Formerly published on Canadian Real Estate Wealth
According to a TD Bank report from 2009, and accounting for inflation, education costs per child could range from $37,000 (for a live at home student) to $137,000 (for a live away student) when he/she turns 18 years old.
I have twins, I’m expecting that my kids education costs will be horrendous. Even maxing out the kids’ RESPs is barely enough to pay for one tuition to a Canadian school. How sad is that?
And according to a paper published on Forbes, it isn’t wise to just pay for your kids education. In the article “More is More or More is Less? Parent Financial Investments During College.” paying for your kids’ education could be detrimental to a child’s performance. It suggests that there is a direct relationship between parents who pay the bills and lower academic performance by their children.
Bottom line: Kids tend to party more and spend frivolously when parents are footing the bill.
How About an Unconventional and Smarter way to save for your kids education – Using Real Estate? (…and Make them Wealthy)
Rather than let your kids party away your hard earned money while you are stuck with the bills, why not get them to pay the bills and get their ears wet managing a rental property?
Here are four little known ways to pay for your kids tuition and make them wealthy. Bonus: Your kids will manage a cash cow for their education, and at the same time, build their real estate investing skills.
Warning: this requires your kids to hustle while juggling school – a great habit to have to develop their entrepreneurial skills!
1. Teach them property management 101
If your child is planning to live away from home while going to school, why not invest in a rental property and have them manage it? Your child could live in one of the rooms and rent out the extra rooms to their friends. Not only do they get paid collecting rent, but you are teaching them how to manage a property. Along with real estate investing skills, your child is also learning a critical financial skill – savings and budgeting. After all expenses, get him or her to use the rental cashflow to pay for tuition, living costs and books.
2. Teach them to build wealth with a push of a couple of buttons
Rather than selling one of your rental properties to pay for your child’s education, consider holding it for the long term. When your child is ready to go to post-secondary school, hold the rental property until they graduate. Have them take out equity (secured line of credit) to pay for their education. Then, transfer the assets to your child after they graduate from post-secondary education and have them sell it to pay for their loans. Any remaining profits from a sale, or available room in a home equity line-of-credit, could launch your child’s purchase of their own real estate.
3. Teach them to manage a real estate portfolio like a CEO
If you have a property that is held more than 15 years and your child decides to the leave the city, why not refinance the balance of the mortgage, and have him/her run a team to manage the property? Teach them to oversee a property and monitor the expenses and payments. The cash flow can be used to offset their tuition fees and books. Once school is finished, they can liquidate, or borrow against, a property and pay off their loans.
4. Teach them to become the BANK
If the property no longer has a mortgage and your child is too busy to manage real estate, help facilitate the sale of a property and have him/her contribute a portion of the proceeds to their tax free savings account. This money can be used for passive investments like lending out to other real estate investors as a mortgage-backed loan, real estate backed fund (consult with your mortgage broker) . Now your kids have mortgage payments coming into their bank accounts to help offset their living expenses and tuition costs. And after finishing school, he/she can recall the loans issued to pay off their own student loan. Your child has become the bank!
If your kids demonstrate an above average work ethic, and business skills, try being creative with these financially savvy strategies. You might be giving them the greatest gift – to launch their real estate investing journey and jumpstart their path to building their first million.
Do you think you will be teaching your kids how to invest in real estate? Do you think it is wise to teach them while juggling school?