From Diapers to Dollars
Using Real Estate Investing to Secure Child’s Financial Well-Being
It is no secret that babies are expensive, and I couldn’t help but add up the dollar signs after reality hit that I was becoming a dad. The birth of my child will surely change life drastically—but I am determined to ensure that I am able to financially provide for my child while upholding our standard of living. So, I began crunching numbers, and before long, I realized real estate investing is a solution to ensure my child is well taken care of through her post-secondary education plans. Let’s break it down:
We are told that on average, we spend $12,000-$14,000 a year raising a child, which equates to a whopping $230,000 over 18 years. Then, you add an additional $35,000 for college or post-secondary education. With so much variation in what that could cost, it is important to be mindful and prepare early.
(**Disclaimer: college may not be for everyone; I plan on having money prepared for my daughter to use as a starting block for whatever opportunities make sense for her.)
Here is where real estate investing comes into play.
Around the time of a child’s birth, the parent could buy a nice house with a 1% rent to value range (or something close to it). For this example, let’s look for a house worth around $150,000 in today’s dollars. It doesn’t have to have an amazing cash flow, just not losing you moneyl. We are really looking for that loan paydown.
Then, take on a 30 year loan, but pay it off in 18 years.
With the house paid off and now (with inflation and the usual 3% appreciation), the house should be worth around $254,000. Rather than selling, it’s time to refinance and pull out all the money (minus 20-25% equity), and now have $215,000 to use towards a child’s next steps after high school. You retain the asset, and it continues to cash flow.
Basically, by investing in a property at a child’s birth, a parent can pay off the mortgage over time and the use the equity accrual to fund a child’s education or other expenses.
Of course, real estate investing isn’t the only way to save for your child’s future, but it can be a tool in your parenting toolbox. But whatever you choose, it’s never too early to get started planning for your child’s financial well-being.
Questions? Comments? Thoughts? We would love to hear them! Feel free to contact me at coaching@offleashinvestments.com.