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.
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.
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?