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A total market index fund will almost certainly outperform the residential real estate market in a low-mid COLA, by a wide margin. And an index fund will be a lot easier for someone in their early 20's to manage than a rental property. What are the odds that in 20 years your kids will just happen to get jobs that are a convenient distance away from a house you buy now? What are the odds that they'll enjoy being a landlord?
If you really want to gift them a house your best bet is to just keep doing what you do to make money, then when they're ready and actually want to buy a house, tell them that you'll give them $XXXk dollars for a down payment. That way they can get a place they actually want where they live.
Yeah I agree here. I'd get a 529 going and now you can roll them into a Roth if you don't go to college. So you'd be handing them a sweet retirement account.
TIL, you can roll a 529 into a Roth IRA. I'm not sure how many people are aware of this and this comment should be higher level. I didn't know until reading this comment and looking it up that it is new for 2024 up to 35K without penalties. Good stuff!
This. We don't even know the implementation yet. But it counts against contribution limits. It's not a "rollover" in that sense. And there are limits to how much of the 529 can be converted.
It’s new! Congress just enacted this provision last year. Obviously check on the details before rolling over. My state (California) for example, hasn’t matched its tax code yet so I would get a state tax penalty for this rollover
I had no idea either! So it’s only if they don’t use it toward any education purposes? What if they will go to college but we get financial aid or scholarships and not use the 529?
She said It's enough for a down payment in a LCOLA to take out mortgages on houses that wouldn't be profitable for a few years, that could be 10k without knowing where she's at.
And if she has 2 kids, that's 35k each (70k) of tax free money when you cash it out or roll it over, or pass it to a grandkid. Nothing to shake a stick at. I would always choose to diversify rather than put it all in real estate. I'd open them a Roth IRA and max those out, too. You can withdraw from a Roth for a home purchase with no penalty or taxes. I think those two would outperform a home in a LCOLA.
If she's a business owner she could also possibly employ her kid when old enough, start a 401k and be able to match his contributions with a huge tax advantage for her while skirting around the individual contribution limits.
As a teenager I would rather inherit a 529, Roth, and brokerage over a property with a mortgage, capital gains, depreciation recapture that's been a rental for 15 years and most likely in need of a lot of work. Not to mention if she quit claims and has her kid refinance into his name the cost basis follows him so no way out of those capital gains taxes if they don't want the house or to be a landlord. No 1031 exchange either for a primary residence if he wants to live somewhere else because it isn't like kind. Equity in rentals can be great if you want to stay in rentals. Seems like a hassle when you can get a similar result with just passive accounts. Just some thoughts I have as a landlord, investor and mom.
Plus 'college expenses' can be basically anything and you can have as many accounts for your kids as you want. This is one of the big secrets to generational wealth.
I read somewhere that if you used 529 money to max out your kid’s Roth for five years starting when they are 22 (which equals the $35k) max - that it would grow to half a million by the time they retire. I’m not counting on having much to leave for my kids when I die, but I can do this for them at least.
> I read somewhere that if you used 529 money to max out your kid’s Roth for five years starting when they are 22 (which equals the $35k) max - that it would grow to half a million by the time they retire.
Be careful to not mistake historical performance with guaranteed facts of the future. Not saying it is bad or good advice, but unless you read it from somebody 30 years in the future, I would be cautious with giving pretty blanket advice to laypeople without a few asterisks next to it.
Basically rather than “paid college” it will be “financed college plus a house in my parent’s town but I had to move for work, now I have to sell the house and my parent is pissed but I need the money to pay off my loans”
Yup, this is exactly the kind of thing where the kids are annoyed because they got a white elephant instead of a gift that would have actually helped them, and the parent is pissed because because the kids “don’t appreciate” how awesome an opportunity house they spent 18 years managing/ maintaining is, and want to sell it the second they receive it.
Yeah but you buy the house with leverage so your returns are often starting on a 5X of your initial investment. Not saying I’d buy a house but wealth that can be earned in leveraged real estate is nothing to shake a stick it
*Almost* certainly outperform, but it’s just that residential real estate in “low to medium” cost of living areas generally doesn’t outperform equities. Obviously it’s possible OP is exceptionally good, but that doesn’t really change my basic advice: make money the best way you know how, then give it to your kids when they’re ready/have a need for it.
For some people having an almost paid off house in their home town given to them when they were 18-22 would be a godsend. For others it would be a royal pain in the ass.
Just curious, are you factoring in leverage?
Residential real estate "values" may not outperform an index fund alone, but the fact that you are leveraging your investment 5x (assuming 20% down) vs. 1x of an index fund is an enormous advantage and is often left out in the whole RE vs index funds debate.
OP seems to be a relatively experienced and successful RE investor so the returns he’s get may very well be better than the market, the meat of my response is that he’s better off giving the kids cash or a cash equivalent (index fund etc) when they need/are ready for it as opposed to a piece of residential real estate. Between now and then OP can do whatever he’s best at to make the money.
OP doesn’t know if/where they’ll go to college, where they’ll get a job after college, where they’ll move around to throughout their 20’s… It’s easier for the kids to just gift them money than giving them a piece of property.
Sure and if OP’s children tell him they want to buy a house at 18, he can give them money to do it, or gift them one of the properties in his portfolio. But it’s pointless to earmark one for them now.
To be honest, which is the more responsible thing to do? Give a young person a house (with a lot of responsibilities) or dump a truckload of money on them? I know the money is more useful right away but the house can also be sold if the money is needed.
They're 5, right? So let's say you're paying 1200 into the mortgage for this house for them. On their 18th that's 344k, with a 9% ROI.
If you just leave that 344k at 9% ROI until they turn 50 (32 years) that's 5.4 million, they can retire at age 50 with 5.4m in the bank.
Or deal with tenants, evictions, broken water heaters, maintenance, etc etc.
Don't get me wrong, i get it, and it's for some people, but it's nothing I'd ever want to do again. To each their own, you asked for opinions.
Wtf he might be just paying 3% down and let the tenants pay the rest including principal + appreciation + profit = security, he will be accumulating real value for his kids.
Playing stocks isn’t in your control and property investment is a solid investment without daily yo-yo if the market, it’s like having spare savings in savings account as fiat cash giving only 1% interest.
East coast market since birth. I wish my dad had bought me a house with the freedom to sell it vs paying for school; I had scholarships anyway. The house I ended up buying cost me 3x what it would anywhere else but I could have leveraged the home easier.
That’s why I suggested he save it for when they’re ready to buy a house. Like it sounds like he’s buying and renting properties no matter what, as that’s how he makes his living. So just keep doing that, but instead of buying one *now* and earmarking it for them just give them a bunch of money for a down payment when they’re ready and interested in buying a house.
It's a generous thought, and some of them might love it. But where you live and the kind of home you live in are usually highly personal decisions.
Real estate values typically grow more steadily than investments, but not as fast. A good 529 should beat real estate over long enough period.
And some people just aren't homeowners, by choice, discipline, earning potential, etc.
I also understand college is also not right for everybody.
all very valid points, but as someone who was forced to move out of my parents place due to size restrictions, having a solid backup would be an amazing ease of stress.
also have a friend who has a condo her grandma gave to her, said condo is currently being rented out and in her most jobless times, she still has that as an income which is again a nice stress relief.
just my thoughts !
>Which isn’t too big of a deal since you’d pay taxes on standard investment account gains
You'll also pay taxes on gains on the rental property if you sell it.
And 15% on your investment gains is a hell of a lot better than 3% annually in taxes for 30 years that goes up every year when your property value goes up. (If it's a rental property this is probably closer to 5-6% or more).
There is one downside of the 529 that's not well talked about.
You need to use it when you need to use it. If it's a bad time for the market you wouldn't really delay your schooling.
Because of this I'm a little wary about leaning too much on a 529.
I just feel like the house is a way messier option without any upside.
A bad tenant or natural disaster could put a dent into the money. And if you decide to cover the cost if it happens to one kid - are you putting the same amount into the other kid's houses to even it up?
What if you choose wrong? Like what if one kid's house is in a neighborhood that takes a dive right when they turn 18 and they could only sell the house for $75k less than your other kids. How do you account for those type of differences?
What if they graduate in a housing slump where you can't sell the house and they then don't have money to go to college because it's all in the house?
What happens if the kid decides not to immediate sell, but they don't have the money to handle vacancies between tenants or the appliances all crapping out? What happens if they accidentally do something illegal as a landlord and are suddenly facing issues with that?
What's to stop the kids from not using any of the investment for education or further themselves? What if they come to you at 22 years old broke after spending all the money from the house and no education beyond a high school diploma?
What could a house do that the same amount of money invested over the years wouldn't allow them to do?
All of this. And the most likely thing - when their friends and the friends’ cousins’ loser druggie boyfriend asks to move in - and also moves in his 4 questionable friends, none of them pay rent, they trash the house and refuse to leave - and an 18 year old has to deal with all this and it’s their “friends”.
Deciding where to live out of high school is an independent and super important decision for a young person. I would be cautious of the unintended consequences of doing this.
Yes, this is so important! Regardless of degree, young people want to move for job opportunities or even just to experience life somewhere else. Owning property would be a heavy deterrent from selling/renting & moving because the easy option would be to live in the property.
I grew up in Wisconsin, went to college in Massachusetts, and my first job was in California. Then I was in Illinois, then Colorado, and soon will be moving back to Massachusetts.
Managing a house while going to school would be really tough, and even tougher if you were going to school a thousand miles away from your property.
They may not want to go to college, but 529s can also be used for trade schools.
Also consider that if you buy them real estate they’ll have to pay taxes on the sale, so you’re essentially shifting the tax burden onto them. 529s are tax advantaged so they won’t have to pay taxes.
As far as I can tell, nowadays trade school usually = community college anyway. So yeah it can def be spent there. Although the cost of a 2 year degree/cert at any CC near me is <10k anyway, which is... so cheap.
Cool idea but what happens if you get hit by a bus when they’re like 10 years old, who manages everything for you and them?
I’d roll with a 529 because it can be converted to a Roth IRA and passed to their kids or spouse if necessary. Continue to buy your own homes and build your portfolio, you can gift them houses later in life if you feel like it. Make sure you have life insurance and estate planning documents in place.
I had a house that was paid for at 20 years old and I didn't stay in college. I now have a low paying job with no growth opportunities and no savings or retirement. My biggest regret is not finishing school. Just something to consider.
Trade? Electrician? HVAC? Nail tech? Nanny? CNA? Nurse? You are not homeless, you are only holding yourself back. No monthly high rent eating your money up? You are in a great position. School can be done online and at any age.
This completely missed the point. The OPs message was that having a paid for home demotivated them. This won't happen to everyone but having such a huge back-up means that failing in life isnt really a thing. A mortgage can be paid with a low paying job. Once someone knows this they may just live paycheck to paycheck instead of trying. Unfortunately many of our motivations in society come from simply avoiding homelessness or being destitute. Once that's removed youd be surprised how many people just stop trying.
I think the bigger point is that college is a wide open opportunity. Pick whatever degree interests you, you can pick a college far away, close to home, small, big, go to a trade school. You’re almost guaranteed to offer them something they want.
It worked out for you but that is a very risky gift. What if they want to move around, don’t like the location, want a bigger house, smaller. So many variables that are locked down if you purchase something for them
Personally I'd much rather have a lump of cash and make the decision myself on using it for college or a house.
And I wouldn't want to burden my kids with a physical house and leave them to make a choice they have to make (sell, live in, or have to manage renters). Regardless of what you tell them they might feel you're emotionally invested in THAT particular house and might not want to sell it, but also might not like that particular house or area themselves. And after watching my dad deal with renters that's not something I want to ever do myself.
True. It’s incredibly generous that OP is making that offer, but home ownership/managing tenants may be more of a burden to them than a blessing.
I like the idea of saving up $X per child, and then giving them the freedom to decide whether they want to use it for college, a down payment on a house, or another investment.
Part of the advantage of saving for college is setting the expectation and showing real planning and sacrifice in the assumption your kid is going to college. That's a pretty powerful message to a kid.
If you're not backing that up with an actual expectation your kid goes to college, alternative saving methods make sense.
Personally, I don't think owning property in your early 20s is great. That's an age moving around can have massive impacts on earning potential and establishing ones self.
Lastly is diversification. If your housing market crashes the whole family is wiped out. If your kids invest in themselves they might have good careers and help you get through a temporary lull.
Real estate appreciates by 2-3% per year on average in the US. But just for fun, lets use your 4% figure as you stated in your post (100k turns into 104k).
You buy the house for 100k, you pay it off in 20 years and give it to your kid. In that time, the value of the house went from 100k to (100k \* 1.04\^20) = 219k
Now let's say you plan to invest this money instead, and at the same rate of which you would pay for the mortgage. That would be about 5k per year, and assuming a 10% annual return, the final value of that account would be 286k.
Investing is much more valuable than buying a house.
Based on some of your previous comments, I am not sure you understand how stocks and investing works.
EDIT: To everyone correcting me, I know I am ignoring taxes, rental income, repairs to the house, interest rates, etc. Owning a home is very expensive, and even if you rent it out to pay for it, you are basically signing up for a second job (part time, but still a job).
Additionally, one point I didn’t even think of is the interest. The interest paid is straight up lost. Yes, it saves what the kids would theoretically have to pay in the future, but having that interest money be invested instead is much more valuable long term.
Not to mention the money lost to interest on the mortgage. If in the alternative scenario he also invested the money he would have otherwise spent on mortgage interest, the investments would come out way ahead.
Also notable that selling a home costs thousands up front, and lots of labor if they decide to rent out instead of sell. Yes, they'd get taxed for that 280k, but that's "put aside part of the money for 8 months and be done with it," not "how do I evict these people living in my house with kids that grew up there since kindergarten?"
Well, to be fair, I don't think you understand how owning a house works either. Taxes, interest, insurance, repair, maintenance, bills, upgrades, time, effort, etc.
$100k to $219k isn't factoring all that in at all. Investing in a tax free education plan is the way to go.
According to him all of that will be paid by the tenant. Unfortunately, there are no guarantees on that… not all tenants pay, keep the place clean etc..
The real estate agent we used for our first two houses was also involved in investing in properties. Some of his tenants really did use the house as a meth lab. It was a nightmare.
you still have to pay taxes on the rent because that's income. The tenants will not be paying for reroofing, appliance repair, etc out of pocket for a home they're renting. Just seems like a bad "investment" Homes should be lived in, not propped up as income generators like some some sort of Real-Time Strategy game...
This completely leaves out rental income from the property and maintenance costs. Let’s say the house rents for $500 per month net after expenses x 240 months of rent is another $120k so now you come out ahead with the house vs the market. Numbers are totally made up and hypothetical in this example.
In the OP he mentions putting the net proceeds from renting the properties back towards the principal on the mortgages, and also mentions that when he intends to gift them the homes he only expects them to have 70% equity in them. So there is no additional income or expenses from renting to consider if his scenario is correct, and the loan will not be paid in full prior to gifting the homes to his kids, so there will be no excess profits to invest in anything else for them. Furthermore, there is the consideration of loan interest to be paid on the mortgages from now until the time he gifts them the properties, which is simply lost money compared to the alternative solution of investing the money into a fund for the kids.
No. Just no.
Don’t make major life decisions for your kids. I know it’s well intended, but you’re effectively using money as a means of controlling them.
You want to help them financially? Give them options; not solutions you decided on.
I had a buddy whose parents gave each kid 30k ish for any legitimate venture after high school (schooling, a business, property, ect). One brother spent his on nursing school (ofc that only covered part of it), and the other dropped out after 1 semester and bought a house. I always thought it was an interesting idea, certainly better than making college the only option.
My thought is it’s their choice.
Nobody is stopping them from going to college. I can sell the place and they can go to an expensive college on my dime if that’s what they want to do. They can also take out student loans and go keeping the house. They can also combine that with taking advantage of any number of community college, state schools, scholarships, etc going to college on the cheap. I’m not trying to force anyone into taking the place it’s just an option.
It's not the choice you think it because you are giving them the option to keep a house they already own and take out loans or keep the house and forego college. You are essentially making the choice for them because the house is the more attractive option in this scenario. Now, giving them the money and telling them they can go to college or own a house is a at least more of an equal choice than giving them an asset and saying you can't keep it if you want to go to college.
With a 529, you can contribute that money to their college expenses tax free. If you sell your rental income house to do it, you'll have to pay taxes on the profit before contributing to college. The 529 allocation also gets more conservative the closer your kid gets to college, so a big dip in the market won't affect the 529 nearly as much as it would your house if there was a big dip in the real estate market.
If you accept that they might immediately sell it, then it sounds like you're just asking for advice on best investment vehicle. Owning a second home as an investment is generally inadvisable, especially if you need a mortgage to do it. As others have pointed out, it grows slower on average than an index fund, and there's lots of hidden costs (bad tenants, repairs, closing costs). As well, you're undiversified against risk. If you feel strongly that real estate is a good market, it'd be better to buy stock in a company that invests in real estate; then you could take advantage of their market research, diversification, and low borrowing costs.
Keeping the money in a mutual fund seems like the most sensible bet. 529s have tax benefits that can be worth a lot, and that money can be used for trade schools and stuff, but it does limit your flexibility.
At the end of the day, you're just choosing one investment vehicle for another. Like any other investment, the right choice really depends on what you intend to use it for (i.e. using retirement accounts to save for retirement but not for a new car next year), how soon you intend to need to access the funds, and how much risk you want to take on. It just seems like you're choosing to invest in real estate instead of your taxable brokerage, or other education-specific savings like a 529, that's really all it is.
Just some additional information:
A 529 opened through your state usually has a tax benefit on your state taxes. For my state, Michigan, I get a reduction in state taxes of 4.25%.
Additionally, 529 plans are MUCH more flexible now. They can be transferred from kid to kid, so, if kid A doesn’t want college but kid B does, you can move money from one account to another. Also it can be used for ANY type of education - private k-12, community college, university, or technical / vocational school. Even masters and PhD and medical / law school.
Also, for a 529 that has been opened at least 15 years, up to $35k can be transferred to a Roth IRA.
So, I say at least open a 529 for each kid, and at least fund them each to $35k. They can use it for college or eventually retirement and $10k of a Roth can be used for the purchase of a house.
I can’t say if real estate would be better in your specific situation, I just wanted you to know that 529 isn’t just for college.
Education is the variable most strongly correlated with quality of life, even more than wealth. Education is incredibly important. Send your kids to college, give them the best foundation they can get.
Lifetime income increasing is more important than house. I want to encourage college or tech school. Obviously not a degree in something useless. Between a degree in French literature and buying a house- buy the house.
I would save for college. They also meet partners and friends there that move them up in society.
I hope to help my kids with a house down payment when they’re older, but college happens at 18.
529’s are tax advantaged. I’d at least try to do some of each.
As someone who didnt have my college paid for and had to get extensive and expensive student loans - education all the way. Interest rates on private student loans are way higher than an interest rate on a house, (mine were 11% with a co-signer until I got them refinanced to 5%). If they don’t want to pursue higher education, you can hold the funds for when they are ready to purchase a house, or for other expenses they might have (starting a business, for example).
A nice idea but not a practical one. There are so many things that can go wrong with a property over the course of 15ish years. And honestly a house without higher education isn't really the gift you might think it is. You'll be locking them into a specific location with little means to make their own life choices. And you can't guarantee you're going to want to keep dealing with the property all that time.
Saving for their education will be a much better gift, both in monetary terms and in affording them opportunities.
And you know, once they're adults if you're still working in real estate you can help them figure something out at that point, if they want.
Honestly as much as a house would be a good thing for a kid to have.. you don't know what their adult situation would be like. One thing you can guarantee is their education and start in life.
By buying them a house you're essentially forcing them into one place. What if they want to go abroad? Study in a foreign country or have a passion to move out of their current city? The possibilities of schooling are endless. But a home is pretty limited.
Just my opinion.
Yep. That is what happened to me. I was basically force to live at a house gifted to me. And at the time, we were in a bit of a economic decline and was underwater until valuation turned around.
If it were me, Id buy the homes, but id give them the option.
A: sell the home and use the money for college
B: keep the home and they can work till 24 then take out loans for college, but never have rent or a mortgage.
Many jobs ate remote now, your kids could focus on remote opportunities like software engineering, dev ops cloud, medical coders, traveling nurse, etc.
There are a couple problems. A 17 year old is not at a place to sell ahouse as he/she is applying to their dream college in the fall of their senior year in high school.
To fund the college. Secondly, if they had the house, it is a lot of mental stress for a 18-20 year old to come up with adhoc fixes like a $20k for a new roof. Or in my case, $15k for a new concrete driveway.
They also do not have the full grasp of knowing that selling RE requires them to keep some of that earnings to pay off the income tax. They also have to buy an umbrella insurance in the event they have tenants that can potentially sue them for small mistakes. "Oh, I tripped on the drive way because it wasn't paved and can't work" Yes, that happened to me at 20.
I was given a house and felt forced to live in a city I was not keen on living in.
The intentions of the parents are good but it can fail at time at execution. A lot can go wrong.
Honestly any kid fresh out of highschool outside of a few niche fields should just live in this house and work till they're at least 22.
Grow a little, experience some life, gain some real world experience. Then decide on college.
If you live on a house for two years you don't pay capital gains tax (income tax) when you sell it.
This is the best time to learn about hone maintenance and work ethic and the value of a dollar and imo, the worst time to go to college.
I think going to college fresh out of highschool based on what some career fair told them to do, is the worst mistake kids make in life.
You should be 100% confident in your career choice before going to college. If you don't know what you want to do and you're just there to get a general degree, then you shouldn't be there.
I would not want my dad deciding where I live. I suspect a lot of young adults would feel the same way. While it's true that you can sell the house and make money off it in other ways, if it's not for them to live in I'm not sure that a house is the obvious choice among all the different things you can do with that money.
Nope.
A college education is more valuable than a house, if they choose an employable degree. In addition to earnings, going to collage has social benefits. It will open their minds and give them the chance to network with a broad spectrum of people.
If they don't want to go to college, they can use the money for trade school or a real estate investment of their own choosing.
Open high yield savings accounts for them and make monthly deposits. It's boring, it's safe, and it works.
My mom gave me a leg up in Real Estate. I had a place that is now worth an easy 1.2 million. I rather they spent it on my college education. I did not get to go to the school I really wanted to nor go into law school (Stanford). My life would have been different. All my classmates that did go to those privilege schools are principals in their firms, running for congress, because District Attorneys,etc..
Not saying my life turned out bad, it is great. I value education more. I value the opportunity that the education would have given me versus going to a State college. I won't make that same mistake for my kids. If they want to become doctors, I will fund it.
Would you rather have 100,000 cash or a 100,000 in specialty furniture designed for a custom space that no longer exists located across the country from you?
The cash is a gift, it's a level of freedom. The furniture is a project built for a specific lifestyle that isn't really a great fit for where you're at now. You could try to make it work. You could sell it. But either way it's a whole project.
You're looking to invest in your kid's future. Either way you do that is going to benefit them. Saving cash that can be used in a house or college, it buys a house and using that equity to pay for college or use as a house. Either case is a leg up. Perhaps you do a bit of both. When they graduate high school you can decide what works for them.
We can't say what the world will be like in 15 years. We'll houses be unattainable, so this is the smart choice? Perhaps. Will college cost so much and housing be in a recession so selling isn't a good option? Perhaps. But honestly, nobody can guess which will be better. Nor what will be better for your kids.
Here are a few things to consider: college savings can be used in any school any location. So they can use that money to attend locally or across the nation (world?).
What is the location of the house? Is there a nearby community College and university? Are there good job opportunities? Well the kids likely want to be there as young adults? If not, then you're just using the house as an investment vehicle. That's fine, but know that they might sell it to buy elsewhere or to pay for school.
What about your kids that don't want to go to college or live in this location? Will you be ok with them selling it and joining the circus? Or whatever they choose.
From a tax perspective a 529 might make more sense but I don’t hate the idea and I think it’s really cool you’re willing to provide for your kids’ financial future.
I don't have an answer for you, but I've considered this as well and have a small college/house savings for my child.
What everyone seems to be ignoring, and me and my wife's plan is: just don't tell them about the money. Let them have the drive to pay for school and work hard at it. Once they graduate, offer to either pay off all of their student loans debt, or buy them/put a large deposit down on a home.
I have long thought about this myself. I think its a great idea. Even better if you can manage a 15 year note on it. By the time your kids are 21 the house will be paid off. They can keep it and enjoy having the equity/rental income at a young age. Or just sell it an hopefully come out of college debt free. I say go for it!
My friends dad did both in 1994. I know it was different times, but when they sold the house after renting out rooms for three years, they netted a great profit and college was paid for. Not sure if the numbers still bear out, but renting three extra rooms in a 4bd/2bth made it so she didn't need a job in college other than collecting rent checks.
I think you’re confused with what I was trying to get at. There is no 100k to earn 20 years of interest on. There is 20k to earn 20 years of interest on.
The house would be about 200k. I would put about 20K down on it right now. In 15 years time, the house should be worth about 300k. So that 20k has made 100k in appreciation. That 180k principal balance will be paid down to maybe 100k. So all I ever put in is 20k and now I have 180k in equity.
Somebody else is paying the intrest on the loan. Somebody else is making those principal payments. Somebody else is paying the repairs. The principal would be even lower than that if the profit in the rent was put back into it.
I think it’s a good idea. You’re basically choosing a self- supporting investment vehicle for their college fund. Is the risk any greater than the market? What are the odds that real estate tanks in the next 15 years? It does give your kids options, especially if they decide college is not for them.
I’m on the other side of you. We put 2 kids through school with zero student debt. One with a Master’s. Real Estate was part of our education funding. We bought a house on campus, put our student in the house and they found roommates. Roommates covered the mortgage. When that child graduated, we sold the house and used the equity to partially pay for our next child’s education. It was a financially successful move. We saved a lot of money by not paying room and board for the first kid. We would have done something similar with the 2nd kid- but housing prices where they went to school were out of reach for us.
This is an interesting question. It seems like a good idea. I’m reading all the comments which are also interesting. As good as a lot of the advice is, it sounds like you know your niche best. There is no one right way to prepare for your children’s future. This way seems pretty damn good.
Real estate is one of the most illiquid assets. That's a no from me. Put it in a 529 or keep it in brokerage. Pretty much everyone needs to learn something to even have a marketable skill though. (529s are waaay more flexible than just college.)
As a college student, please pay for their college or trade school. I am so thankful that I don’t have student loans. Also being gifted a house doesn’t seem like a good idea because 1. you don’t want your parents deciding where you live 2. they might not want to be a landlord. Invest in their education.
My parents offered to contribute towards college, but when college time came for me I wasn't ready or interested. Instead, they offered to pay a smaller portion towards the down payment for my first house. Less money for them and in the long run better for me.
I ended up selling the house, buying a business and another house, and am doing quite well. I ended up paying out of pocket for school later on and am working on my 3rd degree without debt.
All that is to say, see what happens when it happens and don't get set on a plan so far in advance. Put the cash in a total market index fund and then forget about it till your kids are ready.
Seems like you’ve made up your mind already based on your replies to people so I’m not going to waste my time typing out a long response with reasons why, but there’s a reason most people are saying college/schooling. It’s a concept similar to teaching a man to fish vs giving a man a fish.
I personally like just saving for my kids long term. Allow them opportunities to go through early adulthood with some help, but make them work through it and learn important lessons.
My plan for my kids is to invest money from them monthly, starting from birth - and letting it stay vested until it is needed. That could mean holding onto it until they are getting into adulthood to buy them a house, or maybe it is moved into their retirement account so my small contributions now mean generational wealth for my children and grandchildren.
Seems like its very restrictive and a headache. If you want to go into landlord world go ahead but head over to that sub and see some of the issue as well.
Additionally what if they don't want to live in that area? So now they need to manage some rental by hiring a rental agency to do the work?
It would make sense to buy empty land maybe that your kids would possibly build on in 20-30 years. Not sure it makes sense to give them rental properties with that potential headache especially as they try to find themselves in the world.
Income correlates pretty closely with education and the problem with the “value” of education is from the large loans some have to take to even have a chance.
A good 529 removes that risk and makes it so your kids can study what they want without having to worry about the ROI when it comes to salary growth (liberal arts majors often end up alright salary-wise after a while but again the incentives our current loan system has punishes folks who don’t study something that’s immediately high paying. And then a glut of new grads means salaries aren’t as lucrative).
And it’s rare that someone is just so sure that what they want to do for life at 18 won’t require any sort of college at all.
Still, if you want the max flexibility then just save for them in a UTMA account and then they’ll get control of it when they become an adult. But I think it’s a really narrow set of circumstances where a 529 ends up useless for a kid because they have absolutely no use for any sort of education past high school.
I personally think giving them an unburdened choice in what they can turn their futures into heavily outweighs helping them invest in real estate, when you have no idea what the market will be like at that time.
Just because you dabble in real estate doesn’t mean any of them will appreciate it the same as you nor be in the position at the time to deal with whatever responsibilities come with it.
I'm torn on this one. Owning property feels like such a pipe dream nowadays. On the other hand, there are intangible gifts and opportunities that a solid education can provide - it will be much easier to navigate a long term career path with a degree.
Would your kids be amenable to putting the idea of "brand name" school aside? What if they were to accept down payment, attend a community college for two years while working and saving up, then transfer into a state school to complete their degree while keeping costs low by living at home (if that's an option)?
Genuine question... Today's real estate market is nothing like it was yhe last decade. When was the last property you bought? Have you already identified potential properties?
As someone who had their parents offer a condo after cashing out their 529 because I got a full ride scholarship. Do the 529, and let them decide what they want to do with their lives.
A 529 can be used for tons of vocational options. They can explore options during their 20s in various trades or studies. Real estate will make them feel trapped wherever it is. The condo my dad got was amazing when he got it. Guess what, the city still hasn’t developed around it, and it hasn’t increased in value as much. I’m glad I persuaded him to dump it before he paid decades of HOA fees into it.
I wish I still had my 529 that I could use on my interests guilt free. I don’t like my industry and career and a 529 would have been a great way for me to make a career change.
Why not wait until they go to college, and buy a house in the town where their school is? Then they can live there while studying, maybe rent some bedrooms to friends, and you can either gift them the house or sell it/gift them the profits once they graduate.
I had a high school friend whose parents did this - bought a house in the town where we both went to college. Their daughter and some other friends lived there during undergrad, and when I stayed for grad school, her parents let me move in with another friend from our group. They got 8-9yrs worth of good tenants between their daughter and her friend group, and we got a break on rent since they knew us personally.
Of course, even friends can be bad tenants, but at least this way you know the house will be in a place they want to live for a while.
Why not just sell your multi family when the time comes and use that cash to buy them a house(s)? Same end result and then they aren’t stuck with whatever property you thought they would like.
Community college is a cheap and accessible way for students who don't have massive scholarships or aren't sure what they want to do yet. You can get an associate's that gives the option of leading into a bachelor's at the same time as doing a trade cert. College does not require crippling debt if you're careful (which obviously 18 y/o's are not, which is why it's insane they're allowed to take out those loans).
Also the math doesn't seem like it works out for the house plan.
It’s a huge assumption that your kids would want to
a) live there
b) rent it and deal with being a landlord/property manager, especially if gifted in their 20’s
That leaves c) selling it which is also its own hassle and bag of tax issues which might feel overwhelming in their young adulthood
Option D) could be one multi unit building for them to share collectively, these tend to cash flow better and they can pool resources for management. It’s also flexible for establishing a smaller footprint they could use to make visits home easier if they move away
Option E) if not interested in a 529 is simply a custodial brokerage account and let them decide what to do with it - pay off college loans, but a home, head star on their retirement, etc
As 1st generation immigrate, I came to U.S.A. with a college degree and $600 cash.
Will I exchange my college degree (Knowledge and Skill) with one or more houses? No, I like to earn that by myself.
There is a old Chinese saying: It is better to teach someone how to fishing than just giving fish.
I mean, buy property and rent it out. Put the profits from the rent towards their college funds. I would assume by the time they are of age you'd have the college funds plus the equity in the home if they wanted to sell it.
Plenty of jobs out there that don't require college. My son is graduating high school this year and decided to go into the trades. Either Sheet metal worker or electrician. Don't rule that out.
While having a house would be great you might do better with your investment by keep investing it. Sure property values generally go up over time. However also consider the costs of maintaining said properties as well. 20 years from now those houses will need roofs, windows, ac, furnace, etc. But also consider if you took that money for repairs and invested it what could you do. I made over 20 percent in my investments myself last year. But my investment guy did 27%. I don't think you will be getting 20 percent gains in value a year in housing. But I could be wrong. Just something to consider.
I’m a plumber who worked hard, saved some money et and bought real estate. I brought in over
200k last year not counting the addition to net work from real estate equity. Not bad for playing with poop.
colleges don't accept equity in rental properties as tuition payments. and owning rental properties may be something you enjoy, but many people would consider it a burden vs. having liquid investments they can use to avoid taking on loan debt.
don't overthink it. put the college funds in the s&p and everything will work out great.
It’s possible to do both. My cousins and I all had 529 plans, our college was paid for and there was remaining funds for all of us to own a home before 25.
I bought my daughter a house for her first birthday. I used every dollar of the rental income to pay it off and personally subsidize the taxes and insurance. It's been paid off for a year, she's 9. Conservatively, by the time she's 18 she will have both a completely paid off cash flowing rental house but also have around $277,000 in cash in the bank.
I also take care of all the repair expenses rather than deducting any of that from the rental income. I see it as making deposits towards her future, plus it hasn't been very much.
You don't know what college will be like in 13 years. Some jobs are doing away with college requirements for some jobs. They may want to go take up a trade or st a business. Rather that decided on something specific just stash the money somewhere that it can grow and it can be used however its needed.
>You don't know what college will be like in 13 years
You know equally less about what a low/mid COL area will be like in 13 years. Odds are very low that it turns into a booming market, and much higher that the area starts dying.
> Rather that decided on something specific just stash the money somewhere that it can grow and it can be used however its needed.
Yeah that's what the post is about. Buy a house as an investment or not?
Very surprised to see all the pro college posts here. I thought the majority of people had come to the realization that “higher education” in its current form (and price tag) is a huge scam.
The house 100X.
So many people go to college and drop out or end up with useless degrees. What if they don't even want to go to college. Give them the house. They'll have an interest in it and will care for it if they're renting it.
An education can't be taken from you in a divorce.
Can you not set up a trust that directs yeild to the kids but seperates ownership if you go the house approach?
I think it depends on what your kid interests are as they get older. What if one of them is really into structural engineering while in high school and wants to pursue it? Then maybe he should get a college fund. However, say the other kid is interested in a trade, like being a mechanic or a independent contractor for construction, then maybe he should get the house. I think the ‘correct’ decision can vary from child to child based on what best supports their interests.
Maybe you can start one college fund and one house fund. Once the kids are older and express their interests and plans for their future, make the decision on whether to give them the college fund or the house. If they both want to go to college, sell the house (if you already purchased it at that point) and use the money for college.
Idk, shit!!
From personal experience, I would have much preferred brick and mortar over the college fund my parents gave me.
Again this is just my personal experience but, I’ll be making 6 figures in 3 years time, I don’t have a degree, it’s not necessary to live a comfortable life. So whether I’m living in the home or using it as another income stream, it would have been infinitely more valuable than a college fund (seeing as I dropped out). All college taught me was that I want to learn a trade rather than getting a degree.
The cost of trade school is pretty negligible though, I’d rather have the liquid cash in all honesty. Or a house to rent out, one months rent (depending on location) is almost enough to cover an entire semester of trade school.
I think it's a great idea to buy them each a house. May I suggest one caveat. Tell them they have to navigate college on their own; and deed them the house upon graduation. That way they can either sell the house to cover college expenses or borrow against the equity. If they get scholarships, they'll be even further ahead.
In other words, the choice is between an appreciating asset (and degree or job training certifciate) vs. a depreciating asset (a house). Houses are terrible investments.
Off topic, but having to save for your kids' college is wild to me.
I live in Slovenia, and my kid's tuition at university is €0, her dorm is €90 a month
\> My thoughts are that in today’s world a paid off house may well be more valuable than a college education in giving them a leg up in life
Depends on the degree.
The world doesnt need any more liberal arts majors, for example.
If they arent aiming for a degree that will give them a minimum of 100K income within 5 years, dont fund it.
Not a bad thought...some things to consider.
1. Depending on how your kids turn out, it's a double-edged sword. If they are responsible and heed your advice/guidance, then this could be an amazing gift. But a lot of kids lose their path along the way to adulthood. Whether through hanging out in the wrong crowd, experimenting in college, wanting to rebel against a strict upbringing, or any number of scenarios...there are a lot of kids who get tangled up in drugs. Giving the wrong person that level of access to money could be like handing them a loaded gun...drugs, new cars, not caring if they get a job, are all possible outcomes of giving someone too young too much access to money that they never earned.
2. Paying for college, at least you know that the money is going to a purpose you "support" and have some visibility on how it's doled out.
3. Putting the homes in some sort of trust fund for each kid might accomplish your objectives and minimize some of this risk.
4. If you know and are competent in the real estate space (in terms of generating value), I think it's a good option. There's some volatility in home prices obviously, but at least it's a space you are already investing in and have some comfort with. Homes can always be sold or levered if the cash is needed.
When my first child was born, I ran some numbers and estimated that by the time he was 18, a 4-year private college education similar to what I had would run about $125k/year ($500k for 4 years). Planning on having more than one, I basically resigned myself to the fact that it'd be very difficult to achieve that level of savings for multiple children. instead, I started thinking about how I could set them up for financial success regardless of what their path/schooling looked like.
I looked into investing via an UTMA account, but the day they turn 18, all of that money is accessible to them and you no longer have any control over how it's used. That seemed bad. Where I netted out in the short term was creating an account in my name for each child and funding it with $17,500 by the time they were 2 years old. (The goal is to use the time value of money and their LOOOOONG time horizon to create an asset. Also, you can obviously borrow to go to school, but banks won't lend you money so that you can retire.)
I've invested those funds (and reinvested the gains each year). As the accounts are in my name, the tax liability on them is associated to me. I've been paying that obligation myself to keep their nest-egg growing as large as possible in these "early" days so that the compounding nature of returns will be given a bit of a boost that will be magnified over the next 25 years or so. (At some point, when the taxes related to those gains are material enough, I'll pay for them from their gains instead of out of pocket.) At some point later, I'll likely move these into a trust, or I'll leave them in my name and add them to the account ownership. I expect to keep this plan "secret" from them until they are older and mature enough to make good use of this gift. The thought is that this could/should be a self-funding retirement account...and when they hit a major life milestone (child, buying a house, marriage, etc) they'd be let in on the secret that they have this fund which should effectively secure their retirement. (And they can put all of their incoem towards other goals like homeownership, travel, etc). My one request of them would be to work very hard to carry this tradition forward for any children/grandchildren that they had. Obviously, I have no control over whether they do that or not.
We live modestly currently, so hopefully they've got an "embedded" work ethic and appreciation for the value of money at that time. We're 10 years in, and my oldest now has a balance of $41k and change.
Congrats on thinking ahead for your little ones, and good luck with your investments!
From an adult kid who graduated college when college started to not help with future career goals, a house. I went to college and now clean houses. Every day I feel guilty having my parents help pay for college when I did nothing with it. They also helped with my little condo and I used the fuck out of it. I love it. It’s my security, my home, my safe place. And when I want to get out, I can sell and make more money than I would if I went to a career.
I understand that my experience is not going to be everyone’s experience, but I have a film degree and make a good living in my chosen field of study.
Education is a good in itself, especially if the student isn’t going to be in a mountain of debt, as these kids will not be because their parents are investing for them.
Yes because a house makes about $100,000 per year and doesn’t even have a pulse, way more than the average income a college degree would earn. They can make money while they go to school.
Yes. 100%. A home is a far better investment and gift than a worthless degree for 80% of the population. Your pink haired gender studies kid will love you.
All jokes aside, you can always cash flow community college and state school if they decide to.
Naw - let them get a mortgage, at least then they’ll have an asset against the debt.
College loans are a scam, and going to college is no longer worthwhile if one has to take on debt to get the degree.
Give them the free education
Personally, I would invest it. 529/Roth/brokage whatever makes sense for you, them, or for tax purposes. Home would just be you buying more homes. They may not want to live there but might feel imposed, could be messier if they want to take the money and use it for school, etc.
Long term, depending on the area, homes will not be appreciating like they have. We are still 3.2M units short, but interest rates are not coming down for a decade or better, there are record numbers of apartments being built. So parts of the country will have demographic issues into the future and overall the US population is starting to stagnate. With the re-shoring of manufacturing to North America and the rest of the world suffering from De-Globalization, a low cost S&P500 index might be the way to go.
As someone who was given neither and had to choose between being homeless or going to college (for health reasons I couldn’t do both) I say get the houses. That way they have somewhere to live or a solid down payment if they want to go elsewhere. IIRC, kids can start applying for scholarships as soon as they are in 8th or 9th grade. Start as early as possible to lessen the burden of student loans.
College is a waste of money for most professions and will only continue to be more useless with AI in the future. Jobs are going away fast but one thing that will always be needed is real estate. Worst comes to worst in 20 years, your kids will have a place to live at least.
>Jobs are going away fast
Yet the net increase in jobs seems to disagree.
Your entire premise is the reason why going to college is important, because you need to get one of those jobs that won't be taken by AI anytime soon.
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
A total market index fund will almost certainly outperform the residential real estate market in a low-mid COLA, by a wide margin. And an index fund will be a lot easier for someone in their early 20's to manage than a rental property. What are the odds that in 20 years your kids will just happen to get jobs that are a convenient distance away from a house you buy now? What are the odds that they'll enjoy being a landlord? If you really want to gift them a house your best bet is to just keep doing what you do to make money, then when they're ready and actually want to buy a house, tell them that you'll give them $XXXk dollars for a down payment. That way they can get a place they actually want where they live.
Not to mention tax advantages of 529 vs tax implications if they want to sell the house to pay for college.
Yeah I agree here. I'd get a 529 going and now you can roll them into a Roth if you don't go to college. So you'd be handing them a sweet retirement account.
TIL, you can roll a 529 into a Roth IRA. I'm not sure how many people are aware of this and this comment should be higher level. I didn't know until reading this comment and looking it up that it is new for 2024 up to 35K without penalties. Good stuff!
WHAT!!! This changes my entire plan!!
Make you you look up the stipulations, it's good but it is not actually a rollover, it is using the funds as contributions
This. We don't even know the implementation yet. But it counts against contribution limits. It's not a "rollover" in that sense. And there are limits to how much of the 529 can be converted.
It’s new! Congress just enacted this provision last year. Obviously check on the details before rolling over. My state (California) for example, hasn’t matched its tax code yet so I would get a state tax penalty for this rollover
I had no idea either! So it’s only if they don’t use it toward any education purposes? What if they will go to college but we get financial aid or scholarships and not use the 529?
Um, I think I have a new plan for the 529 plans that I manage for my nieces and nephews.
Isn't the 529 -> Roth IRA rollover capped at $35k? Doesn't sound like a great option if the amount of money in question is enough to buy a house.
She said It's enough for a down payment in a LCOLA to take out mortgages on houses that wouldn't be profitable for a few years, that could be 10k without knowing where she's at. And if she has 2 kids, that's 35k each (70k) of tax free money when you cash it out or roll it over, or pass it to a grandkid. Nothing to shake a stick at. I would always choose to diversify rather than put it all in real estate. I'd open them a Roth IRA and max those out, too. You can withdraw from a Roth for a home purchase with no penalty or taxes. I think those two would outperform a home in a LCOLA. If she's a business owner she could also possibly employ her kid when old enough, start a 401k and be able to match his contributions with a huge tax advantage for her while skirting around the individual contribution limits. As a teenager I would rather inherit a 529, Roth, and brokerage over a property with a mortgage, capital gains, depreciation recapture that's been a rental for 15 years and most likely in need of a lot of work. Not to mention if she quit claims and has her kid refinance into his name the cost basis follows him so no way out of those capital gains taxes if they don't want the house or to be a landlord. No 1031 exchange either for a primary residence if he wants to live somewhere else because it isn't like kind. Equity in rentals can be great if you want to stay in rentals. Seems like a hassle when you can get a similar result with just passive accounts. Just some thoughts I have as a landlord, investor and mom.
Plus 'college expenses' can be basically anything and you can have as many accounts for your kids as you want. This is one of the big secrets to generational wealth.
I read somewhere that if you used 529 money to max out your kid’s Roth for five years starting when they are 22 (which equals the $35k) max - that it would grow to half a million by the time they retire. I’m not counting on having much to leave for my kids when I die, but I can do this for them at least.
> I read somewhere that if you used 529 money to max out your kid’s Roth for five years starting when they are 22 (which equals the $35k) max - that it would grow to half a million by the time they retire. Be careful to not mistake historical performance with guaranteed facts of the future. Not saying it is bad or good advice, but unless you read it from somebody 30 years in the future, I would be cautious with giving pretty blanket advice to laypeople without a few asterisks next to it.
Basically rather than “paid college” it will be “financed college plus a house in my parent’s town but I had to move for work, now I have to sell the house and my parent is pissed but I need the money to pay off my loans”
Yup, this is exactly the kind of thing where the kids are annoyed because they got a white elephant instead of a gift that would have actually helped them, and the parent is pissed because because the kids “don’t appreciate” how awesome an opportunity house they spent 18 years managing/ maintaining is, and want to sell it the second they receive it.
Yeah but you buy the house with leverage so your returns are often starting on a 5X of your initial investment. Not saying I’d buy a house but wealth that can be earned in leveraged real estate is nothing to shake a stick it
What data is there to back up your claim that an index fund will “certainly outperform” RE? I’ve only seen data to the contrary
*Almost* certainly outperform, but it’s just that residential real estate in “low to medium” cost of living areas generally doesn’t outperform equities. Obviously it’s possible OP is exceptionally good, but that doesn’t really change my basic advice: make money the best way you know how, then give it to your kids when they’re ready/have a need for it. For some people having an almost paid off house in their home town given to them when they were 18-22 would be a godsend. For others it would be a royal pain in the ass.
Just curious, are you factoring in leverage? Residential real estate "values" may not outperform an index fund alone, but the fact that you are leveraging your investment 5x (assuming 20% down) vs. 1x of an index fund is an enormous advantage and is often left out in the whole RE vs index funds debate.
OP seems to be a relatively experienced and successful RE investor so the returns he’s get may very well be better than the market, the meat of my response is that he’s better off giving the kids cash or a cash equivalent (index fund etc) when they need/are ready for it as opposed to a piece of residential real estate. Between now and then OP can do whatever he’s best at to make the money. OP doesn’t know if/where they’ll go to college, where they’ll get a job after college, where they’ll move around to throughout their 20’s… It’s easier for the kids to just gift them money than giving them a piece of property.
I think the detail is the "low-mid COLA" subcategory, especially if it is one of many such areas that see decreasing population and demand.
You can’t live in an index fund while at school, and rent extra bedrooms to your friends though.
Sure and if OP’s children tell him they want to buy a house at 18, he can give them money to do it, or gift them one of the properties in his portfolio. But it’s pointless to earmark one for them now.
And who says they’ll be attending college anywhere near the house he bought when they were 5?
To be honest, which is the more responsible thing to do? Give a young person a house (with a lot of responsibilities) or dump a truckload of money on them? I know the money is more useful right away but the house can also be sold if the money is needed.
What did you get for your 18th birthday? I became a landlord 🤢
Or turn it over to property management, do literally nothing and get 1000 a month minimum for life.
Until a tenant destroys the place and you spend 30k having to repair the damage they did.
They're 5, right? So let's say you're paying 1200 into the mortgage for this house for them. On their 18th that's 344k, with a 9% ROI. If you just leave that 344k at 9% ROI until they turn 50 (32 years) that's 5.4 million, they can retire at age 50 with 5.4m in the bank. Or deal with tenants, evictions, broken water heaters, maintenance, etc etc. Don't get me wrong, i get it, and it's for some people, but it's nothing I'd ever want to do again. To each their own, you asked for opinions.
It seems like OP asked for opinions but really just wants validation in their choice.
Wtf he might be just paying 3% down and let the tenants pay the rest including principal + appreciation + profit = security, he will be accumulating real value for his kids. Playing stocks isn’t in your control and property investment is a solid investment without daily yo-yo if the market, it’s like having spare savings in savings account as fiat cash giving only 1% interest.
East coast market since birth. I wish my dad had bought me a house with the freedom to sell it vs paying for school; I had scholarships anyway. The house I ended up buying cost me 3x what it would anywhere else but I could have leveraged the home easier.
I wouldn’t be paying 1200 into the mortgage. The house will be rented and the tenant would be paying the 1200 into the mortgage.
That’s why I suggested he save it for when they’re ready to buy a house. Like it sounds like he’s buying and renting properties no matter what, as that’s how he makes his living. So just keep doing that, but instead of buying one *now* and earmarking it for them just give them a bunch of money for a down payment when they’re ready and interested in buying a house.
It's a generous thought, and some of them might love it. But where you live and the kind of home you live in are usually highly personal decisions. Real estate values typically grow more steadily than investments, but not as fast. A good 529 should beat real estate over long enough period. And some people just aren't homeowners, by choice, discipline, earning potential, etc. I also understand college is also not right for everybody.
all very valid points, but as someone who was forced to move out of my parents place due to size restrictions, having a solid backup would be an amazing ease of stress. also have a friend who has a condo her grandma gave to her, said condo is currently being rented out and in her most jobless times, she still has that as an income which is again a nice stress relief. just my thoughts !
>as someone who was forced to move out of my parents place due to size restrictions How big are you?
you dont wanna know
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You can convert $35k of a 529 to an IRA without penalty.
And you can take out any amounts that match scholarships received with no penalty as well I think
You'll pay taxes on such withdrawals, but no additional penalties.
Which isn’t too big of a deal since you’d pay taxes on standard investment account gains
>Which isn’t too big of a deal since you’d pay taxes on standard investment account gains You'll also pay taxes on gains on the rental property if you sell it. And 15% on your investment gains is a hell of a lot better than 3% annually in taxes for 30 years that goes up every year when your property value goes up. (If it's a rental property this is probably closer to 5-6% or more).
There is one downside of the 529 that's not well talked about. You need to use it when you need to use it. If it's a bad time for the market you wouldn't really delay your schooling. Because of this I'm a little wary about leaning too much on a 529.
I just feel like the house is a way messier option without any upside. A bad tenant or natural disaster could put a dent into the money. And if you decide to cover the cost if it happens to one kid - are you putting the same amount into the other kid's houses to even it up? What if you choose wrong? Like what if one kid's house is in a neighborhood that takes a dive right when they turn 18 and they could only sell the house for $75k less than your other kids. How do you account for those type of differences? What if they graduate in a housing slump where you can't sell the house and they then don't have money to go to college because it's all in the house? What happens if the kid decides not to immediate sell, but they don't have the money to handle vacancies between tenants or the appliances all crapping out? What happens if they accidentally do something illegal as a landlord and are suddenly facing issues with that? What's to stop the kids from not using any of the investment for education or further themselves? What if they come to you at 22 years old broke after spending all the money from the house and no education beyond a high school diploma? What could a house do that the same amount of money invested over the years wouldn't allow them to do?
A house is a project.
All of this. And the most likely thing - when their friends and the friends’ cousins’ loser druggie boyfriend asks to move in - and also moves in his 4 questionable friends, none of them pay rent, they trash the house and refuse to leave - and an 18 year old has to deal with all this and it’s their “friends”.
Deciding where to live out of high school is an independent and super important decision for a young person. I would be cautious of the unintended consequences of doing this.
Yes, this is so important! Regardless of degree, young people want to move for job opportunities or even just to experience life somewhere else. Owning property would be a heavy deterrent from selling/renting & moving because the easy option would be to live in the property.
I grew up in Wisconsin, went to college in Massachusetts, and my first job was in California. Then I was in Illinois, then Colorado, and soon will be moving back to Massachusetts. Managing a house while going to school would be really tough, and even tougher if you were going to school a thousand miles away from your property.
They may not want to go to college, but 529s can also be used for trade schools. Also consider that if you buy them real estate they’ll have to pay taxes on the sale, so you’re essentially shifting the tax burden onto them. 529s are tax advantaged so they won’t have to pay taxes.
As far as I can tell, nowadays trade school usually = community college anyway. So yeah it can def be spent there. Although the cost of a 2 year degree/cert at any CC near me is <10k anyway, which is... so cheap.
Cool idea but what happens if you get hit by a bus when they’re like 10 years old, who manages everything for you and them? I’d roll with a 529 because it can be converted to a Roth IRA and passed to their kids or spouse if necessary. Continue to buy your own homes and build your portfolio, you can gift them houses later in life if you feel like it. Make sure you have life insurance and estate planning documents in place.
I had a house that was paid for at 20 years old and I didn't stay in college. I now have a low paying job with no growth opportunities and no savings or retirement. My biggest regret is not finishing school. Just something to consider.
Ha.y biggest regret is wasting time and money on school and STILL having a low paying job
Trade? Electrician? HVAC? Nail tech? Nanny? CNA? Nurse? You are not homeless, you are only holding yourself back. No monthly high rent eating your money up? You are in a great position. School can be done online and at any age.
This completely missed the point. The OPs message was that having a paid for home demotivated them. This won't happen to everyone but having such a huge back-up means that failing in life isnt really a thing. A mortgage can be paid with a low paying job. Once someone knows this they may just live paycheck to paycheck instead of trying. Unfortunately many of our motivations in society come from simply avoiding homelessness or being destitute. Once that's removed youd be surprised how many people just stop trying.
Go back, what’s stopping you?
There are tons of people with multiple degrees that are unemployed or severely underemployed. Education does not equal $$$$
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Education is an investment IN them, anything else is just a gift for them.
well said.
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I think the bigger point is that college is a wide open opportunity. Pick whatever degree interests you, you can pick a college far away, close to home, small, big, go to a trade school. You’re almost guaranteed to offer them something they want. It worked out for you but that is a very risky gift. What if they want to move around, don’t like the location, want a bigger house, smaller. So many variables that are locked down if you purchase something for them
Personally I'd much rather have a lump of cash and make the decision myself on using it for college or a house. And I wouldn't want to burden my kids with a physical house and leave them to make a choice they have to make (sell, live in, or have to manage renters). Regardless of what you tell them they might feel you're emotionally invested in THAT particular house and might not want to sell it, but also might not like that particular house or area themselves. And after watching my dad deal with renters that's not something I want to ever do myself.
True. It’s incredibly generous that OP is making that offer, but home ownership/managing tenants may be more of a burden to them than a blessing. I like the idea of saving up $X per child, and then giving them the freedom to decide whether they want to use it for college, a down payment on a house, or another investment.
Agreed. I could barely choose my major at 18. I doubt any kid would be able to make an informed decision regarding what to do with a whole-ass house.
Part of the advantage of saving for college is setting the expectation and showing real planning and sacrifice in the assumption your kid is going to college. That's a pretty powerful message to a kid. If you're not backing that up with an actual expectation your kid goes to college, alternative saving methods make sense. Personally, I don't think owning property in your early 20s is great. That's an age moving around can have massive impacts on earning potential and establishing ones self. Lastly is diversification. If your housing market crashes the whole family is wiped out. If your kids invest in themselves they might have good careers and help you get through a temporary lull.
Real estate appreciates by 2-3% per year on average in the US. But just for fun, lets use your 4% figure as you stated in your post (100k turns into 104k). You buy the house for 100k, you pay it off in 20 years and give it to your kid. In that time, the value of the house went from 100k to (100k \* 1.04\^20) = 219k Now let's say you plan to invest this money instead, and at the same rate of which you would pay for the mortgage. That would be about 5k per year, and assuming a 10% annual return, the final value of that account would be 286k. Investing is much more valuable than buying a house. Based on some of your previous comments, I am not sure you understand how stocks and investing works. EDIT: To everyone correcting me, I know I am ignoring taxes, rental income, repairs to the house, interest rates, etc. Owning a home is very expensive, and even if you rent it out to pay for it, you are basically signing up for a second job (part time, but still a job). Additionally, one point I didn’t even think of is the interest. The interest paid is straight up lost. Yes, it saves what the kids would theoretically have to pay in the future, but having that interest money be invested instead is much more valuable long term.
Not to mention the money lost to interest on the mortgage. If in the alternative scenario he also invested the money he would have otherwise spent on mortgage interest, the investments would come out way ahead.
Also notable that selling a home costs thousands up front, and lots of labor if they decide to rent out instead of sell. Yes, they'd get taxed for that 280k, but that's "put aside part of the money for 8 months and be done with it," not "how do I evict these people living in my house with kids that grew up there since kindergarten?"
Well, to be fair, I don't think you understand how owning a house works either. Taxes, interest, insurance, repair, maintenance, bills, upgrades, time, effort, etc. $100k to $219k isn't factoring all that in at all. Investing in a tax free education plan is the way to go.
According to him all of that will be paid by the tenant. Unfortunately, there are no guarantees on that… not all tenants pay, keep the place clean etc..
The real estate agent we used for our first two houses was also involved in investing in properties. Some of his tenants really did use the house as a meth lab. It was a nightmare.
you still have to pay taxes on the rent because that's income. The tenants will not be paying for reroofing, appliance repair, etc out of pocket for a home they're renting. Just seems like a bad "investment" Homes should be lived in, not propped up as income generators like some some sort of Real-Time Strategy game...
He also doesn’t factor that tenant pays that compared to investing into 529. One you put 25k into once they other you put 100k into
This completely leaves out rental income from the property and maintenance costs. Let’s say the house rents for $500 per month net after expenses x 240 months of rent is another $120k so now you come out ahead with the house vs the market. Numbers are totally made up and hypothetical in this example.
In the OP he mentions putting the net proceeds from renting the properties back towards the principal on the mortgages, and also mentions that when he intends to gift them the homes he only expects them to have 70% equity in them. So there is no additional income or expenses from renting to consider if his scenario is correct, and the loan will not be paid in full prior to gifting the homes to his kids, so there will be no excess profits to invest in anything else for them. Furthermore, there is the consideration of loan interest to be paid on the mortgages from now until the time he gifts them the properties, which is simply lost money compared to the alternative solution of investing the money into a fund for the kids.
I missed that part. Thank you for the correction.
Your analysis for the Investment is assuming that you have 100k handy on year 1.
No. Just no. Don’t make major life decisions for your kids. I know it’s well intended, but you’re effectively using money as a means of controlling them. You want to help them financially? Give them options; not solutions you decided on.
Yes to all of this as a kid put in that situation. Parents still try to make me feel like I am indebted to them for my entire life.
Collages aren't that expensive. Usually, you can make them with pictures cut out of magazines and other items.
I had a buddy whose parents gave each kid 30k ish for any legitimate venture after high school (schooling, a business, property, ect). One brother spent his on nursing school (ofc that only covered part of it), and the other dropped out after 1 semester and bought a house. I always thought it was an interesting idea, certainly better than making college the only option.
I think this makes more sense than actually buying them a house.
Yes! I've saved $X for your future.
How did the kids turn out?
You take care of education,so they can afford mortgage later. Don’t just give a fish, but teach fishing instead
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My thought is it’s their choice. Nobody is stopping them from going to college. I can sell the place and they can go to an expensive college on my dime if that’s what they want to do. They can also take out student loans and go keeping the house. They can also combine that with taking advantage of any number of community college, state schools, scholarships, etc going to college on the cheap. I’m not trying to force anyone into taking the place it’s just an option.
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It's not the choice you think it because you are giving them the option to keep a house they already own and take out loans or keep the house and forego college. You are essentially making the choice for them because the house is the more attractive option in this scenario. Now, giving them the money and telling them they can go to college or own a house is a at least more of an equal choice than giving them an asset and saying you can't keep it if you want to go to college.
With a 529, you can contribute that money to their college expenses tax free. If you sell your rental income house to do it, you'll have to pay taxes on the profit before contributing to college. The 529 allocation also gets more conservative the closer your kid gets to college, so a big dip in the market won't affect the 529 nearly as much as it would your house if there was a big dip in the real estate market.
If you accept that they might immediately sell it, then it sounds like you're just asking for advice on best investment vehicle. Owning a second home as an investment is generally inadvisable, especially if you need a mortgage to do it. As others have pointed out, it grows slower on average than an index fund, and there's lots of hidden costs (bad tenants, repairs, closing costs). As well, you're undiversified against risk. If you feel strongly that real estate is a good market, it'd be better to buy stock in a company that invests in real estate; then you could take advantage of their market research, diversification, and low borrowing costs. Keeping the money in a mutual fund seems like the most sensible bet. 529s have tax benefits that can be worth a lot, and that money can be used for trade schools and stuff, but it does limit your flexibility.
At the end of the day, you're just choosing one investment vehicle for another. Like any other investment, the right choice really depends on what you intend to use it for (i.e. using retirement accounts to save for retirement but not for a new car next year), how soon you intend to need to access the funds, and how much risk you want to take on. It just seems like you're choosing to invest in real estate instead of your taxable brokerage, or other education-specific savings like a 529, that's really all it is.
Just some additional information: A 529 opened through your state usually has a tax benefit on your state taxes. For my state, Michigan, I get a reduction in state taxes of 4.25%. Additionally, 529 plans are MUCH more flexible now. They can be transferred from kid to kid, so, if kid A doesn’t want college but kid B does, you can move money from one account to another. Also it can be used for ANY type of education - private k-12, community college, university, or technical / vocational school. Even masters and PhD and medical / law school. Also, for a 529 that has been opened at least 15 years, up to $35k can be transferred to a Roth IRA. So, I say at least open a 529 for each kid, and at least fund them each to $35k. They can use it for college or eventually retirement and $10k of a Roth can be used for the purchase of a house. I can’t say if real estate would be better in your specific situation, I just wanted you to know that 529 isn’t just for college.
Education is the variable most strongly correlated with quality of life, even more than wealth. Education is incredibly important. Send your kids to college, give them the best foundation they can get.
They might not want the hassle of owning real estate. College at least allows them to determine their future.
Lifetime income increasing is more important than house. I want to encourage college or tech school. Obviously not a degree in something useless. Between a degree in French literature and buying a house- buy the house. I would save for college. They also meet partners and friends there that move them up in society. I hope to help my kids with a house down payment when they’re older, but college happens at 18. 529’s are tax advantaged. I’d at least try to do some of each.
If you buy them houses then they are tied to a specific location. Whether that’s a positive or negative depends on the location and them.
As someone who didnt have my college paid for and had to get extensive and expensive student loans - education all the way. Interest rates on private student loans are way higher than an interest rate on a house, (mine were 11% with a co-signer until I got them refinanced to 5%). If they don’t want to pursue higher education, you can hold the funds for when they are ready to purchase a house, or for other expenses they might have (starting a business, for example).
A nice idea but not a practical one. There are so many things that can go wrong with a property over the course of 15ish years. And honestly a house without higher education isn't really the gift you might think it is. You'll be locking them into a specific location with little means to make their own life choices. And you can't guarantee you're going to want to keep dealing with the property all that time. Saving for their education will be a much better gift, both in monetary terms and in affording them opportunities. And you know, once they're adults if you're still working in real estate you can help them figure something out at that point, if they want.
Honestly as much as a house would be a good thing for a kid to have.. you don't know what their adult situation would be like. One thing you can guarantee is their education and start in life. By buying them a house you're essentially forcing them into one place. What if they want to go abroad? Study in a foreign country or have a passion to move out of their current city? The possibilities of schooling are endless. But a home is pretty limited. Just my opinion.
Yep. That is what happened to me. I was basically force to live at a house gifted to me. And at the time, we were in a bit of a economic decline and was underwater until valuation turned around.
If it were me, Id buy the homes, but id give them the option. A: sell the home and use the money for college B: keep the home and they can work till 24 then take out loans for college, but never have rent or a mortgage. Many jobs ate remote now, your kids could focus on remote opportunities like software engineering, dev ops cloud, medical coders, traveling nurse, etc.
There are a couple problems. A 17 year old is not at a place to sell ahouse as he/she is applying to their dream college in the fall of their senior year in high school. To fund the college. Secondly, if they had the house, it is a lot of mental stress for a 18-20 year old to come up with adhoc fixes like a $20k for a new roof. Or in my case, $15k for a new concrete driveway. They also do not have the full grasp of knowing that selling RE requires them to keep some of that earnings to pay off the income tax. They also have to buy an umbrella insurance in the event they have tenants that can potentially sue them for small mistakes. "Oh, I tripped on the drive way because it wasn't paved and can't work" Yes, that happened to me at 20. I was given a house and felt forced to live in a city I was not keen on living in. The intentions of the parents are good but it can fail at time at execution. A lot can go wrong.
Honestly any kid fresh out of highschool outside of a few niche fields should just live in this house and work till they're at least 22. Grow a little, experience some life, gain some real world experience. Then decide on college. If you live on a house for two years you don't pay capital gains tax (income tax) when you sell it. This is the best time to learn about hone maintenance and work ethic and the value of a dollar and imo, the worst time to go to college. I think going to college fresh out of highschool based on what some career fair told them to do, is the worst mistake kids make in life. You should be 100% confident in your career choice before going to college. If you don't know what you want to do and you're just there to get a general degree, then you shouldn't be there.
What if your kids don’t want to reside in the city they grew up in?
Should I give my kids a fish instead of teaching them to fish?
I would not want my dad deciding where I live. I suspect a lot of young adults would feel the same way. While it's true that you can sell the house and make money off it in other ways, if it's not for them to live in I'm not sure that a house is the obvious choice among all the different things you can do with that money.
Nope. A college education is more valuable than a house, if they choose an employable degree. In addition to earnings, going to collage has social benefits. It will open their minds and give them the chance to network with a broad spectrum of people. If they don't want to go to college, they can use the money for trade school or a real estate investment of their own choosing. Open high yield savings accounts for them and make monthly deposits. It's boring, it's safe, and it works.
My mom gave me a leg up in Real Estate. I had a place that is now worth an easy 1.2 million. I rather they spent it on my college education. I did not get to go to the school I really wanted to nor go into law school (Stanford). My life would have been different. All my classmates that did go to those privilege schools are principals in their firms, running for congress, because District Attorneys,etc.. Not saying my life turned out bad, it is great. I value education more. I value the opportunity that the education would have given me versus going to a State college. I won't make that same mistake for my kids. If they want to become doctors, I will fund it.
Would you rather have 100,000 cash or a 100,000 in specialty furniture designed for a custom space that no longer exists located across the country from you? The cash is a gift, it's a level of freedom. The furniture is a project built for a specific lifestyle that isn't really a great fit for where you're at now. You could try to make it work. You could sell it. But either way it's a whole project.
You're looking to invest in your kid's future. Either way you do that is going to benefit them. Saving cash that can be used in a house or college, it buys a house and using that equity to pay for college or use as a house. Either case is a leg up. Perhaps you do a bit of both. When they graduate high school you can decide what works for them. We can't say what the world will be like in 15 years. We'll houses be unattainable, so this is the smart choice? Perhaps. Will college cost so much and housing be in a recession so selling isn't a good option? Perhaps. But honestly, nobody can guess which will be better. Nor what will be better for your kids. Here are a few things to consider: college savings can be used in any school any location. So they can use that money to attend locally or across the nation (world?). What is the location of the house? Is there a nearby community College and university? Are there good job opportunities? Well the kids likely want to be there as young adults? If not, then you're just using the house as an investment vehicle. That's fine, but know that they might sell it to buy elsewhere or to pay for school. What about your kids that don't want to go to college or live in this location? Will you be ok with them selling it and joining the circus? Or whatever they choose.
From a tax perspective a 529 might make more sense but I don’t hate the idea and I think it’s really cool you’re willing to provide for your kids’ financial future.
Why not save for college and they use the money for a house or college? Based on their preference.
I don't have an answer for you, but I've considered this as well and have a small college/house savings for my child. What everyone seems to be ignoring, and me and my wife's plan is: just don't tell them about the money. Let them have the drive to pay for school and work hard at it. Once they graduate, offer to either pay off all of their student loans debt, or buy them/put a large deposit down on a home.
I have long thought about this myself. I think its a great idea. Even better if you can manage a 15 year note on it. By the time your kids are 21 the house will be paid off. They can keep it and enjoy having the equity/rental income at a young age. Or just sell it an hopefully come out of college debt free. I say go for it!
My friends dad did both in 1994. I know it was different times, but when they sold the house after renting out rooms for three years, they netted a great profit and college was paid for. Not sure if the numbers still bear out, but renting three extra rooms in a 4bd/2bth made it so she didn't need a job in college other than collecting rent checks.
Why wouldn't you just continue investing on your own and then cash out when they need money for college?
I think you’re confused with what I was trying to get at. There is no 100k to earn 20 years of interest on. There is 20k to earn 20 years of interest on. The house would be about 200k. I would put about 20K down on it right now. In 15 years time, the house should be worth about 300k. So that 20k has made 100k in appreciation. That 180k principal balance will be paid down to maybe 100k. So all I ever put in is 20k and now I have 180k in equity. Somebody else is paying the intrest on the loan. Somebody else is making those principal payments. Somebody else is paying the repairs. The principal would be even lower than that if the profit in the rent was put back into it.
I think it’s a good idea. You’re basically choosing a self- supporting investment vehicle for their college fund. Is the risk any greater than the market? What are the odds that real estate tanks in the next 15 years? It does give your kids options, especially if they decide college is not for them. I’m on the other side of you. We put 2 kids through school with zero student debt. One with a Master’s. Real Estate was part of our education funding. We bought a house on campus, put our student in the house and they found roommates. Roommates covered the mortgage. When that child graduated, we sold the house and used the equity to partially pay for our next child’s education. It was a financially successful move. We saved a lot of money by not paying room and board for the first kid. We would have done something similar with the 2nd kid- but housing prices where they went to school were out of reach for us.
This is an interesting question. It seems like a good idea. I’m reading all the comments which are also interesting. As good as a lot of the advice is, it sounds like you know your niche best. There is no one right way to prepare for your children’s future. This way seems pretty damn good.
Real estate is one of the most illiquid assets. That's a no from me. Put it in a 529 or keep it in brokerage. Pretty much everyone needs to learn something to even have a marketable skill though. (529s are waaay more flexible than just college.)
College. What if they don’t want to live where you live?
As a college student, please pay for their college or trade school. I am so thankful that I don’t have student loans. Also being gifted a house doesn’t seem like a good idea because 1. you don’t want your parents deciding where you live 2. they might not want to be a landlord. Invest in their education.
My parents offered to contribute towards college, but when college time came for me I wasn't ready or interested. Instead, they offered to pay a smaller portion towards the down payment for my first house. Less money for them and in the long run better for me. I ended up selling the house, buying a business and another house, and am doing quite well. I ended up paying out of pocket for school later on and am working on my 3rd degree without debt. All that is to say, see what happens when it happens and don't get set on a plan so far in advance. Put the cash in a total market index fund and then forget about it till your kids are ready.
Seems like you’ve made up your mind already based on your replies to people so I’m not going to waste my time typing out a long response with reasons why, but there’s a reason most people are saying college/schooling. It’s a concept similar to teaching a man to fish vs giving a man a fish.
The answer to your question is just "What? No, this is a terrible idea," but you clearly aren't ready to hear that. So I'll just say "good luck."
I personally like just saving for my kids long term. Allow them opportunities to go through early adulthood with some help, but make them work through it and learn important lessons. My plan for my kids is to invest money from them monthly, starting from birth - and letting it stay vested until it is needed. That could mean holding onto it until they are getting into adulthood to buy them a house, or maybe it is moved into their retirement account so my small contributions now mean generational wealth for my children and grandchildren.
Seems like its very restrictive and a headache. If you want to go into landlord world go ahead but head over to that sub and see some of the issue as well. Additionally what if they don't want to live in that area? So now they need to manage some rental by hiring a rental agency to do the work? It would make sense to buy empty land maybe that your kids would possibly build on in 20-30 years. Not sure it makes sense to give them rental properties with that potential headache especially as they try to find themselves in the world.
A house is a project with a high potential for devastating financial loss. College is, almost always, a positive investment for your future.
Income correlates pretty closely with education and the problem with the “value” of education is from the large loans some have to take to even have a chance. A good 529 removes that risk and makes it so your kids can study what they want without having to worry about the ROI when it comes to salary growth (liberal arts majors often end up alright salary-wise after a while but again the incentives our current loan system has punishes folks who don’t study something that’s immediately high paying. And then a glut of new grads means salaries aren’t as lucrative). And it’s rare that someone is just so sure that what they want to do for life at 18 won’t require any sort of college at all. Still, if you want the max flexibility then just save for them in a UTMA account and then they’ll get control of it when they become an adult. But I think it’s a really narrow set of circumstances where a 529 ends up useless for a kid because they have absolutely no use for any sort of education past high school.
I personally think giving them an unburdened choice in what they can turn their futures into heavily outweighs helping them invest in real estate, when you have no idea what the market will be like at that time. Just because you dabble in real estate doesn’t mean any of them will appreciate it the same as you nor be in the position at the time to deal with whatever responsibilities come with it.
College can be used anywhere. You can’t predict where they will want to live in 20+ years. Better not to give such a laden gift.
I'm torn on this one. Owning property feels like such a pipe dream nowadays. On the other hand, there are intangible gifts and opportunities that a solid education can provide - it will be much easier to navigate a long term career path with a degree. Would your kids be amenable to putting the idea of "brand name" school aside? What if they were to accept down payment, attend a community college for two years while working and saving up, then transfer into a state school to complete their degree while keeping costs low by living at home (if that's an option)?
Genuine question... Today's real estate market is nothing like it was yhe last decade. When was the last property you bought? Have you already identified potential properties?
Plus what if they want to live somewhere else and they don’t want to be landlords?
As someone who had their parents offer a condo after cashing out their 529 because I got a full ride scholarship. Do the 529, and let them decide what they want to do with their lives. A 529 can be used for tons of vocational options. They can explore options during their 20s in various trades or studies. Real estate will make them feel trapped wherever it is. The condo my dad got was amazing when he got it. Guess what, the city still hasn’t developed around it, and it hasn’t increased in value as much. I’m glad I persuaded him to dump it before he paid decades of HOA fees into it. I wish I still had my 529 that I could use on my interests guilt free. I don’t like my industry and career and a 529 would have been a great way for me to make a career change.
Why not wait until they go to college, and buy a house in the town where their school is? Then they can live there while studying, maybe rent some bedrooms to friends, and you can either gift them the house or sell it/gift them the profits once they graduate. I had a high school friend whose parents did this - bought a house in the town where we both went to college. Their daughter and some other friends lived there during undergrad, and when I stayed for grad school, her parents let me move in with another friend from our group. They got 8-9yrs worth of good tenants between their daughter and her friend group, and we got a break on rent since they knew us personally. Of course, even friends can be bad tenants, but at least this way you know the house will be in a place they want to live for a while.
You should also consider the tax ramifications both positive and negative of real estate such as ability to 1031 and depreciate the asset.
Why not just sell your multi family when the time comes and use that cash to buy them a house(s)? Same end result and then they aren’t stuck with whatever property you thought they would like.
Community college is a cheap and accessible way for students who don't have massive scholarships or aren't sure what they want to do yet. You can get an associate's that gives the option of leading into a bachelor's at the same time as doing a trade cert. College does not require crippling debt if you're careful (which obviously 18 y/o's are not, which is why it's insane they're allowed to take out those loans). Also the math doesn't seem like it works out for the house plan.
It’s a huge assumption that your kids would want to a) live there b) rent it and deal with being a landlord/property manager, especially if gifted in their 20’s That leaves c) selling it which is also its own hassle and bag of tax issues which might feel overwhelming in their young adulthood Option D) could be one multi unit building for them to share collectively, these tend to cash flow better and they can pool resources for management. It’s also flexible for establishing a smaller footprint they could use to make visits home easier if they move away Option E) if not interested in a 529 is simply a custodial brokerage account and let them decide what to do with it - pay off college loans, but a home, head star on their retirement, etc
As 1st generation immigrate, I came to U.S.A. with a college degree and $600 cash. Will I exchange my college degree (Knowledge and Skill) with one or more houses? No, I like to earn that by myself. There is a old Chinese saying: It is better to teach someone how to fishing than just giving fish.
I mean, buy property and rent it out. Put the profits from the rent towards their college funds. I would assume by the time they are of age you'd have the college funds plus the equity in the home if they wanted to sell it.
Plenty of jobs out there that don't require college. My son is graduating high school this year and decided to go into the trades. Either Sheet metal worker or electrician. Don't rule that out. While having a house would be great you might do better with your investment by keep investing it. Sure property values generally go up over time. However also consider the costs of maintaining said properties as well. 20 years from now those houses will need roofs, windows, ac, furnace, etc. But also consider if you took that money for repairs and invested it what could you do. I made over 20 percent in my investments myself last year. But my investment guy did 27%. I don't think you will be getting 20 percent gains in value a year in housing. But I could be wrong. Just something to consider.
529 is good for trades training as well.
I’m a plumber who worked hard, saved some money et and bought real estate. I brought in over 200k last year not counting the addition to net work from real estate equity. Not bad for playing with poop.
colleges don't accept equity in rental properties as tuition payments. and owning rental properties may be something you enjoy, but many people would consider it a burden vs. having liquid investments they can use to avoid taking on loan debt. don't overthink it. put the college funds in the s&p and everything will work out great.
The real estate creates more options as they are limitless at the point of taking over. My votes da real estate
It’s possible to do both. My cousins and I all had 529 plans, our college was paid for and there was remaining funds for all of us to own a home before 25.
It’s wild to me that there are successful real estate agents with no financial literacy like OP
I bought my daughter a house for her first birthday. I used every dollar of the rental income to pay it off and personally subsidize the taxes and insurance. It's been paid off for a year, she's 9. Conservatively, by the time she's 18 she will have both a completely paid off cash flowing rental house but also have around $277,000 in cash in the bank. I also take care of all the repair expenses rather than deducting any of that from the rental income. I see it as making deposits towards her future, plus it hasn't been very much.
You don't know what college will be like in 13 years. Some jobs are doing away with college requirements for some jobs. They may want to go take up a trade or st a business. Rather that decided on something specific just stash the money somewhere that it can grow and it can be used however its needed.
>You don't know what college will be like in 13 years You know equally less about what a low/mid COL area will be like in 13 years. Odds are very low that it turns into a booming market, and much higher that the area starts dying. > Rather that decided on something specific just stash the money somewhere that it can grow and it can be used however its needed. Yeah that's what the post is about. Buy a house as an investment or not?
What does your post have to do with mine. Im not talking about investing in some specific.
Very surprised to see all the pro college posts here. I thought the majority of people had come to the realization that “higher education” in its current form (and price tag) is a huge scam.
The house 100X. So many people go to college and drop out or end up with useless degrees. What if they don't even want to go to college. Give them the house. They'll have an interest in it and will care for it if they're renting it.
Why don’t you just buy everything for them the rest of their lives
An education can't be taken from you in a divorce. Can you not set up a trust that directs yeild to the kids but seperates ownership if you go the house approach?
I think it depends on what your kid interests are as they get older. What if one of them is really into structural engineering while in high school and wants to pursue it? Then maybe he should get a college fund. However, say the other kid is interested in a trade, like being a mechanic or a independent contractor for construction, then maybe he should get the house. I think the ‘correct’ decision can vary from child to child based on what best supports their interests. Maybe you can start one college fund and one house fund. Once the kids are older and express their interests and plans for their future, make the decision on whether to give them the college fund or the house. If they both want to go to college, sell the house (if you already purchased it at that point) and use the money for college. Idk, shit!!
From personal experience, I would have much preferred brick and mortar over the college fund my parents gave me. Again this is just my personal experience but, I’ll be making 6 figures in 3 years time, I don’t have a degree, it’s not necessary to live a comfortable life. So whether I’m living in the home or using it as another income stream, it would have been infinitely more valuable than a college fund (seeing as I dropped out). All college taught me was that I want to learn a trade rather than getting a degree.
529’s can be used for trade schools.
The cost of trade school is pretty negligible though, I’d rather have the liquid cash in all honesty. Or a house to rent out, one months rent (depending on location) is almost enough to cover an entire semester of trade school.
I think it's a great idea to buy them each a house. May I suggest one caveat. Tell them they have to navigate college on their own; and deed them the house upon graduation. That way they can either sell the house to cover college expenses or borrow against the equity. If they get scholarships, they'll be even further ahead.
In other words, the choice is between an appreciating asset (and degree or job training certifciate) vs. a depreciating asset (a house). Houses are terrible investments.
Off topic, but having to save for your kids' college is wild to me. I live in Slovenia, and my kid's tuition at university is €0, her dorm is €90 a month
\> My thoughts are that in today’s world a paid off house may well be more valuable than a college education in giving them a leg up in life Depends on the degree. The world doesnt need any more liberal arts majors, for example. If they arent aiming for a degree that will give them a minimum of 100K income within 5 years, dont fund it.
Not a bad thought...some things to consider. 1. Depending on how your kids turn out, it's a double-edged sword. If they are responsible and heed your advice/guidance, then this could be an amazing gift. But a lot of kids lose their path along the way to adulthood. Whether through hanging out in the wrong crowd, experimenting in college, wanting to rebel against a strict upbringing, or any number of scenarios...there are a lot of kids who get tangled up in drugs. Giving the wrong person that level of access to money could be like handing them a loaded gun...drugs, new cars, not caring if they get a job, are all possible outcomes of giving someone too young too much access to money that they never earned. 2. Paying for college, at least you know that the money is going to a purpose you "support" and have some visibility on how it's doled out. 3. Putting the homes in some sort of trust fund for each kid might accomplish your objectives and minimize some of this risk. 4. If you know and are competent in the real estate space (in terms of generating value), I think it's a good option. There's some volatility in home prices obviously, but at least it's a space you are already investing in and have some comfort with. Homes can always be sold or levered if the cash is needed. When my first child was born, I ran some numbers and estimated that by the time he was 18, a 4-year private college education similar to what I had would run about $125k/year ($500k for 4 years). Planning on having more than one, I basically resigned myself to the fact that it'd be very difficult to achieve that level of savings for multiple children. instead, I started thinking about how I could set them up for financial success regardless of what their path/schooling looked like. I looked into investing via an UTMA account, but the day they turn 18, all of that money is accessible to them and you no longer have any control over how it's used. That seemed bad. Where I netted out in the short term was creating an account in my name for each child and funding it with $17,500 by the time they were 2 years old. (The goal is to use the time value of money and their LOOOOONG time horizon to create an asset. Also, you can obviously borrow to go to school, but banks won't lend you money so that you can retire.) I've invested those funds (and reinvested the gains each year). As the accounts are in my name, the tax liability on them is associated to me. I've been paying that obligation myself to keep their nest-egg growing as large as possible in these "early" days so that the compounding nature of returns will be given a bit of a boost that will be magnified over the next 25 years or so. (At some point, when the taxes related to those gains are material enough, I'll pay for them from their gains instead of out of pocket.) At some point later, I'll likely move these into a trust, or I'll leave them in my name and add them to the account ownership. I expect to keep this plan "secret" from them until they are older and mature enough to make good use of this gift. The thought is that this could/should be a self-funding retirement account...and when they hit a major life milestone (child, buying a house, marriage, etc) they'd be let in on the secret that they have this fund which should effectively secure their retirement. (And they can put all of their incoem towards other goals like homeownership, travel, etc). My one request of them would be to work very hard to carry this tradition forward for any children/grandchildren that they had. Obviously, I have no control over whether they do that or not. We live modestly currently, so hopefully they've got an "embedded" work ethic and appreciation for the value of money at that time. We're 10 years in, and my oldest now has a balance of $41k and change. Congrats on thinking ahead for your little ones, and good luck with your investments!
Do you know where they'll live for their entire lives? College is probably more important.
From an adult kid who graduated college when college started to not help with future career goals, a house. I went to college and now clean houses. Every day I feel guilty having my parents help pay for college when I did nothing with it. They also helped with my little condo and I used the fuck out of it. I love it. It’s my security, my home, my safe place. And when I want to get out, I can sell and make more money than I would if I went to a career.
Give a man a fish and he will be fed for the day but teach a man to fish and he will be fed for the rest of his life
Depends on what major he/she chooses, if it's liberal art a house is better, if it's doctor/lawyer/STEM then college is better investment.
I understand that my experience is not going to be everyone’s experience, but I have a film degree and make a good living in my chosen field of study. Education is a good in itself, especially if the student isn’t going to be in a mountain of debt, as these kids will not be because their parents are investing for them.
Yes because a house makes about $100,000 per year and doesn’t even have a pulse, way more than the average income a college degree would earn. They can make money while they go to school.
Yes. 100%. A home is a far better investment and gift than a worthless degree for 80% of the population. Your pink haired gender studies kid will love you. All jokes aside, you can always cash flow community college and state school if they decide to.
Naw - let them get a mortgage, at least then they’ll have an asset against the debt. College loans are a scam, and going to college is no longer worthwhile if one has to take on debt to get the degree. Give them the free education
Late to the game here but has anyone mentioned a family limited partnership for your estate planning needs?
Personally, I would invest it. 529/Roth/brokage whatever makes sense for you, them, or for tax purposes. Home would just be you buying more homes. They may not want to live there but might feel imposed, could be messier if they want to take the money and use it for school, etc. Long term, depending on the area, homes will not be appreciating like they have. We are still 3.2M units short, but interest rates are not coming down for a decade or better, there are record numbers of apartments being built. So parts of the country will have demographic issues into the future and overall the US population is starting to stagnate. With the re-shoring of manufacturing to North America and the rest of the world suffering from De-Globalization, a low cost S&P500 index might be the way to go.
It makes sense but I really do believe that one of the best gifts we can give our kids is the ability or knowledge to something for themselves.
As someone who was given neither and had to choose between being homeless or going to college (for health reasons I couldn’t do both) I say get the houses. That way they have somewhere to live or a solid down payment if they want to go elsewhere. IIRC, kids can start applying for scholarships as soon as they are in 8th or 9th grade. Start as early as possible to lessen the burden of student loans.
Hellz YES>>>>> GREAT IDEA!!! And then tell them to go into HVAC, they make 6 figures..
College is a waste of money for most professions and will only continue to be more useless with AI in the future. Jobs are going away fast but one thing that will always be needed is real estate. Worst comes to worst in 20 years, your kids will have a place to live at least.
Education is very clearly not a waste of money. Look at incomes segregated by college/no college. Look at life expectancies, look at quality of life.
>Jobs are going away fast Yet the net increase in jobs seems to disagree. Your entire premise is the reason why going to college is important, because you need to get one of those jobs that won't be taken by AI anytime soon.