529 plan or buy properties that cash flow for college and why?

Question

Our financial advisors are pushing 529 plans for college. I personally didn’t go to college and successfully own and operate three small business. I’ve heard on the podcast some people will buy properties set them up to be laid off in time for the kids to go to college and use the cash flow to pay school? Thoughts and reason what and why is a better plan?

Josh Kredit-Phelps · Answer

@Steve Proia

If you have the network and knowledge to invest in real estate, especially implementing the BRRRR strategy, you are far better off using real estate vs 529 plan.

Loan pay down, cash flow, and tax benefits far outperform than 529 plans.

Max T. · Answer

why not both?

i contribute some of the cash flow from rentals to my son's 529

Damaso Bautista · Answer

@Steve Proia

What I have learned from life experience is choose a path and stick to it.

If your kid was just born you have 18 years to execute your plan.

Whether you choose on or the other or both, as long as you are consistent and follow your plan without fail, in 18 years you will have something $$ there to accomplish what your goal was.

To pay for your child’s education.

Surely if you do nothing for the next 18 years, your kids will be ready to go off to University and you will be faced with some decisions that may have been made easier if you started 18 years prior.

I am paying for my kids university studies 65k a year for two.

I was fortunate enough to pick up properties shortly after 2008 that appreciated enough for me to sell when they were ready to go to university.

Good luck!

Brian Roberts · Answer

@Steve Proia

I agree with @Max T. Both the 529 and real estate are good vehicles for college savings and growth. I currently use both in the hope of giving my kids a good debt free start to their adult lives.

My investment in the 529 is what lead me to look into real estate more in depth. I wasn't happy with the returns I was getting for a few years in the 529 and I was looking for something to invest in where effort could lead to more return.

Nothing I can do day to day will effect what the market is doing and in turn how my 529 performs. However in real estate sweat equity when applied correctly can in turn lead to higher returns.

I like to have a little more control of my money and that lead me to put less in the 529 and more into  controllable real estate. How much risk you are willing to take, and age of your kids will play a large part in your strategy.

Lien Vuong · Answer

College is certainly not the perfect route for everyone but it is a likely direction that one of your children would participate in. No matter is they don't go for a specific profession, getting an education in Business Management or Entrepreneurial Studies would be a sound choice.

Back to your question: yes you can put your $ in 529 and have it grow tax free. In the event that you don't use it for college studies you can also apply it to other learning course or simply withdraw it and pay taxes on the gains. With RE investing you have multiple facets of gains (cash flow, depreciation/expenses (reduces tax bills), as well as long term appreciation.

Yes, the former choice is much more passive and safe but the latter is more calculated and higher reward in the end because it has a more leverage-able position.

I think it would be wise for you to purchase a home assigning it to one of your children and allowing them to learn from that property and later reap the rewards of the ownership of it also.

Scott Mac · Answer

Hi Steve,

Seriously, how much money are they advising you to pay one of these (so-called) teaching outfits?

Enough to buy a new Rolls Royce ($450,000), or more (grossed up for inflation)?

Think about it, you could use that money to buy Jr. a home free and clear and let him work and save his earned money 100% to do whatever he wants with, such as buy a new car (or support his family properly like a man). Or invest it in Real Estate.

You could buy a bar (or some other business) with that money and let him run it (with your oversight) learning how to actually make money (vs being a wage slave), then after a few years turn it over to him (once he matures and only once he has some skin ($$$) in the game along with you).

Just my 2 cents.

529 plan or buy properties that cash flow for college and why?

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