If you start investing early enough, it can work wonders. They can also address rising college tuition costs, which have more than doubled since 2000. Fee According to , tuition and fees at private universities amounted to $38,768. education data initiativeAnd that amount is expected to continue to increase rapidly between now and when your child enters college.
Luckily, real estate can help. Try these creative approaches to paying for your child’s college education and stop worrying and start looking forward to your child’s college experience.
1. Make tenants pay tuition fees
The year my child was born, I bought a rental property worth $360,000. put It’s 20%. The remaining amount ($300,000) is borrowed on a 30-year mortgage at 6% interest.
The real estate value over the next 18 years will be:
18 years later, you now have $554,870 in your pocket capital. The tuition fee is quite a bit, so I hope I still have enough money left over. That’s all To move towards retirement.
tenant paid under Home loan balance even if real estate prices rise in value. We assumed an annual price increase rate of 4%. For context, U.S. home prices have increased on average. 4.8% annually from 1987 to 2023.
Oh, that doesn’t say anything about you cash flow. Rents rise with inflation, Even if the mortgage payment remains Repaired. By now, you’re probably paying a hefty amount each month for your rental property. You probably don’t want to sell or refinance because your cash flow is so good.
If you want to pay more aggressively under You can buy with a 15-year mortgage if you have a loan balance. Be aware that your cash flow will take a hit. Here’s the graph as well:
2. BRRRR: One down payment is all it takes
If you want to be more proactive with your rental strategy, follow these steps: BRRRR Strategy (Purchase, renovate, rent, refinance, repeat). The idea is you Force capital through renovations and then refinance to cancel your initial down payment.
In this example, you still had to shell out $60,000 plus closing costs, which is no small sum. Instead, imagine you buy The property’s run-down neighbor sold for $240,000. put The renovation cost $50,000, borrow Same $300,000 mortgage.
Ultimately, the appraised value and rental cash flow will be the same in the long run. But now you are not tied down to the land a penny. You can reinvest that money into stocks, syndicates, etc. more Rental property.
in fact, You can spawn the same BRRRR process over and over again. infinite profits. Since there is technically no limit to the number of times the same capital can be recycled and reinvested, there is also technically no limit to returns.
3. Unlimited income with real estate syndication
BRRRR Strategy It is attached The big drawback is that it requires a lot of effort. Of course you will get your money back out of Although the nature of each your time? It became less noticeable, but it was gone forever. genuine It is part of the investment in each property.
Some passive real estate syndications employ similar strategiesjust On a much larger scale. Syndicators purchase dilapidated apartment buildings, renovate and reposition them as luxury properties, and then lease the units at even higher rents. They then refinance it and return the passive investors’ initial capital, but all the passive investors keep their money. their Ownership.
In other words, you and I can get our money back and reinvest it elsewhere. But we also continue to collect cash flows from the original assets.
Many syndicates target annual returns in the mid-teens and above. “Well, don’t most syndicates require a minimum investment of $50,000 to $100,000?”
If you invest on your own, that’s certainly the case. So I don’t do that. Our co-investment club meeting monthly We vet trades together and members (including myself) can participate in trades together For orders over $5,000. I use it in the form of dollar cost averaging methoda more manageable way to consistently invest. monthly amount For real estate investment that boasts high performance.
And if you have your principal reinvested over and over again, the math changes even more in your favor. However, this makes it tedious to predict the future, so we leave the graph as a standard compound rate.
Additionally, we are also investing in other type of passive real estate investmentlike private partnershippersonal notes, debt funds, etc. Infinite returns sounds great in theory, but I’m more interested in finding it asymmetrical returns.
4. Flip the house with your teens
As your child approaches college, you can involve them in paying for their tuition. own Higher education.
Use them to flip some houses. The profits from each the house you flip It may cover tuition fees for more than one year.
Even better, your kids will learn real-world skills like predicting ROI, negotiating, project budgeting, managing contractors, navigating bureaucracies like permits and inspectors, and home improvement.
and maybe they will actually If you’ve been swinging a hammer all summer and sweating it out to pay your tuition, come to class at 8am.
5. Hacking Kiddie Condominium House
It turned out There are loopholes in owner-occupied mortgage financing. Adult children can meet the residency requirement.
This means you can use your primary mortgage to purchase student housing for you and your roommates. Your roommate can also take care of the mortgage payments for you, so you and your children don’t have to pay for housing.
Again, children can learn some real life skillslike Property management. just confirm You will only partner with them if you trust them to manage your assets worth hundreds of thousands of dollars.
Once they graduate, they can decide whether to keep the property as a rental or sell it. Hopefully Walk away with some profit.
6. Roth IRA Real Estate Investment
Roth IRAs offer more flexibility than other retirement accounts. Donations can be withdrawn at any time without penalties or taxes. You can also withdraw your money early if you invest the proceeds for the following purposes: Qualified Education Expenseslike:
- Tuition and Fees
- Books and other school supplies
- Equipment necessary for participation
- Special needs costs related to attendance
Imagine you invest in a passive real estate investment and aim for a 15% return on the charts. self-directed IRA. After 18 years, we decide that we have enough money to help pay for our children’s school fees, so we make it tax-free.
just make it certainly you actually You can spare it. Your child has many ways to pay for college. There is only one way to pay your retirement benefits.
Consider creative combinations of real estate investments
Like a Lego set, you can combine all of these strategies to build your education fund. And these are just the tip of the proverbial iceberg.
Have you ever thought about house hacking? own Residence? It doesn’t necessarily have to be move to an apartment complex Or you can bring your housemates (SparkRental co-founder and her husband) We accepted foreign studentsand that scholarship covered most of the mortgage payments. or ADU. Alternatively, you can rent out part or all of your home as a residence. short term rentalperhaps even when not in use.
As mentioned earlier, it helps if your child has skin in the game. get them to contribute in some waysupport will be provided based on performance. That could mean a minimum GPA or some other metric. confirm They won’t take your help for granted.
Find ways to pay for college tuition with real estate. You don’t need to drastically reduce your net worth, but it does require advanced planning, thoughtful strategy, and clean execution.
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Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
