that broadens our horizons and opens our mind to possibility.

        Having come from a family of entrepreneurs, I believe that it has less to do with where you went to school than what is inside of you. There were 4 of kids in my family. Two didn’t have an entrepreneurial bone in their body. My sister tried started a business which she had for 7-8 years. However, for most of her life she was content to be an employee.

        I am the only true entrepreneur. It is a drive that I have within me; I was born with it. Those people by and large that are life long employees lack any trace of this entrepreneurial drive.

        Sharon

        • You make very good points Sharon. You may know that I am a violinist and a teacher. I set up a non-profit music school for kids about 12 years ago. I passed it along to my wife Patrisha who is now doing more with it than I ever could.

          In the school, we start kids on the violin as early as 3 years old. Obviously the learning process at this age is very different – it is subconscious. Literally, I take the wrist of their bow arm (right) into my right hand, and I hold their elbow with my left hand, and I move it a certain way as a means of practice.

          We require a minimum of two lessons per week and we teach the parent to reproduce as exactly as possible what we do in class with high consistancy. This goes on for months and years, until one day the child just magically “knows” it. The muscle memory has taken hold at that point. The learning has happened…

          Our teaching approach is to create an environment conducive to learning the skill. Naturally, not everyone will go on to Carnegie Hall or even play past a certain age, but the learning guarantees a certain level of proficiency.

          My twins are 3. From day 1 Patrisha and I used “My baby can read” program with them. They can both read. My son reads practically anything you put in front of him. Sharon, he can not rationalize at 3, but he knows it. How? Muscle memory!

          A brain is a muscle. Self esteem is a memory, which is a function of the brain muscle. Frame of mind is a memory – it has t be trained! I want to create an environment which is conducive to learning how to sink or swim, take responsibility, act in spite of uncertainty – be an entrepreneur. The thing is, you and I are conscious about this, we know exactly which thoughts to keep and which to toss. My thesis is that if we put kids in an intimate one on one environment with Sharon Vornholt and Ben Leybovich in front of the classroom, eventually it will rub off. It may take a long time, but it will take hold to some extent. This is the reason behind my CFFU.

          Your thoughts are always welcome Sharon!

        • Ben –

          I certainly agree with “muscle memory” and the whole natural learning concept. I have always taken my granddaughter along with me in my business when possible. From the time she was about your twins age, I would take her to pick up radon monitors in vacant houses for my home inspection business. We would talk about the house, its problems and its good points. She can spot a bad roof from 1/2 a block away. She knows so many things that she doesn’t even realize that she knows.

          Today I still take her with me when I can (she is 12 now). Recently I looked at a house and there was a strong bleach smell in the basement. Without anything being said, she searched and found a small area of mold in a closet the sellers has failed to “clean up”. Somewhere in her mind, she remembered the whole bleach/mold connection.

          I also take her to closings whenever possible. I am not trying to make here a real estate investor; she proudly proclaims that she will be a fashion designer (or maybe a teacher if that doesn’t work out). What I want her to understand is that she has options. She can be an entrepreneur and not be nailed down to a “JOB”. I do hope she goes to college, but I also want her to see how business works first hand. You and I think very much alike when it comes to that.

          It’s great sharing ideas with you. I also played violin from the time I was in grade school throughout high school.

          Sharon

      • Sharon,

        I love it! My kids are privy to everything my wife and I do. I am a stay at home dad for the most part, more so than Patrisha at this point, so the kids hear every telephone conversation and see every remodel.

        I do also hope that they go to college. But, MS has taught me that W2 pay-check is just not safe – period! I really do believe that there is a difference between who we are professionally and what type of work satisfies us, verses what we do to create financial gain. I will be happy with any choice they make in life, but they have to know how to invest.

        Thank you so much for your thoughts indeed!

  5. I think with the decision to go to college or not it depends on your goals. Some people simply want to climb latter’s, others want to own them. While it doesn’t hurt to go to college is doesn’t help to be 50k in debt just starting out on your own. Also having the wrong education can be just as bad as having no education.

    I also liked the part of this article that mentioned “matching 401ks and health insurance”. As some of us know, most employers nowadays offer neither.

  6. What most thinking of college do not comprehend is the total cost.
    Let we go with what I know, my daughter 4 years at $37k a year $148k base tuition, subtract $8k in grants. $140k plus books probably $6000, housing $7000 a year equaling $28k.
    Four years out of the working world figure without college education $20k a year or $80k.

    $140k+$6k+$28k+ unknown costs = $174K + unknown costs (parking etc.) Let’s call it $175K

    Luckily my tenants paid 100% of this figure, but as of this moment she is still unemployed in her chosen profession. Why is she now employed? Because a I bought a franchise restaurant so that she and my wife could have a business to keep themselves busy and make a buck. Thanks to poor management skills of the previous owner I got the business for the past due rent owed the landlord and a franchise transfer fee.

    My wife who never worked outside the home after we had children, is now loving owning her own business, she always did the books for the REI and contracting business and was paid for doing both, but there is nothing like the experiences gained owning your own.

    My son who thankfully is not interested in college (except for possibly the socializing part).
    So I am trying to steer him towards becoming a Realtor as most in our area are completely clueless concerning REI. If I cannot push him that direction I will bribe him with a franchise. I figure I could go $175k towards the next one. Nice thing about a franchise is they do all of the hard work, all is left is to follow the program and get paid.

    • Dennis –

      I know plenty of successful people in high paying jobs that didn’t spend a fraction of this amount for their education. Spending that kind of money is a choice.

      Sharon

  7. I forgot to tack on the $80k of lost income, so we really have $255k, as the true cost of her college experience.

    Not that I begrudge her education, she is a talented student garnering a degree in two subjects in four years, Magna Cum Laude with a Masters in one of her subjects the first in her schools history.

    But I think she would have made a great Realtor for a lot less.

  8. If you want to go into real estate, it would make sense to get a good paying job in a related field. Accounting and law are two that come to mind. Both of these can give an income suitable to have money for investing. Also you can get a job specializing in real estate aspects of your field. Get paid while putting the finishing touches on your education.

  9. I received my degree in business finance and while much of it was completely useless, the upper level business classes were very good at teaching the basics of business and building your own business to run for you, not you working it to the bone.

    College also helped meet many people and life long friends that I would have never met otherwise.

    Many classes also teach you the classic get a job, work 9-5, save for retirement and you are successful. I highly disagree with that philosophy, but I can see how college could intill that mentality in many students.

    I have twins who will be 2 in June. I will let them make the decision on college, but I feel it is well worth the time and money if you put in the effort to get everything out of it you can. Just like anything in life.

    • Mark,

      We, as investors, approach everything in life from the stand-point of ROI. In some cases the applicable units of measurement are easy to comprehend. But, there are some instances when it’s more difficult to put a value on something. College education used to be easy, but it’s gotten a lot more tricky. There is obviously value there, but is it enough for what it costs…For some there is, for others not so much

      Thank you for your thoughts!

  10. I left college after a year and a half. I was going for business and worked summer help at a local mill. The summer I left college I started reading business books as that was my path in college. I felt I learned more in those 3-4 months reading books at the machine and taking 20 pages of notes than I did in the last 2 years of college and it was a heck of a lot cheaper. I bought my first duplex a couple months later, just after paying off the remainder of my student loans. I did jump at the opportunity to take an apprenticship and am now a journeyman millwright.

    Knowing what I know now, I would have either skipped college all together and put that money into one or 2 duplexes or focused on being an accountant from day one and still doing the REI but delayed. All in all I can’t complain, I earn above the national average income as a millwright but it does take a toll on my body. My current field has also given me the ability to tear into anything in a house which accounting would not have prepared me for…

    I get some parents who ask that I not express my college opinions around their kids but when I explain it they are usually better. I say that they could pass on college and make their own way but it is a lot harder. I put in a lot more long days and at times made less than the minimum wage for my efforts, so if you are not ready to work 16 hours a day for a couple years, go to college. You will still have to work hard but it can be easier if you make the right choices.

    Carreer path is a huge factor, I just cringe when I hear that someone spent 5 years and six figures to get a degree in sociology. Good topic, one that is increasingly important in today’s economy.

    • “If you make the right choices” This is what the article is about. CHOICES

      I agree with you completely Kyle. It is not possible to hope for a “blue-collar” job without a college degree any more. The choice is which degree and which job – too many people chose wrong…

  11. I think that there is both pros and cons of going to college for the education aspect (as evidenced by some of the great comments above); however, I think what a lot of people are missing is the social aspects of college. I went to college in Oregon after graduating from HS in Missouri. I was a little nervous, shy, not very sure of myself and had no idea what I got myself into.

    4 years later, I graduated with a degree and a completely new set of social skills. I’m not just talking about doing keg stands, but real, actionable and very necessary skills for life. Such as: Learning how to resolve conflicts with roommates, handling time commitments and responsibilities, I took on multiple leadership positions within my fraternity, handling bills, giving presentations in front of peers, talking to the opposite sex, figuring out my “purpose” and just growing as a person. I truly think I would not be the person I am today, without my college experience as it helped me grow and shaped me into the person I am today.

    So, for those on the fence or debating the issue, I feel there are two aspects to your college education – what happens in the classroom and what happens to you. Both are equally important and, in my opinion, not to be missed.

  12. Kirtley Whittington on

    My thoughts: I believe that most people should attend college if they are able to do so, even if student loans have to be used. Note that I say MOST people, not everyone.

    Reason: The majority of 18 year olds have no clue what they want to do with their life. That being the case, you have two main options. 1) Go get a job right out of high school.
    2) Go to college as an undeclared student.
    Colleges have career resource centers and guidance counselors that can assist students in discovering interests/talents. Also, as a student, you are exposed to and interact with many other students who may know what they want to do career wise. This network can expose a freshman to many avenues that they otherwise would have never considered or known of.

    There is a social aspect to college that is vastly underappreciated as well. I was exposed to and became friends with people who came from totally different backgrounds than I hailed from. I learned to challenge traditional thinking and broadened my horizons as a person through the collegiate experience. I feel like this has helped me interact and relate to many people that I deal with on a regular basis in my real estate business.

    I also have friends who didn’t go to college. I notice that many of them seem to feel uncomfortable or self conscious when they are with a group of people who did go to college.
    I don’t think that everyone who didn’t attend college feels this way, but I have noticed it with several personal friends. I guarantee that many, if had it to do over again, would choose to go and finish if possible.

    I will admit that I don’t feel like I learned many real world business skills in college. College isn’t a real world. It’s difficult to simulate real world business in a classroom. I did learn some things though. I learned much more about various times in history. Useless for the most part but is nice to know. I improved my writing skills (probably can’t tell from this post ha). I learned a lot about computers which has benefited me in business. I improved my ability to give public speeches, etc.. While many of these don’t directly translate to real world business, they do help in many ways.

    Conclusion: Without a specific plan of what you want to do as a 18 year old kid, college isn’t a bad choice, despite its cost. If on the other hand you are lucky enough to know and have a detailed plan of where you are going and how you are going to get there, go for it. I just feel like those people are few and far between. Even if you are set on being a real estate mogul at age 18, its not a bad idea to have a college degree, just in case. Sure, a degree may not be a ticket to get a 100k/year job, but I would rather have one that not if I found myself having to look for a job if other endeavors didn’t work out. Just my thoughts. I realize that you could argue this topic for days on end. No right or wrong answers; just opinions.

    Kirtley

    • Kirtley, I’m going to put my 2 cents in. I think you like a lot of people put too much emphasis on “have to” get a college education in order to be successful. NO! Yes it can help but not necessary in achieving one’s future. If I was an employer, hiring a college grad over a non college grad, a no brainer, same pay. I strongly believe a community college or a trade school would serve a better purpose as they’ll teach you “how to” on the career of choice with the business skills needed. Later, one can go to college if they want knowing what degree to apply for not wasting any time or money.

      P.S. I have a Civil Engineering degree, a Master Building License, a Real Estate degree and a host of others, I like learning. If one doesn’t have the drive or ambition, all the education in the world isn’t going to help.

    • Kirtley,

      Thank you for your thoughts, but I need to disagree completely!

      It is called “higher education” not social development period. The notion that after 12 years of general ed. our kids graduate not knowing what to make of themselves is shameful – too bad for us. Some people die fighting for our country at 18!

      By the way, this isn’t the way they do it in China, Japan, Korea, or even Europe, which is why they are kicking us where it hurts in terms of highly educated and motivated labor force.

      Opposite of your feeling, I believe that if you’ve thought through what you want to be and what you want to study and you’ve committed yourself, then spend the money or take out loans. But, goofing off can be done for free in your parents basement… :)

      Our educational system is in trouble if by 18 people don’t even know what they want!

  13. Marc Jolicoeur on

    I have two kids in college right now. Both are paying around $22K per year for tuition, books, fees, room and board at State universities. This is a good investment for them because they have chosen majors that will make it easy to find top paying jobs to pay off the school debt quickly.

    Lets face it, not all kids in college are doing well. Many drop out after a couple of years or will end up changing majors a couple of times, often graduating with one of the useless degrees. They are in college because society and the high school guidance tells them that’s what they need to do.

    It’s all about the kid’s aptitudes. If the kid is a 4.0 GPA student in high school and enjoys the process of going to school and learning; I would strongly recommend that kid go to college and take one of these majors:

    – Any type of Engineering
    – Computer Science
    – Biological Sciences, Physics or Chemistry
    – Business
    – Actuarial Math
    – Nursing
    – pre-Medicine

    These majors will lead to top paying jobs at the largest companies in America very quickly after graduation. With baby boomers retiring, there will be a high demand for these graduates for the next many years.

    These companies in turn will give good benefits, healthcare, and a 401K. As the article states, these salaries will be large enough to support saving for other business or investing down the road. There will be student loans to pay off, but the higher paid careers here should get this paid off in 5-10 years. Just delay the new car purchase and some holidays to get this debt paid.

    If the kid is not really an academic star, they will not succeed as an Engineer, Software developer, Doctor, Commodities Trader. Sorry but even if they eventually graduate from college with their degree, they may find it hard to get those jobs or keep them. My point is that most know this about themselves before starting college.

    In that case I would highly recommend a different track.

    If you like people and talking, take some general education at a two year college and get into some sort of business as a salesperson. Real Estate is a great option. Working in sales at a Staffing company is also great income. The risk in sales is of recessions and market cycles. You can get good company benefits from these jobs too, but you may have to move around to land in the best sales jobs.

    if you like working on your feet or are good with your hands and like the idea of being your own boss, I would highly recommend a kid apprenticing in a building trade. You will likely start your own company quickly and wont have any school debt. You can also make significant income if you manage your business and your time well.

    • If my memory serves me right, Henry Ford was called to testify before congress at one point. In an attempt to discredit him and his work, members of congress tried to “stomp” him with a ton of technical questions, which he did not know the answers to. But, he had access to the best lawyers, CPAs, engineers, and al the rest of the people capable of providing him with answers to any and every question – which they did.

      Why did he have access to the best brains? Because he employed them!

      People don’t sometimes forget that there is vast difference between knowledge and vision. College, and not every college, does an OK job teaching knowledge. But, they certainly don’t teach vision. Employment follows knowledge; wealth follows vision!

      Thank you for your comment Marc.

Leave A Reply

css.php