College Education on Your Tenant’s Dime

On February 22nd, 2023 our family welcomed a baby boy into this world. At six weeks early, he was as healthy as can be and was cared for by the best team of doctors and nurses at WVU Medicine. Before I dive into today’s topic, I want to acknowledge how fortunate we are to have such a great Children’s Hospital right here in our hometown. I could not have asked for better caretakers for both my son and me.

It’s a little frightening for new parents in 2023. Nothing is promised, and judging by the changes we’ve seen in the past five years, I can only imagine what the next 18 years will hold. What will our interest rates be, how will inflation affect  us, and will life even be affordable? The unknown or uncertainty of the future is a challenge for everyone, especially families. We cannot predict the future but we do prepare for it by saving and investing for the larger expenses like a college education.  There are so many ways to go about this, but my mind goes to one: real estate.

A real estate investment property is another option to pay for your child’s education through the equity gained depositing rent payments towards the mortgage. In other words, someone else will pay or at least contribute to your child’s college education.

It’s 2023 and you purchase a home as an investment for your newborn child. Yes, an entire home. You rent the house out over the next 18 years, at the very least, to cover the mortgage. Now, fast forward to 2041, your child is 18 years old, admitted to their favorite college, and you’re ready to harvest your investment for their college education. You have a couple options: You utilize the equity built over the last 18 years to help you pay for college or use the equity gains to purchase another property.

Using the home equity to help pay for their college is simple. Sell the home, receive the proceeds less the balance on the mortgage, pay the income taxes on profits, then utilize the capital gained towards your child’s college education.

Maybe your child  is awarded a scholarship reducing the financial strain of a college education. In that case, you  have the option to sell the current rental home, do a 1031 exchange to purchase a different  rental home where your child is attending college, and possibly collect rent from their roommates. Following graduation, you have the option to sell the home, cash out on the equity, or consider repeating the process.

If your child decides college isn’t for them, your investment is not limited to college spending like other tax friendly college investment plans. Purchasing a home for each of your children is a great way to invest and put money aside for them. Once they’re old enough, you can expose them to the process of managing a rental property and teach them the fundamentals that they may not learn in a classroom. If you are new to the investment property world, seek professional advice before committing to a plan like this. Whether or not to purchase a home for your child should be based on your financial situation and child’s needs and goals. Until next week!

Eve Leombruno, 2023 MBOR President