How I Used Real Estate to Pay for My Newborn Daughter’s College Education

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Two months ago, my wife and I welcomed Rosie into the world — our first child. Last week, I had her entire college education paid for without spending a single dollar of my own money. How? Through a single real estate investment.

The theoretical plan was simple, if not necessarily easy:

  1. Buy a piece of property.
  2. Let my tenant pay off the mortgage over the next 18 years.
  3. Sell or refinance the property after it has been paid off.
  4. Use the proceeds to pay for my daughter’s college tuition — or whatever future she wants.

In my case, I purchased a four-unit property in my local area. Fixed up, it should be worth around $160,000 in today’s market; and assuming an average increase in inflation of around 3 percent, I estimated the property to be worth around $275,000 in 18 years. This should be more than enough to cover four years of Rosie’s college education — or if she chooses not to go to college (which I would support wholeheartedly), provide the funds to start a business.

habit-change-life

The beauty is, I’m not the one paying for it — my tenants are. Each month, the mortgage is paid down lower and lower, but the funds are coming from the rental income on that property. At the same time, the value of the property will likely climb each month to keep pace with inflation — increasing my wealth (and Rosie’s college fund) each and every month.

What’s even better, I bought this property for no money out of my own pocket. Sure, I could have put down a large down payment, but real estate is so much more fun when you can put together a deal using only other people’s money. For this particular purchase, I used a private money lender to fund the entire purchase and a rehab of the property.

Related: At Age 26, I’m on the Brink of Financial Freedom: Here’s How I Did It

Once the property has been completely remodeled, I’ll refinance the loan into a long-term, fixed-rate mortgage with a local bank. I call this the “BRRRR Strategy” (buy-rehab-rent-refinance-repeat), a strategy I’m very fond of and discuss in more depth in The Book on Rental Property Investing.

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Four Steps to Success

Of course, this strategy is not going to work for just anyone who buys a piece of real estate. Instead, it took several key steps.

First, I had to find the right property — perhaps the most important step in this process. So, I spent a good amount of time prospecting for potential deals in my local market. This property came from a direct mail letter I sent to the owner several months ago. I determined my maximum allowable offer based on a thorough analysis of the property and negotiated hard to get the deal I needed. In real estate, you make your money when you buy — so don’t underestimate the importance of doing a proper analysis on any real estate deal.

Second, I’m going to need to rehab the property and make it as “tenant-proof” as possible. In other words, I want to ensure the property looks amazing (to attract the best tenants), but I also want to use building materials that can take a beating — thus reducing the cost of maintenance over the next several decades.

Third, I’ll need to make sure the property is continually filled and maintained. While I could do this myself, for this project I’ll be hiring a property manager to take care of those tasks, to make this investment as passive as possible. Because I bought the property at the right price, each month the property will actually produce far more income that it will take to run the property, resulting in positive cash flow, likely in excess of $500 per month. So, not only is Rosie’s college getting paid for — but my own personal income has climbed significantly, as well.

Related: Teaching Kids to Be Entrepreneurs is Key to Addressing the Wealth Gap: Here’s Why

Fourth, I’ll need to either sell or refinance the property to pay for Rosie’s college. That’s right, I don’t even need to necessarily sell this property to pay for her college. For example, let’s assume that the property is worth $275,000 in the year 2034, the year my daughter will be entering college. We could sell the property and pay around 10 percent for sales expenses and another 20 percent in taxes, leaving us with around $200,000 for Rosie. OR I could simply get a new loan (refinance) for 70 percent of the value of the property — taking out $200,000 in cash for Rosie and holding on to the property longer.

 

 

The Fourplex... BEFORE

The Fourplex… BEFORE

IMG_8794

The Fourplex… AFTER (almost done!)

One Final Benefit

Finally, this strategy is exciting because I’m not just going to pay for my kid’s education.

We’ve all known kids in college whose parents paid for everything, and many of them never took school seriously. Instead, as soon as Rosie is old enough to understand what’s going on, this will become her property. She’ll help run every aspect of it, allowing me to train her in the art and science of real estate investing. She’ll graduate high school with more money smarts than anyone in her class, all while avoiding the crushing weight of college debt most students take on, thanks to one strategic real estate investment.

You know, real estate investing is a lot like parenting: plenty of hiccups, messes, never-ending questions and maybe even some sleepless nights. It takes hard work, intelligence, planning and patience. But, in the end, the beauty of what you create trumps the drama — every time.

[This article originally appeared on Entrepreneur.com.]

Are you using real estate to help plan for your children’s future?

Let me know how with a comment!

 

NOTE: If you want to know MORE about this property, in a LOT more detail, check out my recent blog post How I Bought a Fixer-Upper Fourplex for $1 Down: A BRRRR Case Study here on BiggerPockets!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

20 Comments

    • Peter Falk

      I love this long term buy and hold strategy, however, if you didn’t do this 18 years ago and your child is starting college or close to it, consider studying the rental market near the college they’ll be attending. If it makes financial sense, you could purchase a property that they can live in while attending college and have roommates help pay for the mortgage and carrying costs while the home appreciates (study your local market for rental income and appreciation) and in 4+ years when your child graduates, you can sell or cash out refinance to recoup some of those college expenses, or continue holding it as a student rental. I live in Madison, WI where the UW Madison has a huge student rental base of 43,000 students and have seen this done.

  1. Matt Faircloth

    Hey Brandon,

    Great article and congrats on the new baby! Liz and I have a two year old and are working on the same strategy. Question – have you thought of using a 15 year mortgage so that the property is free and clear when your daughter graduates high school? Maybe your calculations showing $500 cash flow already include that type of financing, if so all the better!

    Also will you be holding this property in a trust with her as the beneficiary or are you using another entity type?

    Curious to hear your thoughts.

    Matt Faircloth

  2. Chad Carson

    Congrats big daddy Brandon! That’s exciting news!! Is little Rosie going to be helping you with podcast episodes soon?

    I think this is a great article. It shows the flexibility of the tools we learn as real estate investors. We can apply our skills to whatever financial issue we need to tackle in life.

    I also love the idea about using the houses as education tools for your daughter. My five year old is already very curious about what I do (because she loves daddy time), and she wants to ride around more with me to look at houses. She even helped with my punchlist on a rental turnover recently. She said “Daddy, this house is DIRTY!”

    I also wrote a really detailed article explaining the two houses I bought for my two daughters. It might give another perspective on this approach. http://www.coachcarson.com/pay-for-college-real-estate-investing/

    I estimated I would need $340,000 combined for both of them if I paid 80% of their tuitition at an instate school. I’m going to let them have the other 20% as their skin in the game or “down payment.” And if they want to go to more expensive private schools, that’s fine, but we’ll have to look at scholarships or see a clear ROI so that they can invest more.

    This is a big idea we should be talking more about on BP. Thanks for bringing it up, Brandon!

  3. Hey Brandon
    Good idea I did they same thing with my kids. I bought rent property while they were growing up and used the cash flow to pay for their college no money out of my pocket. It was nice and felt good all along knowing I was going to be able to do that.

  4. Allison Blecker-Cook

    Hi Brandon,

    Great article. Is it possible to give more specifics on who your private money lender is while still maintaining their privacy? I’d like to know more about how you raised the down payment/from who in general yet more pointed terms. This would help me make a more targeted and fruitful approach to my own potential private money lenders. And are you paying your private money lender a monthly fee for their investment out of your $500 a month profit? If not, what is the arrangement with the private money lender? Many thanks for your input!

    Thanks,
    David

  5. John Aloisi

    Brandon,
    Sounds like a great plan. I especially like the fact that you plan to teach your daughter about finances rather than just bankrolling college, etc. for her. I have an 11 year old who’s read a couple dozen books on investing and can’t wait to start investing in both stocks and real estate. In fact, he’s hoping to attend the closing on our first SFR property in a few days just to see how it works. Thanks for writing and good luck with your plan.

  6. Brian Skinner

    I love it! I was also thinking of one day having my kids be responsible for a property. Refinancing would be best so they can keep the asset and understand not to kill the golden goose. Hopefully they even factor in how much to spend on college since it is really their money they are spending.

  7. Hi Brandon, my husband and I are reading/listening to your book on investing, Love it btw, to learn more. My question about this four plex deal is do you recommend this for a first time investment? Here’s the deal. We live in Baltimore MD and just found a two plex package for around 70k in a decent area. My brother is a contractor and another an electrician. Separate each unit can sell for $140-180 or rent for 1100-1300. I’m not sure how much work but my brother assesses maybe 20k without seeing it. My fear is that this would be our first buy and I’m not sure if we should start slow or Go Big or go home. The plan was to eventually get to a two plex but I think we were thinking more of a two unit SFH. Thoughts?

  8. Hi Brandon. I am a single mom from Texas. Over the years I had saved up some money to go towards paying for college for my two sons. Four years ago, my first son started school and I opted to purchase rental property putting 25% down, in lieu of paying for college with the money. I was able to use some of the cashflow from the rental properties to pay for his college (in addition to monthly income from my job). He just graduated from UT (Hook ’em) with zero debt. I have another son that stared college last year at Texas A&M. He will also graduate debt free and I will still have the rental properties that will continue to build wealth. I love REI!

  9. Brad Shepherd

    How about buying that property in a Coverdell account so you could use proceeds tax free, or even sooner like for private school? (Who wants to send their kids to public school anymore, right?) Same idea as buying a property in a Roth.

  10. jack johnson

    So at what point do u put the property in your kids name ? Can you make it a partnership ? Flp or llc – With parent as controlling partner until later and gradually turn over -can you use it to fund a Roth for the kids? And how do you keep it from affecting there eligibility for student loans (that they could fund RE with) since tuition will be covered?

  11. Allen Fletcher

    I love your plan of training your daughter in the art of real estate investing, what other financial wellness lessons are you planning? Have you thought about the basics of teaching identity protection? Insurance? Securities markets? I have the flip side planned for my children, I am learning real estate, but I am a very active investor in securities. I have a degree in finance and teach identity protection and other topics to my children. I was just curious what someone like you plans on teaching since you are so well versed in areas I am just learning.

    Regards,
    Allen Fletcher

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