How to Put Your Kids Through University

By Brent Roberts

Everyone has a different reason for investing in real estate; I believe one of the main reasons is to improve the financial security for themselves and their loved ones. For years I have watched many people benefit from long term real estate investments. I have always thought, ‘Wow, wouldn’t it have been wonderful if our parents had bought us investment real estate when we were younger?’ What a difference that could have made in our lives.

Now, I know you may be thinking ‘who could have afforded to do just that?’ It is not as hard as one may think. So, how does one get started in building and growing a real estate investment portfolio? Following ‘s ACRE system and continuing investment education with REIN is a great starting place for you.

I Wish I Bought Real Estate 20 Years Ago

I am sure everyone can recall hearing about how inexpensive real estate used to be and know many people who have regrets for not buying property earlier. As a REIN member and real estate investor for over 22 years, I knew it would be a smart investment if I bought a house for each of my children when they were born. I called it their ‘university house.’ I started when my daughter Sarah was born.

She was born July 1st and with the excitement of every new dad, I declared it a national holiday and we have been having fireworks for her every year since. Eventually, we did tell her that she had to share the fireworks with Canada seeing as they both shared the same birthday.

Don’t worry if your children (or maybe even grandchildren) are already 5 or 10 years old. This shouldn’t discourage you as it’s never too late to start; however, common wisdom tells us the earlier you start, the better. Today may just be the day for you to get started with your own university house. And honestly, this tip is not only for the residents of Canada. All individuals across the globe who are interested in investing in real estate can start today. Know that investing in properties in your locality or different areas could always be advantageous. For example, many people in the U.S., especially residents of Chicago, often invest a hefty amount in buying houses near them. This helps them tremendously in their future. That said, if you too are interested in buying properties in Chicago, The Dobbs Group in Chicago can help you.

There are many benefits of owning investment real estate, especially if you can get your children involved early. They can learn about the benefits of investing and the value of money. This July, Sarah turned 21 and she’s known about her house since she was a little girl. She has a picture of herself standing in front of her university house when she was little. She met the property manager and even met the tenants. Of course, they never knew the little 8-year-old was the actual owner of the house they were renting.

I remember years ago Sarah said to me ‘daddy when I go to university will I live in my house?’ I told her no, she would either live on campus or might have to look for apartments (visit this website for better reference) near her university. She then asked ‘daddy, will it be my house after I finish university?’ I teased her and said that it might be a place she rents, so it won’t belong to her.

One of the simplest ways to buy a property for your kids is to leverage the equity of your own house for a down payment and then have tenants pay the mortgage. The concept was simply to buy a house for each child and over the 20 years (or less, depending when you got started) the house could be paid off or close to it. Until Sarah was 18, regardless of what income there was, that income was attributed to me and since the net rental income was minimal after deducting interest, operating expenses, and depreciation (if needed), the benefits make this more than worthwhile. Of course, operating expenses would include the small home repairs that would come with buying a house and making it tenant-ready. No matter how new the property might be, you’d still have to deal with the common repairs needed (read this blog to learn more), but that’s just a small price to pay for your kids’ future.

Now, not only did Sarah’s house increase in value from $220,000 to $475,000, but the tenants were kind enough to pay the mortgage. It’s really great that today the variable rates are at 2.89% compared to 6% when we first bought her university house but, either way, the tenants still pay the mortgage and cover the expenses.

Doubling the value while reducing the debt is an excellent bonus but how does that help Sarah and her needs for university? Well, when Sarah started going to university, instead of the tenant paying mom and dad the rent, which would be taxed up to 46% (depending on your tax rate) and then giving Sarah whatever was left over, the tenants now pay Sarah directly. For tax purposes, this is beneficial as Sarah has minimal income while she studies, putting her tax rate closer to 20%, which is less than half the rate at which I would be taxed.

She will be able to shelter this income with her tuition credits as well as any expenses incurred on the rental property and, because of this, she will have more money to carry her through her university years while also getting firsthand experience on managing her investment.

This is a perfect way to send your kids to school compliments of complete strangers and thanks to the taxation rules of our government. While I am an investor and realtor, I’m not an accountant or lawyer. As taught by REIN, accountants and lawyers are also important members of your team check with them about tax implications and strategies.

Your Big Why

One of the things that I have noticed in life is that when you set a goal, not only do you move towards the goal, it also moves towards you. One of the great things about buying a property for each of your children when they are born is that it keeps you focused on your financial goals.

For example, if you plan on having two children and space them two years apart and then, even if you have an ‘oops’ and have a third, it is OK as you usually have a 9 or 10 month waiting period before you need to get going. So you really don’t have to hastily run out and buy a house, rather, you can take your time to look for a fantastic deal and trust me, fantastic deals can always be found, no matter what the market is like. By buying that great deal, you put yourself in a favorable position and are able to see some appreciation on both your university house and your primary residence. With both properties appreciating and both mortgages decreasing, this can potentially lead to further funds available for your next down payment.

You may be surprised how quickly you can be in a position to buy your next property.

Now, if you plan on having four children and buying four university houses, and then your children follow in your footsteps and have four of their own and so on, you eventually are sure to create financial freedom for the family and a lasting legacy.

Even if you do not take advantage of the tax situation (which happens to be an added bonus) the real benefit and outcome is that each of your children and grandchildren will appreciate your hard work, efforts and foresight in assisting on what may be the biggest investment in their lives. If everyone did this rather simple process, I may never again hear my customers say ‘my kids will never be able to buy in today’s market?’ or ‘I cannot afford to buy real estate right now as I have to pay for my child’s university.’

Keep in mind, in 20 years, your children will be 20 years older regardless of whether you bought that university house for them or not. With just a little planning and foresight, you won’t have to worry how you will pay for their university education or help your children break into the market.

Brent started to invest in real estate and bought his first ‘door’ at the age of 18. Brent owned 18 houses prior to becoming a realtor. He decided to take the real estate course in the late 1980’s to become a more educated buyer. He was then convinced to become an agent and has never looked back. Contact Brent at brent@brentroberts.com.