6 Reason to Use Real Estate to Save for College

Graduation Motarboard Toss

If you have young children you probably have thought about the constantly increasing cost of a college education and how you’re going to be able to afford to send your children to college. After my first child was born I began to seriously think about this problem, I looked into stock plans, college savings plans, and other investments but here’s what I actually did. In 2002, when my oldest daughter was almost 2 years old, I decided to take a couple of thousand dollars and use it as a downpayment to buy a rental property. I was able to find a great deal on a duplex that would cash flow well. The duplex made enough every month to make the mortgage payments and other expenses. It actually netted a couple of hundred dollars a month in profit, which I set aside for larger expenses. This property completely paid for itself.

My oldest daughter just turned 18 and while I had intended to keep this property and continue to use the cash flow to help pay for her college tuition. It had greatly increased in value over the last 15 yrs and about a year ago someone made an offer to buy the property for a good price. So, I sold it! I now have a large cash profit in the bank. This money will be there when she graduates from high school this spring. Ready to be used for upcoming college expenses.

Why did I choose Real Estate?

  1. Leverage - Simply put, the ability to finance real estate gives you great leverage. I could not borrow money from a bank to buy stocks or mutual funds.
  2. Cashflow - Monthly spendable (or saveable) cashflow. While some stocks may pay cash dividends, which can be spent or you can have those dividends reinvested (used to buy more shares), dividends are not guaranteed nor is the price of your stocks. 529 College Savings Plans have some tax advantages but they are usually invested in stocks or mutual funds. If the market was to crash close to your target date, it might take years to recover. Having lived through and lost money in the tech bubble of the late ’90s. I didn’t feel like stocks were a safe option anymore.
  3. Pays for itself - After the initial downpayment and closing cost, I never invested another dime of my money into the property. Real estate made sense to me because I knew if I found the right property it would pay for itself.
  4. Appreciation - Real Estate has a great potential for appreciation. While it is not guaranteed, (remember the 2007 real estate bubble) over a long period of time it is highly likely to appreciate.
  5. Control - If you invest in mutual funds or stocks you have no control over the businesses that you are invested in. You are only along for the ride. Owning real estate allows you to control your investment. You decide whether or not to personally manage your property or hire it done, how much to charge for rent, and how to handle repairs, etc.
  6. Options - In my situation, I knew the property would be paid off in 15 to 20 years. Just in time for college, and with no mortgage payment the cash flow would increase, giving me a spendable income to use towards her college expenses. Of course, the other option would be to sell the property and cash out. Which is what I did.

Rinse and Repeat

I convinced myself that this was such a good idea when my second child was born a few years later, I bought another duplex with the same plan in mind. I still own that property...for now.

I was able to take a couple of thousand in cash and turn it into tens of thousands of dollars in profit. Unlike a savings plan or mutual funds, this was not a hands-off, "set it and forget it" investment. It did take some work, time and effort to manage and maintain the property over the years. This small amount of time and effort was well worth the reward. I don’t think I could have made as much profit with any other investment. Especially when you consider how small the risk of loss was. If you have a little bit of cash and want a safe profitable investment, consider investing in real estate.

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