How to Pay For Your Child’s College Degree Using Real Estate

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When long term real estate investors plan, it’s virtually always with retirement in mind. To show my command of the obvious, their goal is to retire sooner rather than later, with more income rather than less. Most folks assume there’s plenty of time to make their goals reality. Most of the time I find myself in agreement. Thing is, there are instances when their retirement timeline forces decisions they wouldn’t normally hafta make if choosing to retire much later. There are as many reasons for shortening the retirement timeline as there are people. Thing is, many of the hardcore deadlines have nothing to do with the investor’s actual retirement. Here’s an example.

Your Kids’ College Education

If they go to junior colleges then to four year schools for their degree, you’ll be gettin’ off relatively cheaply. Kids going to four year schools right outa high school can face some pretty steep tuition/boarding costs. We parents want the best for our kids, which presents the challenge. From where does that money emanate? From the bank of Mom ‘n Dad, that’s where. More and more parents are opting to at least attempt to pay for their kids’ college education lately. The very thought of an undergrad degree saddling Jimmy or Nicole with six figure student loans is depressing. Over the years I’ve spoken with investors whose student loan debt was barely south of half a million bucks. That’s exceptionally high to be sure, but holy cow!

The timing challenge comes when planning doesn’t begin ’til the kids are well into elementary school or beyond. Those with babies or toddlers will do much better starting at those tender ages. The real pressure arises when your sixth grader is not only demonstrably brilliant, but has already voiced excitement about college. At that point, many retirement plans hit the pause button. Multiply that by two or more and parents can easily find themselves between a rock and a hard place.

Filling the Gap

First off let me tell ya I’ve discovered no ‘go to’ formula that is universally useful. Here’s the thing — If you have $500,000 in cash to dedicate to your kids’ college expenses, AND you have sufficient time, you have a chance. But there’s the rub, again. Time. If you’ve been slowly but surely building your investment portfolio for several years, you at least have a leg up. You can switch agendas temporarily. Here are some options, though they’re not on everyone’s menu. We’ll assume the older/oldest child is 12. That gives you six years, Mom and Dad.

1. If you have any free ‘n clear properties, designate them for this objective.

2. If you have investable capital available, think notes.

3. Have stocks ‘n bonds? It probably makes sense to rethink how they’re being used. Will they contribute to the objective?

I’d also add the futility of the 529 plans available. Those are the gov’t plans allowing parents to save for college. As you might expect, they have limitations and various penalties/taxes that make it almost insulting. That’s just my opinion, but it’s based upon conversations with dozens of parents who’ve given up on that approach.

Debt free real estate can be utilized in more than just one way. If you know with  relative certainty the cost of your kid’s education, you’ll be far ahead of most parents. A refi for tax free cash on one or more properties is the quick way to underwrite those expenses. However, if the Ivy League is on Johnny’s radar, you’re already lookin’ at over $75,000 annually, possibly much more. Even if you don’t factor in inflation for the years ’til he’s outa high school, that’s $300,000. If he’s 12 now, that’s $75,000 a year for four consecutive years, beginning in six years.

I know I keep piling on with the problem, but it’s only cuz it’s real. Even state schools can cost five figures yearly, and that assumes the whippersnappers are still livin’ with ya.

What if you took the refi cash from one or more properties and acquired discounted notes? The after tax monthly income can be banked for the six years ’til Johnny enters school. In that time period you can save quite a tidy sum. At some point you’ll have saved enough to buy even more notes, which bring in more (after tax) income.

More capital can be had if you own stocks/bonds that won’t cause a huge problem when they’re sold. What we must admit here is that most parents simply won’t have the initial capital needed, regardless of the source, to fund a high cost college education. This is especially true when beginning with only 6-8 years left. It’s gotta be very frustrating.

Related: BP Podcast 017 – Finding Mentors, Facing Retirement, and Note Investing with Jeff Brown

You can make a significant impact though, with this and other strategies available to you. Refinancing debt free investment property will surely generate some well found protests, but here’s something to ponder. When you decide to sacrifice however many years of your retirement plan in favor of your progeny’s future, you don’t hafta be on the long term losing end. In fact, if you decide to employ notes as at least part of your strategy, you’ll have created an additional, stand alone retirement income source. Furthermore, it’s an asset that will grow, relatively speaking, organically. They pay off, and you profit. You rinse ‘n repeat with bigger notes yielding more monthly income. When your kids get their degrees, you could find yourself not only smiling with pride at their accomplishment, but at the thought of retiring with your real estate cash flow AND note income.


As parents we want to do what we can. There are all sorts of strategies you can employ when bringing cash, equity, and income to the table. It’s a matter of what works best, given the timeline and available horsepower. The silver lining, the positive takeaway is that you can finance some or all of your kids’ higher education without sacrificing too much of your retirement. In fact, many will be able to have their cake and eat it too.

Photo: ralph and jenny

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Note investing is definitely a tempting proposition. Is there a good source for information on where to find quality notes, how to evaluate them, and the process for buying/collecting/servicing them etc?

  2. Higher education should not be so costly in the first place. Another by product of too much government intervention. Its the housing bubble all over again. But thats another discussion.

    Good write up!

  3. If you are an active real estate investor, there are more ways to “save” for your kid’s college or even private school education. One method I used extensively is a self-directed Educational Savings Account. They work like IRA’s, which means profits are tax free, if used for educational expenses. You can flip properties tax free and use the profits for paying education expenses.

    • Hey Kurt what happens if you end up with an extra $20K in your self directed ESA after the kids are done with college? Do you just pull it out & take the hit? Save it for the grandkids?

      I like the idea though! Is there a cap on how much you can keep in your ESA?

      • Travis,
        I am not 100% sure. I know you can transfer it to the Educational Savings Account of another kid, if you have more than one, or possibly someone else’s account in the family. You could take a disbursement and pay the income tax and penalty (which is really not that much). You may be able to save it for the grandkids.

        Here are the IRS rules

        There’s only a cap on the contributions that can be made to each account per year, but the profit is not limited.

  4. Jeff,

    We put a house under contract 1 week before my son was born. It only made sense to make that his education fund. He will have 4 choices when he reaches 18. Use the sale proceeds for starting a business, going to school, keep it as a rental or live in it. All but the 4th will contribute to his higher education. With #2 on the way, we’ll do the same for her.

    My uncle taught me this plan and his son’s went to two most expensive schools in Colorado. School of Mines and CU Boulder. They had cash to spare.

    I believe there is a a study that shows the average kid out of high school into the work force will retire with more money than a college grad. This is due to the huge financial hole the college students start in. (I’m sure the degrees in underwater basket weaving don’t help either)


    • Jeff Brown

      Interesting study, though that hasn’t been my experience. It may be a more recent thing though.

      Your son’s place? 18 years is a couple lifetimes in real estate. 🙂 You’ll have more than one chance to improve that position. Trade? Refi for note purchases? You’ll have choices.

      • Jeff,

        Very good point. While we look to hold this one due to its location, we will have many choices for him.

        Interestingly enough one thing we will do is work with him to make these choices well before he is 18. He will learn how to manage the rent money, repairs, improvements, dealing with contractors and choices with the house. He may get knowledge from college, but he will gain wisdom from this house.


    • I definitely remember from reading “The Millionaire Next Door” that college education isn’t the #1 defining factor of becoming wealthy. For example, they pointed out doctors and lawyers are typically some of the worst people at accumulating wealth.

      The book also pointed out that higher education wasn’t an automatic correlation. PhDs aren’t automatically wealthier. Instead, as is often the case, rich people have business equity. But they also live below their means. They make big money and turn around and DON’T spend it. This is backed up by the Federal Reserve Bulletin[1], which comes out every three years, which shows that the affluent

      Lawyers, doctors, and other professionals spend all the money they make, and probably largely responsible for creating this image of what “wealthy” people look like. It also confuses people, because annual income doesn’t map directly to wealth. Some people that make a lot more annual income, are terrible at saving this money. I make much less than a doctor, but probably have a much higher net worth. My sister-in-law, who works in loan underwriting at a bank, has also confirmed this, indicating how she has seen many clients come for loans while having little in net worth.

      Don’t get stuck on assumptions and perceptions. They can wreck your wealth building plans.

      [1] –

  5. One factor I am putting into saving money for my kids is how research has shown that people’s brains don’t reach full maturity until around the age of 30. I’m working on a blog post that includes this fact. But bottom line: many forms of money like custodial accounts have to be turned over to the kid when they reach the age of majority, which is usually either 18 or 21 depending on what state you are in.

    Handing a 21-year-old a big chunk of money can be disastrous. They may not have the maturity to handle it properly. For another example, read up on and how he blew $60,000 that he inherited at the age of 21.

    I want to be able to pay for my kids education, and that can be done without handing over the money. You can simply pay the university directly and not run afoul of gift taxes. Of course, you may want to orchestrate a deal where you don’t pay 100%. I have seen reports of studies that kids who don’t have to lift a finger to pay for college tend to party more. Something to keep in mind.

    But I like the idea where if your kid wants to do something different like become a chef, a tradesman, or something else that doesn’t fit into the usually 529 plans or pre-paid tuition plans, you have options.

    If you want to donate plain old money or assets to your kids, it might be better to make that donation when they are 35 or older. If they’ve earned a few more bumps on the head, they might have a better appreciation for such a gift and might be better able to use it. But doing something like might require more complex setup (hint: lawyers), and may cost a bit more. But it might be worth it.

    Something to think about.

    • This article as well of all your articles are such a blunt kick to the factor of time. My wife and have a one year old daughter and I’m in a situation of fear about our future. I keep bringing up the topic of putting our money to work, but we differ so much on how. We’re both from an upbringing that relied on hard work and then hope. I have never for one breathe bought into that. I’ve been pro resl estste for years, of course without ever taking action. Your writings have made me optimistic that I don’t need to be greedy up front, but rather build a smart plan and work it as time allows. Thank you gor this gem as well as your other writings Mr.Brown.

    • As wonderful as that would be, I’m just not sure how to bring up the conversation again. With your advice and my change in attitude toward best practices, it makes me sound like I’m bouncing around between methods. For now, I need to get s simple grasp on concepts and decide how to best put into action step one. I defiantly feel that with us starting with so little, that extra care needs to be given on which path is best. I am sure doing nothing is incorrect. Anyhow, glad to hear my comment had an impact, it’s much deserved good sir.

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