Personal Finance

The Innovative Way I Plan to Teach My Kids About Real Estate & Building Wealth

Expertise: Landlording & Rental Properties
23 Articles Written
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I will be brutally honest: I don't have kids so this is truly a thought exercise/case study. As the planner, out-of-the-box thinker and overall crazy redhead, I pride myself on looking at all the scenarios. Right now, my husband and I are at the point in our lives where we are dual income buy and hold investors. Our gorgeous furball, whom I love and who is certainly my "princess," doesn't get to obtain higher education. That being said, we are getting to that point in our lives where we hope to start a family sooner than later. If all goes well, we will add house number 6 to our portfolio this month and number 7 next month.

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15-Year vs. 30-Year Mortgages

As someone who is starting to think about our lifestyle when we add a family member minus my income, I have been pondering the 15 versus 30 year debate for mortgages for our personal investments. I started talking with different investors. Two separate investors brought up an interesting reason to have a 15-year mortgage: paying for college. They mentioned that putting the house on a 15-year mortgage means they will be paid off before the kids leave for college.

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Related: How a Broken Education System Affects Real Estate

Being the "crazy" person I am, I started to really thinking about this idea: Buying houses when the kids are tiny, and then doing the "sweat" equity of managing them. While requiring a lot of money in starting costs (down payments for investments are 25%), if managed well, the houses could be fully paid off with just the tenants' income and your sweat equity. So, win/win — plus, they are "locked" down for college education so there are multiple paths by which one could use this investment later.

This led to a conversation with another investor. She made a very valid point. They plan on not telling their kids that they are paying for college because they want some “sweat equity.” They want the kids to work hard in school to get scholarships to college. Now, as someone who worked her butt off but still had college highly subsidized by parents, I am a huge believer in paying for my kids’ colleges if we can afford it. The head start that my parents provided to me was invaluable. That being said, I am a HUGE believer in skin in the game.

Teaching Kids About Real Estate

So that brought to another idea. What about buying a house for each of our kids and TEACHING them how to manage the home? From painting/laying tile to screening the tenants to using to a 1031 exchange. Instead of just running the property for them, we would teach them how to run their own. This would hopefully instill the value of money and hard work while not taking away from their educational responsibilities.

As a kid, I watched over and was “labor” for my parents’ house. I learned a lot. While I am by no means proposing that my 3-year-old run the house, I would hope that by the time he was 17, he would be more than capable! Honestly, the more I thought about this idea, the further it went.

I was not the “book” student. I struggled through all levels of education. While I do have a Master’s Degree, it was more from being a stubborn mule and having a supportive family than from “genius.” On the other hand, when I look at all my genius friends from high school, where they are today? You know, the ones who won those fancy scholarships and were labeled as those who would definitely succeed and compared themselves to me. In many cases, the ones who struggled in mainstream education are doing so much better.

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Related: 6 Ways to Teach Your Children About Building Wealth

So that leads me to the question: If we are just teaching our kids “book” smarts, are we failing at our kids’ educations? My mother helped me put together lemonade stands and blackberry picking and selling, which led into a pet sitting service and a babysitting service. Those skills are what got me here today, which leads me back to the question.

If I were to buy each of my kids a house at their birth (or shortly after), put it on 15-year mortgage and teach THEM to run it, with the 15-year mortgage, that would give them 3 years of cash flow before they went to college. Over the years we could discuss reinvesting, growth, etc. Would I be providing them both the money and skills to succeed, rather than just giving them money when they get into their dream school? Heck, I’d even be giving them the tools to realize the “costs” of college education.

What do you think? How are you going to or teaching you kids the value of money? How are you funding your kids’ higher education?

[Editor’s Note: We are republishing this article to help out our newer members.]

Leave your comments below!

Elizabeth Colegrove is a passionate "buy and hold" investor who specializes in turning her once-negative transient lifestyle (Military) into a positive lifestyle. She self manages her entire real e...
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    Cindy Larsen Rental Property Investor from Lakewood, WA
    Replied over 3 years ago
    Great post elizabeth. I think you’ll make a great parent. I could tell similar story about my kids ane RE investing, to the other replies, but, I’d rather comment on the 15 year mortgage vs 30 yr mortgage. Unless the interest rte is significntly better on the 15 year, I’d gomwith the 30, and simply make the larger payments associated with the 15 year. IT still pays off in 15 years that way, unless you have a job loss or other catastrophe, and are having trouble making ends meet. Then, you have the option of temporarily reducing your monthlyncash outlay, just bu making only the required mortgage payments for a month or two. When you resolve your problem, you can make a prinicple only paymnet, and go back to the higher mortgage payments, and you are back on track for the 15 year payoff. That additional flexibility is nice to have.
    Cindy Larsen Rental Property Investor from Lakewood, WA
    Replied over 3 years ago
    Sorry for the typos. Typing while a passenger in a moving carI should have checked it before I sent.
    Nguyen
    Replied over 3 years ago
    We definitely plan to teach our kids about money. We currently employ the Dave Ramsey approach to allowance. The truth is, its not an allowance, it is more of an exchange program. You do things, you get paid. We want them to learn that things aren’t free and you have to work and earn each and everything in this world. The harder you work, the more you get paid. This is something I have learned in my life and this is a lesson I hope to pass on to my kids. AFFJ
    Chinedu Michael Onuoha Investor from Cleveland, Ohio
    Replied over 3 years ago
    This is a great post. One question I have. Why sell your house and buy another around the school. Why not just use rental income from initial house to pay your child’s student rent?
    Ralph R. Investor from Bethel, Alaska
    Replied over 3 years ago
    Brilliant blog Elizibeth!! A back ground such as you described would have saved us all many years of “hard knocks” learning. The one thing is it may be hard to sit by and watch your child make a mistake and loose some income or a good tennant. Since we all learn by making mistakes it may be necessary to watch as your child fails. This may be a little tough to do. Coaching will help but there’s no teacher like failure. Those lessons stick with you a long time.
    keith
    Replied over 3 years ago
    What I think is crazy is most parents plan to send their kids to college! Like it’s a requirement for financial success. My plan is send my kids to work, let them figure out what they want to become. Then if needed, go to college.. My 2 nephews went to U of Fl and 1 spent 6 years and the other 4 years. They have their diplomas and one is a bartender and the other a tour guide. My other nephew has a degree in computer science, he still works at Publix. My niece went for 2 years and dropped out, she is still a waitress with school debt. My friends son wanted to be a CPA, he never stepped foot in a CPA office. He graduated and is now in construction. I have many more examples, but my point is Slow Down on the college plans.. It makes no sense at all to send a kid to college that has no work experience and no idea what they want to become..
    Nick Rice from Orlando, Florida
    Replied over 3 years ago
    Wow great post Elizabeth and the comments that others have posted have been invaluable! Terrific advice for a family man planning for the future.
    Megan Greathouse Rental Property Investor from Saint Louis, MO
    Replied over 3 years ago
    Love this concept! My daughter is 1, and I definitely plan to teach her about money, investing, and how real estate can help her achieve freedom. There are so many interesting approaches I’ve heard about recently. I’m looking forward to building my approach as my daughter grows. Thanks!
    Shasha Jhaveri from Irvine, California
    Replied over 3 years ago
    My husband and I were just talking about this last weekend. We really like the plan of teaching our kids the ins and out of real estate, especially as another form of investing, and hope the bug bites them too.
    Ashley Wilson Rental Property Investor from Radnor, PA
    Replied almost 2 years ago
    Excellent post, and great idea!!!