How to Use Real Estate to Pay for Your Kids’ College: 6 Unique Approaches

Investing early on can produce impressive results, including the ability to keep up with the rapidly increasing cost of college tuition, which has more than doubled since 2000.

According to the Education Data Initiative, the average annual cost of tuition and fees at private colleges now stands at $38,768, and it’s expected to rise further before your child reaches college age.

Fortunately, real estate offers several solutions to this challenge. Explore these innovative strategies to finance your child’s college education, so you can shift from worrying to looking forward to their university years.

1. Let Your Tenants Cover College Tuition Consider purchasing a rental property for $360,000 the year your child is born, making a 20% down payment, and financing the remaining $300,000 with a 30-year mortgage at a 6% interest rate. Over 18 years, you could accumulate $554,870 in equity—more than enough to cover tuition costs, potentially leaving a surplus for your retirement.

Your tenants effectively pay down your mortgage while the property appreciates at an estimated annual rate of 4%. U.S. homes have historically appreciated at 4.8% annually from 1987-2023. Additionally, as rent rises with inflation while your mortgage remains fixed, the property should generate substantial cash flow over time, potentially eliminating any need to sell or refinance.

 If you want to accelerate your mortgage payments, a 15-year mortgage is an option, but it will reduce your cash flow initially.

2. Use the BRRRR Strategy for Infinite Returns For those seeking a more aggressive real estate investment strategy, the BRRRR (Buy, Renovate, Rent, Refinance, Repeat) method allows you to recycle your capital. By purchasing a property for $240,000, renovating it for $50,000, and borrowing $300,000, you can force equity growth and refinance to recover your initial investment.

 This approach enables you to reinvest that capital into additional properties or other investments. With no limit to how many times you can repeat this process, you can potentially generate infinite returns over time.

3. Achieving Infinite Returns with Real Estate Syndications While the BRRRR strategy is labor-intensive, real estate syndications offer a passive alternative. Syndicators purchase and renovate large-scale properties like apartment complexes, refinance them, and return investors’ capital—while still allowing them to maintain ownership and collect cash flow.

This method provides the same potential for infinite returns but without the time and effort required for individual property management. Investors can reinvest their principal while continuing to earn income from the original investment. Joining a co-investing club, such as SparkRental’s, can help make syndication investments more accessible, with opportunities to invest smaller amounts consistently.

4. House Flipping with Your Teenagers As your children approach college age, you can involve them in financing their education by flipping houses. The profits from each successful flip could cover a year or more of tuition.

In addition to financial benefits, your teen gains hands-on experience in real estate, learning essential skills like budgeting, project management, negotiating, and navigating regulatory requirements. This practical education might also increase their commitment to academic success.

5. House Hack with a “Kiddie Condo” There’s a lesser-known option for funding college housing: Your child can satisfy the occupancy requirement for a primary residence loan, allowing you to buy student housing with favorable mortgage terms. By renting out rooms to your child’s roommates, you can offset or eliminate housing costs for your child’s entire college career.

Not only does this strategy save money, but it also teaches your child property management skills. After graduation, you can decide whether to keep the property as a rental or sell it, ideally for a profit.

6. Utilize a Roth IRA for Real Estate Investments Roth IRAs provide unmatched flexibility among retirement accounts. Contributions can be withdrawn at any time, and earnings can also be withdrawn penalty- and tax-free for qualified educational expenses, such as tuition, books, and necessary equipment.

By investing in real estate through a self-directed Roth IRA, you can potentially generate substantial returns and withdraw funds for your child’s education without tax implications—provided you have sufficient funds to cover both college and your own retirement.

Explore Combinations of Real Estate Investment Strategies These strategies are just the beginning. Consider blending them to create a robust plan for funding your child’s education. For example, you could house hack your own home by renting out part of it or hosting a foreign exchange student, using the stipend to cover mortgage payments.

Additionally, ensure that your child has a personal stake in their education costs. Setting performance-based conditions, like maintaining a minimum GPA, can help ensure they appreciate the support and make the most of their educational opportunities.

By thinking creatively, you can leverage real estate to ease the burden of college costs without sacrificing your financial goals.

In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“