College and Adulthood Planning – Real Estate with Your Kids
The goal of parenting is, of course, raising solid, self-sufficient kids into adulthood. We’ve been exploring a bunch of different ways to do that, from money set aside in Roth or Traditional IRAs, to helping kids understand what it takes to run a business. With this article, we are going to focus on a variation of running a business. We love it because it is a concept that anyone can implement.
If you’ve been tuned in to our work for any length of time, you know about the 7 Sources of Residual Income. One of the most popular ways to create residual income is through purchasing a rental property.
Help Them Start Their Real Estate Empire Early
What if you were to purchase a rental property in the city where your daughter or son will be attending university? When done right, it’s a pretty big win for everyone.
By purchasing a rental property you can organize it as a business and potentially take advantage of the tax code to offset the costs of attending college. You can make deductions for travel to and from the home, related meals, appliances, taxes, and insurance. The tax laws are definitely in your favor here.
Not only will housing be less expensive for your child than living on-campus, but your kids will be in a position to learn about ownership. They will basically serve as the property manager. They will learn about marketing the property to get other students to rent. They will learn about leadership and how upkeep on a property isn’t magic; somebody needs to take care of leaky plumbing, changing HVAC filters, and all the rest. They will learn how to structure a lease document so you, as the landlord, are protected. You will be helping them understand cash-flow, taxes, and business structure.
Maybe you have already experienced looking for housing after high school with your kids. If so, you know that establishing credit can be a challenge. One way to help them establish credit is to put their name on the mortgage loan for this rental property. This allows them to start building their credit. Plus, since it is their primary residence it can qualify for lower mortgage rates. It creates a dynamic where the home they live in becomes a money-making asset. This is a similar motivation to why people rent out portions of their homes on Airbnb.
What Happens After College?
When the student is done with college, there are several options. Their siblings, cousins, or neighbors could keep renting or living in the home and the asset could continue to produce rent. Or the property could be sold and you could recoup the equity you’ve built. Hopefully, the home appreciated while you owned it.
We have watched many of our clients do variations of this, and it has proven to be a smart way for families to defray the costs of college.
This is a great move for families with kids heading into college or kids wanting to be on their own. But it is also a good investment for anyone looking at real estate as a source of residual income.
There are so many resources out there if you are interested in getting into student housing. On our podcast, our friend Kevin Bourke talked with us about how he bought an 8-plex for students in the college town where he also served as a coach.
We’d love to help you explore real estate as part of your overall strategy for building assets for yourself and for your children’s education. If you’d like to set up a meeting, contact us today.