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

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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.

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.

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?

About Author

Elizabeth Colegrove

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 estate portfolio from long distance while holding down a full time job. When she isn't finding new real estate deals, she enjoys traveling, hanging out with her awesome boat-building husband, playing with her mischievous kitty, or writing on her newest project, her blog.

25 Comments

  1. Daniel Ryu

    I think that’s a great idea. I plan to involve my kids in my investments as soon as they are old enough.

    I asked my 7 year old daughter the other day if she wanted to invest some of her birthday money in a flip. She said she would – she’s a natural saver and I could see her eyes light up when she thought of her money growing without her having to do anything.

    We also talk about assets vs liabilities – one puts more money in your pocket while the other takes money out.

    I definitely want my kids to grow up with a basic sense of finance and economics and the more hands on the better.

  2. Grace Ng

    I like your idea, Elizabeth. My parents were very poor when I was young but they both worked hard, bought a property for each of us four kids, and rented it out until we were ready to go to Australia/New Zealand for university. (As we were a minority race, there was no hope to get into good local colleges back home) My parents sold each one individually to fund our education. Fast forward 40 years or so, I do not want to just “hand over” whatever properties we own to our kids. They are 11 and 13, I drag them with me to all my house visits, inspections, repairs, talking to tenants. They whinge but I tell them one day, if they had to manage a property, they would know how to. I don’t let them do any money management yet but I would definitely adopt your idea of letting them care for some of the issues once they are older.

  3. I purchased a duplex when my first child was 1 year old with exactly this plan. It works!
    She got a full ride scholarship since I never told her that was the plan. However, she went to vet school and I used the proceeds from the sale of that duplex to purchase a house for her to live in while in graduate school. She rented out 2 bedrooms to other students and uses that money for her expenses of food, 1/3 of the utilities, books, etc. Five years later, kid #3 decided to mess up the plan by going to a private school which requires she live in the dorms. No problem, I used the money from the sale of first daughter’s house to buy a rental house in my neighborhood and use the rental income to pay for her housing expenses. (She has a scholarship that pays for almost all of the tuition) I again purchased a fixer upper so the $31,000 house is now worth approximately $75,000. I plan to keep it until my 12 year old son starts college then exchange it for a house near whatever college he attends or use it for income to pay for dorm fees.
    Basically, you can use the same money over and over again if you buy a house for your kid to live in. You sell it when they finish, so rather than pay $10,000 a year X 4 = $40,000 for dorm fees, you pay nothing! We were even able to buy a foreclosure in a decent neighborhood and fix it up during the summer so we could make money on the deal when we sold it.
    If you choose this route, I recommend that you insist the roommates send you the rent check even if you just give the money to your kid. Roommates tend to pay late or not at all if you don’t have an outside entity to blame. (Sorry, but my mom will evict you and be mad at me if you don’t pay!)
    Your kids will benefit from working on the rentals. Mine are able to do the repairs on their houses since they grew up with it. You will benefit financially since you will not be “throwing away” their college money. You get to keep the houses or sell and keep the money. Good luck!

    • David Faulkner

      Thanks for the comment … good to hear from somebody who has actually pulled off this plan. Sounds like you set it up for you and your kids to get paid to go to college. And the best part, your kids got paid in rent and landlord experience, which is infinitely more valuable than rent. Well done!

  4. Just make sure that you don’t title the property in your infant child’s name because it will destroy the ability to sell the property before the child reaches his or her majority. The property could be titled in a LLC or Land Trust with the child owning a personal property interest, but real property should never be owned by a minor.

  5. Frank Romine

    I have two boys 4 and 2. They ride along with me on many of my adventures with tenants, title companies, contractors and banking. My plan is to never label a property associated with them, school, vehicle or this is what I own or you own. They will have responsibilities and habits taking care of our properties and businesses, mostly unpaid. Preparing common sense prior to a school system is ideal. Growing up being respectful, self sufficient and able to communicate/understand all upper and lower classes of people has lots of value.

  6. Angie B.

    We have three kids 7 & under and another on the way. I plan to involve our children in every aspect of the business. We have already had our oldest help clean, sweep and mop a house we were getting ready. It won’t be long before we are teaching her to paint. I expect that they will learn simple maintenance and yard work when they are a little older. Then at some point I plan to train them to market a property, to inspect a property at move-in and move-out, to manage work orders, to help screen and choose tenants, to analyze a deal, and eventually to manage a rehab. The goal is that by the time they are 18, they are able to get started on their own in real estate if they choose. That might be the ideal time to buy them a house of their own.

  7. I did the same thing and it is working. In 2012 I bout a 70k house to use to help pay for my 12 year old’s college. He knew the deal from the beginning and has been helping with every aspect of the house. With a portion of the cash flow I pay for a tutor for him to keep him on course or better in school, maybe he will get a scholarship. I bought the house cash and it rents for 2k per month. The house has now ballooned to 300k we’re in the bay area!

  8. David Faulkner

    I have young children and was thinking of something similar. I agree with you on having them have “skin in the game” and good idea on the 15 year … only issue I see is it will be difficult to have the rental for them to live in and directly manage in college, unless you can predict 17 years ahead of time which college they will attend.

    My original plan was to pay 50% of their college expenses, and have them be responsible for the other 50% (by working, scholarships, loans, etc.) … then, if they took on loans, if/after they graduate, I’d likely pay those off for them, but not let them know that I was going to do that ahead of time … that way, they have “skin in the game” in the short term but aren’t saddled with huge student loans in the long run.

    After reading your post, though, I think my 50% will come in the form of purchasing a rental property (in an irrevocable trust with spendthrift provisions, with them as the beneficiary), helping them fix it up the summer before school starts, and letting them live there rent free and keep the income from their roommates (up to 50% of their expenses) while they attend college. This should work well so long as they don’t go to school somewhere super expensive (Stanford, UCLA, or Pepperdine, for example). This way, they have skin in the game, responsibility, get “street smarts” from fixing & managing the rental, and “book smarts” from college.

  9. Joel W.

    Great to hear others are thinking along the same lines for their children’s college. Our plan for our four boys, all under 6 is..

    Buy a multi unit near a state school, use the Post 9/11 GI Bill to pay for the first 36 months of college, whoever uses it first, dad and mom steal the E-5 housing allowance for REI, Cash flow from property is used to fund housing, and then rolled back to into payment for the other kid’s tuitions. Results, kids learn their is no free ride, learn how to invest in REI, landlord, and will be required to have a job during the summer to offset personal costs.

    Hope it works

  10. Pyrrha Rivers

    Love these ideas!
    I’m on my last of three children in college. The first two went on full athletic rides. (I let them know I would NOT be paying for college). The third saw that the life of a student athlete is hard work and decided to go on academic scholarship which left the housing bill not covered. $10K. Well, I suggested she secure a loan and did provide some help. She didn’t like having to take out a loan so the next semester she managed to get a job on campus as a Resident Assistant. This covers her housing and leaves a very small income which I’m happy to supplement because she has skin in the game.
    She plans to go to medical school and that along with early retirement are my WHY. She knows the first rental is to “help” with the med school bills. I plan to buy a rental in the town where she attends med school and leverage her experience as an RA in school to manage those roommates who will be under leases with me. Paying rent to me and evicted by me. Makes it easier for the resident kid in management to have the friendships but can also use the big bad Mama to keep the roomates in line.
    Works for my 26-year old who is out of college, employed but house hacking.
    As a result of the house hacking experience is now getting ready to purchase her first rental and have her tenants buy her a home.

  11. Steve Vaughan

    Thanks for this article, Elizabeth! My boys are 14 and 10. I have had rentals since 2002 and have had over 30 since my 10 year old could remember. I give them many opportunities to work for pay, but they don’t have to (for the most part).
    My 14 yr old now specializes in yard maintenance and carpet shampooing. Has his own business cards and networks with other LLs for business. They both painted their first ‘room’ (a closet) on their own by the age of 8. Whether real estate or any other medium, they are learning the 2 key lessons I want them to take away while young. 1) Work= money. 2) Work once and invest = get paid over and over. They are 2% owner-members of our family LLC that owns 3 of our apt buildings. They each have a mutual fund (UTMA) funded by the earnings on this business. When we swing by to check the properties on the way home from school or whatever they hop out and clean up or whatever without my asking.
    Their friends have i-phones and kindles and a boastful attitude. They have a mutual fund and apt buildings. They understand what will be worth more and continue earning in a few years. They don’t ask me for this toy or that gadget. They have their own money and they spend it wisely. They also know for larger things (like a motorbike, a car later or college much later) mom and dad will go halvsies. We will match them and they are good with that. I really doubt we will ever end up with a couple video-game playing self-entitled, whining deadbeats in our basement thanks to RE and the valuable life lessons it allowed us to provide!

  12. David Pickard

    I have a 1 year old. She is the reason I started looking at other ways to make money, which lead me to Bigger Pockets. This article was awesome and confirmed that I am doing the right thing for my family and daughter. I plan on doing all the great things everyone has mentioned here, and ensuring that my daughter has a secure and smart future.

    Like others I don’t plan on telling my daughter that I will pay for school for her. Nor will I buy her a car, or a cell phone, or any of the other junk kids have today. She has to earn it. That is, in my belief, the best education you can give to your children.

  13. Ed S.

    I am very open and sharing about the ins and outs of the rehabbing business with our three daughters, ages 6, 10, and 12. They understand the essence of real estate rehab and flipping.

    Our 12 year old recently got great satisfaction from helping me create a rehab scope of work. She was responsible for identifying all the cosmetic items that needed to be updated/replaced in the target house (door knobs, hinges, electrical outlets, plates, flooring, etc.), measuring the floors, going on-line with my commercial account and finding the right SKUs and unit prices, and then adding these to the materials spreadsheet for the rehab.

    I’ve taught her the basics of all the major trades (with the help of J Scott’s book). When we watch flipping shows, she is now aware of the implications of electrical, HVAC, and plumbing upgrades. While watching a recent flipping show, she recently commented, “There’s no way they can replace all that wiring in the basement for $1,000!” She gets how expensive certain trades are, and what it means to “over-rehab.” She also understands how hidden defects can ruin a rehab budget.

    While watching a rerun of a well-known flipping show, our 10 year old commented on how dated the kitchen cabinet upgrades looked, and said they should have just refinished the existing cabinets instead of tearing them out. I agreed. To the TV rehabber’s credit, it turns out we were watching an 9 year old show!

    Our 12 year old went with me to my annual meeting/dinner with my accountant at tax prep time a few weeks ago. She intently listened as we talked about the differences between owning property in one’s own name vs. through LLC. She was fascinated with the possibility of reducing tax liability by writing off legitimate business expenses (travel, office supplies, meals, etc), and later asked me perfectly relevant, legitimate income and business tax questions, some of which I couldn’t answer.

    My 10 year old daughter instinctively understands what virtual assistants are, and how they are used. This led her to ask if they could help her do research for a school paper. I said no, of course, but that she can use one to find a property we might like to rehab.

    My point in sharing these example is illustrate how much our kids can learn from our businesses if we take the time to intentionally include them. It’s easy to write them off as kids. Turn off the TV (or better yet, put the TV on a flipping show, and watch with them – explain why Armando drives a brand new Escalade and daddy drives a 9 year old sedan) and take away the xBox. Take your kids to open houses, closings, dinner meetings, and job sites. Ask them to batch and print your rental invoices in QuickBooks (after backing up your QBF!), so they can see how much money comes in every month. Take them along when driving for dollars so the can pin properties in Google Maps and snap pictures. These nurturing experiences are equally, if not more, valuable than much of what children are taught in school. And… you are spending quality time with your kids.

  14. Katie Neason

    Elizabeth, I appreciate you sharing your thoughts. I have spent MANY hours thinks, planning and developing ways to teach my son about money. I have been teaching him about assets and liabilities since he could talk. The summer before his kindergarten year we were brainstorming ways he could start his own business so he could buy toys. I had recently read that Warren Buffet’s first business/asset was a pinball machine and was sharing this with him to get him thinking. As we walked into his summer day camp at a local gym, he had the idea of putting a gumball machine at the gym. I told him if he asked the owner I would work out the details with her when I picked him up. He held up his end of the deal and hence started his first business. I gave him a loan with 10% interest to buy his first machines and inventory. 50% of the quarters he collected went to pay back the loan and 10% interest, 10% went to the church, 25% went into the bank for inventory and the rest for toys. He grew his business to multiple machines at multiple locations around town. He was making good and consistent money (for a kid still in his single digits!) which allowed him to fund other business ideas he had. Some had success and some did not. All have been great learning experiences. Last year (age 9) he acquired his first business. He bought a small vending machine route in our home town. He was able to pay cash from the profits of his other machines. He is 10 now and has 17 machines at 11 different locations. I take him around every other Friday to check machines, get quarters and refill them. It teaches him responsibility and accountability. He could grow faster and make a lot more money, but “counting quarters is a lot of work”. We talk a lot about college, whether or not he will go, and if he does how he will support himself through it. He has not shown great interest in real estate but I am hoping that will change. I have been encouraging him to grow his vending business so he can cash out of it when he goes to college and apply it with his savings to a down payment on a small apartment complex (maybe 9 to 12 units) in which he can live in one and manage the others. We will see. The one thing I have learned about kids is while you can definitely influence them they have a mind of their own that is resistant to control! My goal is to teach him how money works. From there he is on his own! If he chooses to be a starving artist and live under a bridge, or jump in the rat race with new cars and bling he will know exactly what he is getting into! It will not be out of ignorance.

  15. scott stevens on

    Elizabeth,

    It sounds like you’ve determined Real Estate is the way to go, so I have to ask… why advocate for college for your children? I graduated college, and the things I was taught in business school and all the other classes don’t really translate to earning a lot of currency and becoming super wealthy.

    Things like western civilization, music 101, british literature, etc. don’t really help me earn a lot. It seems like college graduates either double down and stay in school to get a master’s degree because they are scared of or got turned away by the real world, or they go out and accept the first 35k to 45k per year job they can for the sake of having some form of income.

    I went through ROTC in college, so graduating college was a requirement to get commissioned, but I really have to question the value of a college education. I will however say it’s a good experience to go through college. Not a right of passage to wealth though.

    • Erin E.

      I agree 100% We are still paying off student loans of my husbands who’s 36. He dropped out of a state school after his Junior year due to lack of funding and is now being paid more in a specialized blue collar field than his college classmates. Now that we’re out of the military and settled down, we’re going to be focusing on paying those things off! My bachelor’s didn’t earn me enough money to pay for childcare and work related expenses (like a car with insurance, gas, & maintenance) when our first was born, so stay at home mom (and loving it) I became!

  16. Erin E.

    I had this whole response to this Blog post typed out, hit “Post Comment” annnnnd, my internet cut out! Lost the whole response 🙁
    Anyway, I had a plan similar to yours, but I was going to see if I could use my kid’s (tax free) ESA accounts to purchase a condo for each of them (who chooses to go to college). They could house hack that way and rent out the other bedrooms. I wonder if there’s a way to do that since ESAs are essentially IRAs for education expenses instead of retirement expenses. However, I’m liking the idea of incorporating them more than not as my husband and I build our REI business. I know IRAs can be used to purchase RE, but I’m not sure how or if you can do it with an ESA for college housing purposes…

  17. Christopher Rodriguez

    Hello Elizabeth,

    i apologize to you and all who have posted before me. If i repeat certain advice that has been mentioned prior. I, like you, do not have children and thought how would i go about teach my children in the future? three books played a pivotal role. One is Suze Orman’s money class. in this book,there is different approaches she uses to teach a child to learn about money. Anybody who has seen her show, knows that she states very clearly ” our behavior as a Parent a Child will mimic later on” which is a scary thought! what kind of habits do i display? what kind of attitude and approach i give off? As we learn some of our ingrained behavior and attitude and outlooks from our Parents.

    The second of these three books is “The Millionaire next door” here the author explains how perception and the influence of society affect us. I take this book as a, “all my friends are doing it why not me? ” A mentallity that can curtail sound advice as a Parent we wish our children would adhere to and use to make more sound judgement. Also decipher right from wrong, perception from reality and the projections our children’s peers would like to sway our children towards. why certain things we we set up could really be a hindrance and not actually help.

    the last book and the one that is most popular amongst us Real Estate Investors is “Rich Dad Poor Dad” i believe taking some of the lessons of this book,can ultimately teach our children to look at the world from a different perspective. that not only going to college is a route but being an entrepreneur is a viable and working option and being said example can bring a diverse view. because as is often the case we are the type of individuals that say ” yes” we can tackle, handle and resolve anything put on our plate.

    finale note: this is just my view and opinion and each child will be different and have their own personality. these personalities must be encouraged and nurtured. however the character our children return in moments of crisis and analysis is the examples we demonstrated to them and their unique experience. the best way is the way we adjust with not only the times,but our ability at the time and finally how our children pick up and apply the wisdom we have acquired up to said point.

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