My kid is now in college. How do I avoid paying large tuition fees for housing?
The answer is to have your kid, not you, but your kid, buy a piece of real estate and we’re going to talk about how they can do that.
As I said earlier, the answer is to have them buy a house. And you go, “Okay, that’s it. This is easy. We’re not going to be able to do that. My kid can’t buy a house. They’re not qualified to buy a house. So... how would I be able to do this? You’ve got to build up credit. I’m going to have to wait until they’re 25.” None of this is actually true. Both of my kids—I have three kids—two of the three bought houses. And one was very specific that I’m not sure is able to be duplicated. She bought at the age of 17, but we’re going to talk about my son who bought three months after the age of 18 and was the primary borrower with 5% down and what that looks like.
So what happened there was you have to prepare ahead of time and there are some real easy ways to do so.
The first thing is to build credit. Now, what most parents tend to do is they go out and try to get credit cards for their kids so that they can have some level of credit and hope to build that slowly. That’s not a great way to do this.
Here’s the hack that I would use and that we did use. If you have a credit card that you’ve had, let’s say, for a decade, with a large available credit limit to it and there’s nothing on that card, what we did is we put my son on that as an authorized user. When we got the card in the mail, we hid it - we did not give it to my son. But what that allowed is, because of the age and the amount of credit that has been there for over a decade, within about 30 to 90 days, it generated a 750 credit score, which gave him a credit background. That was the first hack. He obviously, at that point went out, and got his own credit cards and worked to build a couple of other lines of credit that were slightly less old and had much smaller available limits on them to kind of bolster that credit. All he did at that point was save part of his down payment.
We helped contribute the other part of the down payment, and we did go in as co-buyers on the property. However, he was able to get Owner-Occupant rates and an Owner-Occupant first-time homebuyer 5% down loan on this property. This is not something, as an investor would be able to do. I would have to make it a primary residence, which it was not a primary residence for me, but for him it was.
What he then did - and you have to check your local ordinances because you’ll have HOAs and local county municipalities that may prevent this. He bought in an area near a college that did not restrict this type of use. He got roommates that are his friends and charge them a per-room, kind of a boarding house. And so he filled this four-bedroom house with other guys that were paying monthly between $600 and $800 a month to live there. While they’re doing that, this basically covered his entire mortgage. And over that course of about two to three years, with the money he saved in his account, he was able to rebuild the deck, reside the house, put on new gutters and cut down trees - all without spending really a dollar of his own money and building equity in the house! So this is a wonderful way for you to help your college kids produce an income-producing asset.
Now let’s talk about how this ended up for him. This is one of those things: Was it a good choice, or was it a bad choice? And well, let’s kind of look at the numbers.
Talking about this, let’s just say, I think it’s about three or four years later, after four years since the great 2020 run-up of values, he’s sitting in a house that is probably worth approximately $400,000. It does need some updating to it. He is working on that. The value is at $400,000. He bought at $217,000. After his down payment, he owed just over $200,000 and has now paid it down to just below $200,000. So if you’re looking at that and he has in his bank account approximately $30,000 that he can pay down on all of the other repairs and maintenance issues with the property. Once he brings it fully up to sellable standards, he’d be looking at a $400,000 plus property in a great area that he can turn around and sell and make a profit on!
Now, he has no plans to do so. He’s continually just cash-flowing that property, but at the end of the day, he’ll get his entire investment back. He’ll have made over six figures in equity while doing this, and frankly, he got out of my house, right? That was something he wanted more than I wanted. But that anonymity and the ability for them to move on is a great way. So it really depends on where your kid’s going to go to college, on whether this will work in that area but it’s something that you may want to look into.
If you’re in the Georgia area and you’re wondering, “Can I do this? What steps do I need to make to be able to get my kid ready for homeownership?” I think it would be awesome if we could have a generation of 18 and 19-year-olds buying responsibly a piece of property and becoming real estate owners/investors early on so that they can build wealth through real estate rather than going through all the credit card debt ramp-up, and losing money and learning what we all learned the hard way, which was like, “Hey, it looks like free money”. And then it turns out we have to pay this back and it costs us.
So if you’re interested in having your 18 or 19-year-old be a homeowner, and you want to partner with them so that you guys can grow an investment together, please CLICK HERE and feel free to reach out to us! We’ll give you a free consultation on how we did it and talk about the things that you need to know before you get too far down the rabbit hole!
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