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"Saving for Your Kid’s Education? Consider an Investment Property College Savings Fund"


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Consider starting an income property college savings fund as a way to save enough money to help fund your child's college education. As long as you have at least 10 years before "payday," this can be a low risk, high return strategy.

In fact, saving for my 3 kids’ college educations was the reason I started investing in multi-family real estate in the first place. Thus, I know first hand that it works!


WHY IT MAKES SENSE


Starting a rental property college fund is a long term investment strategy, and as such it makes sense for the same reasons rental property investing makes sense as a retirement savings strategy. Specifically:

  • Thanks to the power of leverage, you do not need a lot of money to get started. In fact, you might even be able to fund 100% of your down payment requirement with leverage, essentially giving you a nice zero down investment loan. Same goes for the closing costs.
  • Your tenants pay down your investment loan balance, yet you keep the built-up equity. I call this "free equity."
  • Many of your real estate property costs can be used as rental tax deductions.
  • Your asset is guaranteed to appreciate over the long-term.

Click for a more detailed discussion on the general benefits of real estate investing.


REAL ESTATE VERSUS 529 PLANS


For the reasons mentioned above, starting a college fund with investment properties beats any other traditional college savings vehicle – such as stocks, mutual funds, CDs, currencies, bonds, options, and pretty much anything else you could think of. And this includes state-sponsored 529 plans, which allow you to accumulate savings tax-free as long as the funds are used to pay for college. Some states even allow you to write off some or all of your annual contributions.

Unfortunately, many people incorrectly believe that 529 plans will always generate the best possible returns for their college savings fund. Yes, it is true that the tax benefits make 529 plans a better deal than stocks, mutual funds, bonds, etc. (assuming the 529 is of the low-fee variety).

But even though 529 plans are the "best of the rest," they can't hold a candle to real estate, primarily due to leverage. In other words, you can buy a property by forking over only a small percentage of its total value, thereby dramatically enhancing your cash-on-cash return on investment (ROI) when you sell. Because there is no leverage in 529 plans, the ROI is always much smaller.


HOW TO GET STARTED


Now, before you get too excited about starting a college fund, please understand that rental property investing is more work than any of the other investment vehicles mentioned above. You'll have tenants, and the properties won't manage themselves.

But, the best things in life don't come easy. If you have a decent work ethic and you are willing to put it to good use for the benefit of your kids, an investment properties college fund is the way to go.

So, if you're still with me, here are the next steps for launching your real estate-based college savings fund:



  • Decide how many 2-4-unit properties you need to achieve your savings goal.
  • Break your goal into manageable chunks. For example, if you think you'll need 3 properties, set a goal to buy 1 per year over the next 3 years.
  • Consult with your accountant and rental property attorney
  • Form a real estate LLC to (eventually) hold your income properties
  • Make contact with a few insurance providers, lenders, and title companies
  • Read every page on this site...twice
  • Find a real estate agent and dive-in. Click here for a 5-step framework to begin "pounding the pavement."
  • Secure funds for the down payment: HELOC, cash, 401K investing, etc.
So there you have it. Starting an investment properties college fund is not necessarily easy, but it can be an extremely effective method of giving your kids the head start in life they deserve.



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3 Responses to Saving for Your Kid’s Education? Consider an Investment Property College Savings Fund

  1. DaBomb! says:

    Yo G – what a fabulous idea! I never really considered starting an investment property college savings fund. I’ve been doing the ‘ole 529 thing but with the recession it’s not working out like I had hoped (not even close actually). Will be giving this strategy a try!

  2. Janie says:

    WOW: What a GREAT idea! I never even thought about using real estate as an investment property college fund, but now that you’ve enlightened me I certainly plan on looking into this further. I’ve been doing the 529 thing for 3.5 years but it’s gotten me nowhere fast. I’m kicking myself for not considering using real estate to accomplish the same goal unitl now. But heyt, better late than never right?

  3. Daddy says:

    Nice! wish I’d of thought of that about 20 years ago when I was trying to figure out how to save for college….

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