While it’s certainly not a parental requirement, footing the college bill (or any part of it) and allowing your kids to graduate debt-free is an enormous gift—one of the biggest you can give your children. Conventional savings vehicles, like 529s, are amazing tax-free-withdrawal vehicles, but they’re not the only way to get to the finish line. You can also use your real investing superpower to build the college trove, and you don’t need to have started saving in utero (although that always helps)
Here are two ways to fund college with real estate, whether you’re starting early or a little later.
1. Starting Early: Buy a Single-Family Home When They’re Born
Each kid “gets” their own home. Put 20% down, buy something reasonable and steady, and rent it out. This is base-hit, not home run time—you have almost 20 years for the thing to appreciate, after all.
Then you can do one of two things: squirrel away the yearly cash flow (in a 529 or another tax-deferred vehicle) to pay for school, or keep (reinvest) the cash and, 18 years later, sell the house entirely and likely have more than enough to pay the bills and then some because of your smart focus on appreciation.
Even better (and more generous), use the cash flow you’ve socked away for two decades to fund college, then transfer ownership of the single-family home to your college kid when they graduate. Work with your legal team to buy it initially in a trust or an LLC where your kids are already named so you don’t pay a transfer tax. Now you’ve gifted them their first income stream before they even have their first W2.
Of course, you’ll teach them how to handle this revenue—how to save it or reinvest it—so your gift pays massive dividends. Do this for each kid, and you’ll set them up for massive success.
2. Starting Later: House Hack in Their College Town
You may need to rely on your 529 or other savings with this strategy to fund the first year of college since you probably won’t be able to predict where they’ll enroll in advance, but once they decide, turn on the house hack engine.
Sometime during your kid’s first year, buy a duplex or house with multiple bedrooms in their college town. Make sure it’s someplace that college kids actually want to live, close to campus and amenities. (Your kid can help advise on this.)
Then, when your kid is allowed to move out of the dorms, move them—and their (respectful, well-behaved) friends into the rental—one bedroom per kid. Collect reasonable rent from the friends and/or from the tenants in the other half of the duplex and enjoy free room and board for your kid while using the proceeds to pay the rest of those college bills.
Is your kid good at finding roommates and keeping an eye on repairs? Offer to provide them with a little spending money in exchange for basic property management. Some universities will eventually allow you to declare in-state residency after a bit (if they’re going to college out of state), which will save you even more on bills. Four years later, decide whether you want to keep the original college house or rinse and repeat wherever they’ve decided to go to graduate school.