As a real estate investor, you should always have a real estate goal to shoot for. The clearer your goals, the more likely you are to achieve them. Goals will help you stay on target to build your real estate empire.
As a real estate investor with kids, you've got more responsibility. What are the main things that cause the most financial stress for every family or aspiring family? They are:
- Healthcare costs
- College tuition costs
- Grade school tuition (if attending private)
- Living costs (rent or saving up to own a home)
- Your child’s future in this ultra-competitive world with high inflation
Solving rising healthcare costs comes with a couple of conundrums. To get subsidized healthcare, you'll probably have to work for an employer. If you like your job, this is OK. But if you are like most people who are disengaged from their jobs, you'll eventually come to feel like you're trapped in golden handcuffs.
If you're an early retiree, one solution to combat your rising healthcare costs is to make less than 400% of the Federal Poverty Limit and receive subsidized healthcare from the government. Otherwise, you'll have to pay full price as we do, no matter how healthy you are.
But do you really want to live near abject poverty just so you can get subsidized healthcare? Probably not.
Solving college tuition costs is comparatively simple. Go to a community college for two years and then transfer to a 4-year state school. Or be smart enough to receive grants. You can skip college altogether and go to a trade school. Or you can wisely fund a 529 college savings plan since your child's birth.
Unless you are already rich, paying private college tuition is one of the best wealth transfers from the middle class to the rich. We've all heard the cacophony of complaints about crushing student loan debt and bad jobs after college graduation.
The Real Estate Goal Every Family Should Consider
This post focuses on the living cost problem for your children. We know that renting forever is not a good idea due to inflation. The lack of discipline by the average person to save and invest the difference hurts too.
Once you have your living costs under control, life gets much easier, especially when you're young, healthy, full of energy and less encumbered.
Due to expensive living costs, some young adults end up living with their parents for years after high school or college. Although this may be a good idea for a little while, after several years, young adults may fail to launch because they've become too dependent on their parents.
Some young adults end up struggling to find job stability. They're always getting forced out of their rental property for some reason. For example, one of our preschool teachers is being asked to move because he is an unauthorized sublessee. I hope we don't lose him.
Some adults who really want to start a family can't because their income is already being spent paying rent, saving for a home downpayment, and/or paying off student loans. The last thing they want to do is take on the financial responsibility of having children. But if they wait too long, children may never come due to biology.
Due to the financial struggles that often accompany rising living costs, the real estate goal every family or family-to-be should consider is this: own one mortgage-free property for each child.
If you have one child, then at least own your primary residence and a rental property. The rental property can one day be inhabited or managed by your child and so forth.
The Perfect Real Estate Goal
Why is owning one mortgage-free property for each child the perfect real estate investor goal? Here are some reasons why:
1) Helps you build wealth.
Make no mistake, the main goal for owning one mortgage-free property for each child is for you to build wealth. It is not to baby your children once they become adults. The only way you can truly build wealth through real estate is if you own more than one property.
Otherwise, you're either simply neutral real estate owning your primary residence or short real estate by renting. You wouldn't short the S&P 500 over the long-term. Therefore, why would you want to short real estate over the long-term?
Owning rental properties helps you build semi-passive income, which is the key to financial freedom.
2) Good timing
A typical child will need 18 years to grow up and finish high school. If he or she chooses to attend college, that time frame extends to typically 22 years. In 18-22 years, if you focus, you will likely pay off your mortgage by the time they start working full-time.
Further, your property will likely appreciate in value during this time frame as well. The combination of property price appreciation and debt paydown is why real estate is my favorite asset class to build wealth.
3) Creates an insurance policy
As a parent or a parent-to-be, one of your main goals is to equip your children with the tools and knowledge necessary to survive on their own. Just in case you fail to be a good parent or your children fail to launch on their own, a paid-off property for each child ensures that they at least won't starve.
If they choose not to live in the property, they can at least make some income by being its property manager. Buying a rental property for each child is a great way to provide career insurance, just in case they can't launch and make money on their own.
4) Decreases your chance of becoming a burden
One of the greatest gifts you can give your children is to be financially independent enough to retire comfortably. You can help them avoid becoming the meat in a salami sandwich, trying to provide for their kids and for you in your old age. If your children do become independent adults, you can keep earning rental income to pay for your retirement and medical expenses.
Burdening your kids while they are already struggling to make ends meet is rough. Relationships will be hurt.
5) Gives you a sense of purpose
The saying, have children and the money will come, is true. Children give you tremendous purpose to get your life in order. You can use your children as motivation to build a real estate empire. Or you can use your children as motivation to build a tremendous stock and bond portfolio.
My children have given me the motivation to maintain a lifestyle business that provides us with flexibility. Once you find your purpose, life becomes more rewarding.
The easiest real estate investing strategy for the average person is buying a place to live. After a few years, rent it out, and buy another place. Do this responsibly over a 20-30-year period and you're going to build a healthy amount of passive income.
I have spoken to all my wealthy friends about this idea and they are all following this real estate goal. Once you have a meaningful reason for achieving a financial goal, the goal gets much easier to achieve.
6) Helps reduce anxiety as a parent
Now that I've been a parent for over six years, I've come to realize we parents never stop worrying. Given we want upward mobility for our children, we constantly fret about whether they'll get into great colleges and land well-paying jobs. Will anybody love our children as well?
Owning a paid off rental property per child helps reduce anxiety parents feel for their children's future. Building generational wealth helps provide more peace as we only want what's best for our children.
Unfortunately, with the way the cost of college tuition is rising, contributing to a 529 plan is not enough to pay for college. By having this real estate goal of owning one rental property per child, you will increase your chances of being able to pay for college when the time comes.
Blame Your Parents For Not Reaching Their Real Estate Goals
I'm sure every one of us wishes our parents and grandparents had bought more real estate and more stocks 30, 40, 50, 60+ years ago. Just imagine how much easier your life would be if they did.
I already regret not buying a two bedroom, two bathroom, double balcony, 1,250 square feet condo on 22nd and Madison Avenue in New York City back in 2000 for $795,000. That place is worth at least $2,500,000 today and would be paid off.
One of the keys to investing, despite elevated valuations, is to think about prices far into the future. Ask yourself, “What will I regret not buying today, 20 years from now?“
For me, I know I will regret not buying more panoramic ocean view properties in San Francisco. I had the same feeling in 2003. I walked into a 2/2 condo facing a park for sale at $580,000. It was a steal then and it is still a steal now at $1,300,000 because park-view properties are prime.
I Don't Blame My Parents For Not Investing More In Real Estate
I don't blame my parents for not amassing a real estate empire over the past 50 years. I'm just grateful they gave me the opportunity to learn about investing. Their education is one of the reasons why I'm able to share so many thoughts with you.
Further, because my parents saved and invested wisely, I don't have to worry about their finances in retirement. Not being a financial burden on your children is a gift you can give them. Besides, both my parents have valuable pensions given they spent three decades working for the federal government.
I just don't want my children, when they are adults, to look at me funny and ask why I didn't take advantage of buying property back in 2020.
My son can be heard now saying, “Wait, you could have bought a 4-bedroom, 3.5-bathroom, panoramic ocean view home in San Francisco for only how much? I love you dad, but you should have jumped all over that! Duh!“
It's never too late to start investing. The population is always growing. Land is becoming more scarce. And economic growth will generally trend up and to the right. However, some times are better than others.
Luckily, I did end up buying an awesome single family home with panoramic ocean views a month after lockdowns in 2020. I was able to get $200,000 off the asking price and prices have since rebounded. It is now my “forever home” until real estate FOMO takes over again sometime in 2025.
The Downside To This Real Estate Goal
Now, of course, there is a potential massive downside to buying property for your children. They might end up completely unmotivated to do anything meaningful in life. Why bother when one of their basic needs has been met.
I see plenty of adult male children washing their cars and walking their dogs in the middle of a weekday in my neighborhood because they aren't motivated to work. They're either living at home with their parents or living in a home their parents bought them.
To prevent creating lazy adult children, the key is to go stealth with your real estate plans. Never tell your children about your real estate portfolio. If they some how find out, make it clear that your real estate portfolio is for your retirement needs only.
Also, try and not raise your children in a house that costs much greater than 150% of your city's median-home price. Growing up in a mansion can be debilitating.
If you discover you have good children, then consider educating your children about the benefits of real estate investing. Discuss ways in which you can improve the property to boost its value. Talk about how to properly screen tenants by analyzing their income, balance sheet, and credit report. Teach them about cap rates and the real estate cycle.
Perhaps through your guidance, they will be more appreciative of the property once they finally move in or own the property. They might even take a liking to real estate investing.
Smartly Provide & Get Rich
I was afraid of introducing this goal of owning a paid-off property for each child. However, after observing so many people get financial help from their parents as an adult, it seems to me that this has become the norm. Unlike in the past, nobody bats an eye if they find out you're still living at home after college either.
When you can live in a property that appreciates in value, build a rental property portfolio to fund your retirement, and provide shelter for your children if needed, you've created a trifecta of wins.
If you don't plan to follow this real estate goal, then definitely invest your money in other assets. I don't want you coming back to this post 20 years from now angry at me or other parents for diligently investing for their children's and their own future.
Other Wealth-Building Suggestions For Kids
If you don't want to shoot to own a paid-off property for each child, you can create a custodial Roth IRA account for them instead. With the Roth IRA, you can teach them the value of money by making them work for their money. Up to $13,850 of income a year is tax-free due to the current standard deduction for 2023.
If they earn $12,000 a year from age 8-18, they will likely graduate high school with over $100,000. During this time, you can discuss your reasoning for investing in various equity and fixed income securities.
If you want to teach them the intricacies of real estate without investing too much money, platforms like CrowdStreet and Fundrise have a tremendous amount of information about each deal and sponsor.
Fundrise began in 2012 and has over 500,000 investors. The real estate investment platform has over $3.3 billion in assets under management. Fundrise invests primarily in residential and industrial properties in the Sunbelt, where valuations are lower and yields tend to be higher. For most people, investing in a diversified private real estate fund is the way to go.
CrowdStreet offers individual real estate deals in 18-hour cities, where growth rates tend to be higher with more expansion potential. CrowdStreet enables investors to invest in pre-vetted individual deals and build your own select real estate portfolio.
You can teach your kids about the various benefits and risks of debt and equity investments. You can discuss key drivers of real estate price appreciation and question various assumptions of each offering. The learning opportunities are immense because the material is all there.
I've personally invested $954,000 in real estate crowdfunding to diversify my investments and earn income 100% passively. So far, I've earned over $600,000 in distributions and passive real estate income.
given the estate tax for non-US tax residents (like HK residents), wondering best way to structure the US property purchase, so it does not get hit by the high estate tax for non-US tax residents.
hi i am 35 years old. Paying mortagage since 3.5 years on a 800k primary residence house in Boston. i can invest upto 50-100K every year in real estate but I do not want to directly own it. Is it a good idea to keep investing in passive real estate syndications as a real estate portfolio? This money is apart from putting max money in 401K, 457b maxing out, some in taxable accounts, savings, UTMA, and max roth IRA for which each family member including 2 kids and 2 529 accounts. I like and came to know of idea of a property for each child. but do not want to own anything directly. If i keep investing such big amounts every year it will become sizable part of portfolio. you said in article to put “small amount of money in passive real estate” for kids versus I am thinking it will be my primary way to leave kids real estate income for future and no hassles of managing a home or property for myself or them too in future. Why you say put small amount of money in passive real estate? Thanks. would appreciate your thoughts.
This is a very interesting way to think about it. As some of the other comments mention, I would hesitate because a kid often has to be mobile to build a strong career. Your own VA->NY->CA experience shows that and mine is similar. Economists are saying that Americans’ current unwillingness to relocate to where the jobs are, relative to past generations, is one of the things dragging on economic growth.
On the other hand, what a learning experience it would be for a kid to have to put a place on the market and reinvest in a different city with everything that goes into that.
I like the it! Reminds me of my coined chicken nugget theory. Don’t ever tell them about the damn things. You’ll save a small fortune and they will be healthier later:)
Stacking Benjamins listener here! Loved the podcast interview and wanted to give your site a visit.
I have lived at home for close to a year and a half now, after completing my masters and obtaining my CPA.
I have noticed that I have become quite dependent on my parents and am about to purchase a home, with my best friend and start investing in real estate early on at 24 years old. Any articles you recommend for young investors looking to soak up some knowledge?
Howdy, was I on the Stacking Benjamins podcast recently? If so, send me the link as you may have me confused!
I would say DON’T invest in real estate with your best friend. Co-mingling funds in real estate is not a good idea b/c your lives can and will drastically change over the years.
Check out my real estate category.
Also, how to properly analyze a real estate investment.
Another great article Sam! I like this plan but disagree with this strategy; “To prevent creating lazy adult children, the key is to go stealth with your real estate plans. Never tell your children about your real estate portfolio.”
Your child should be aware of the portfolio and involved in the homes maintenance, projects, upkeep etc. I think sharing and involving them in the process will show them what its like to own a business/manage real estate and also inspire them to want to take on their own projects.
Good points. I should clarify that we parents should never lead on that these properties will one day be theirs until an unknown period of time when we feel they are ready.
This is a well written article! My questions relates to real estate. We are in the position where my career is fairly mobile every 3-5 years moving within my company. We have a condo that my wife lived in prior to us getting married. Currently we rent that condo out in downtown Chicago and utilize a company to help manage with us living 300 miles away in Ohio. This spring our tenets are moving out and we need to decide weather to keep it as a rental property or sell it. With us not being close it is hard to accumulate physical real estate and question weather is worth it clearing $100 a month after all monthly expenses.
With us maximizing tax advantage accounts such as 401k, Roth IRA, health savings account, and 429 accounts already.
My questions is with us being mobile every 3-5 years would you recommend us owning more REIT like (VNQ) in a 401k / Roth IRA accounts to get exposure in real estate and utilize the tax advantages with reinvesting dividends as opposed to owning the physical real estate?
We are currently in this exact predicament. We have 3 children at or under 2 years old and are on track to expand our RE holdings this year, out-of-state. We moved into a 3x house to hold my kids (and rent out a portion – I’m telling you, house hacking is amazing) and are slowly getting to the point that our equity in each property is becoming quite sizable. We moved into an where the school district is in the top 30 in the state. But, I want them to be hungry – like we were. Yes, we are in a better position for our kids than our respective parents were, so there is a slight generational advancement. It’s all about them – I’m doing all this for them – but again, with time I can see the potential for “spoilage.” It all comes down to parenting – teachers are “in loco parentis” or in place of a parent – because the child’s first teacher is a parent. Teach them to not judge, and they “hopefully” will not.
Real estate with that leverage is indeed a powerful idea to pass wealth to the next geneartion. Your tenants pay the rent and after 15 years you have the assets!
With SALT putting $10K cap on deduction, it’s really hard to see how the coastal real estate price can keep going up and up, even factoring in inflation. Last year we end up paying $60K more thanks to the SALT deduction cap.
I suspect SALT would accelerate retirees in blue state moving to the red states that you were bullish on. It’d be hard to keep paying the same property tax once we live on retirement income.
Dang, $60K is certainly a lot. Congrats for making so much money though!
In the long run, what’s going to happen is rents will probably go up to help pay for the SALT reduction.
But yes, taxes are a drag. And Red States should outperform. https://www.financialsamurai.com/top-states-to-buy-real-estate-in-the-new-decade/
Main issue with the above lies in the few rate cuts left in the Rates arena. I see other issues down the line e.g a. Strategy doesn’t hold as “crash insurance”, b. kids living off real estate may end up as perpetual rent seekers…
After raising rates so often since the end of 2015, the Federal Reserve has plenty of room to cut rates. It’s not so much the magnitude of the red cut, but the frequency nowadays and the signaling affect it gives the market.
Clever idea! What a blessing for a child to be able to inherit a rental property especially in a prime location. I like how you describe it like an insurance policy. Makes a lot of sense to me!
We thought about this but what if the kids end up living across the country? A stock portfolio seems a little more mobile. :)
That said, we’ll definitely look at buying a place near wherever they go to college.
Same here. I’m stockpiling money to help my kids out with college and possibly a house.
It gives you a huge head start in investing while enabling you to choose a more satisfying if lower paying career.
No reason not to build a great stock portfolio, I’ll 529 plan for each child, and a rental property portfolio as well!
The main goal for building a rental property portfolio is for your own sake. They are simply an insurance for your children just in case they need it.
Hi Sam,
What do you think of using Indexed Universal Life Insurance (IUL) as an alternative vehicle for 529? My financial advisor said that, unlike 529, IUL will not be counted towards assets when universities evaluate a student’s eligibility for financial aid. He showed me data that many private universities have tons of financial aid that they can’t even give away. If you get 50% off tuition, that’s 200K in four years.
What’s your thoughts about that?
Thanks!
Hi Sam,
You touched briefly on this, but the same goals can be accomplished through stock ownership. I set up an IRA for my daughter sometime around her 8th birthday. For the next ten years I forced her to put 10 percent of any money she’s earned through all her summer jobs, tax returns, graduation or birthday gifts into her IRA. The last 2 years I haven’t had to force her into doing it. It has become a habit and she does it on her own now and is very proud to show me the deposits she made.
I love your idea about real estate, however I think it’s very important for the kids to have some skin in the game. I will never give my daughter a house, but I would certainly help her build equity either through sweat equity or a no interest loan.
Thanks, Bill
It’s a good idea, and I plan to do both. Seems like a Roth IRA would be even better since income is tax-free for the first $12,000.
I could pay each child $12,000 a year taking photos for the site, updating old content, or whatever so that after 10 years, they should have a decent chunk of change.
Related: Why I Didn’t Contribute To A Roth IRA But Why You Probably Should
This is a very well written and thoughtful article! I have a home that my parents left to me. I rented it out once with an improper property management company. It ending on a sour note and the tenants were asked to leave for illegal activity. The rental home is located in a rural area. Not many property management companies around. I live about 2 hours away from it, and I would like to rent it out again. Do you have some ideas for this? How do I find a responsible tenants and property management company? Should I find a company where I live even if its 2 hours away?
I really like this. Win, win for sure.
We have had a similar idea. Our primary residence sits on 160 acres of Michigan farmland, with the hope to add more in the future. It will be a great asset to be able to pass down.
Amazing to have 160 acres of land! I grew up visiting my grandparents 8 acre farm land in Hawaii and it was a magical experience.
Sam
Love this article. My wife and I have 3 girls. In 2010, 2011, and 2012 we scrapped together down payments for a single family residential (3 bed/2 bath) home. Best risk/gamble/decision I’ve ever made. In my mind, my motivation at the time was a rental for each child. Fast forward 10 years, all three rentals are within striking distance of mortgage free and all have more than doubled in value. The rent pays for themselves and my primary residence mortgages. I tell my girls that these are my retirement (even though I max my Simple IRA and own a small business that allows me to come and go as I please- I will never “retire”).
Truth is, they are more of an insurance policy for me. I will leave each of them a paid for home and probably use much of the rental income to put each of them through school (2 years of community college completed concurrently in highschool) and the final two years at State University. Worst case scenario, I’ll live partially off the passive income from rents, savings interest and my wife’s PERA pension without touching principal. Best case, I’ll continue to receive earned income from my business, and use the rentals to springboard my children and their families.
I’m 45. My goal is pay off the first in 22 months, and each of the last two 24 months later, respectively. This would coincide with the start date of college for each daughter.
Sounds like a great plan! Well done planning ahead for the future.
Your real estate is an insurance policy for you, for your children, your spouse, and your entire family.
Related: Real Estate Is A Hedge Against So Many Bad Things In Life
I live in a very low cost of living area, so my numbers are vastly different, but I am pursuing a similar goal. My kids are 16, 11, 8, and 6. I don’t plan to just give them a paid for house, but if the need arises, we will be able to do so. My wife and I are buying rental houses typically for around $20K and after our rehab are around $30-$35K into them, with a post reno value of around $50K. I’ve got 2 rentals paid off and 2 with 15 year loans that we will pay off early. Our primary should be paid off sometime in 2021. Our current goal is to get up to 10 rentals then pause and evaluate where to go from there.
What I think is more important than having the paid for assets when my kids are grown is teaching them about investing now. My 8 year old and I just had a long discussion (on his request) about investing last night. They are involved in going to look at properties, in the rehab work, and we are starting to get them involved at looking at the numbers. I’m teaching them how to be investors and how to do all these home rehab projects.
What I would like to do is as my kids become adults is assist them with buying their first house to rehab (if they are interested) and working on it with them. They would still be putting a good chunk of money into the deal, and I would work for free on the rehab with them. If we cover half the cost and they cover half the cost, we would each be about $15K into it and they would be in their early 20s with a paid off house. They could save up the money from living at home for a year or 2 post schooling. Alternatively if real estate costs in our area skyrocket by then I could sell them one of my existing rentals at a discount.
I agree that among the most important factors here is being in a financial position to not be a burden on our children when we get older.
Hi John,
All these sound amazing. May I ask how did you find the time and energy to build this RE empire while raising four children and working?
The goal is beautiful but my problem is capacity to execute…
Thank you for your insights.
Ditto. And why not just put money in REIT or Real Estate Crowdfunding as an alternative, as Sam has written?
Sam, any updates on your experience with Fundrise?
Most of the RE has been this past year. In 2011 My wife and I found the perfect home for us and upgraded, and although we tried to sell our first home, it did not sell and we turned it into a rental. I work as a contractor during nuclear power plant refueling outages, which are typically in the spring and fall. I work 72 to 84 hour weeks during this time, but I end up with the summers and winters off. What we are doing now is each season I am off we buy a house and rehab it, then we get it rented. I’m typically off work for 10 – 14 weeks in the summer and in the winter. The summers are more difficult because the kids are off school as well. If I were working a full time corporate job all year round I probably would not be doing RE investing, or I would be doing it much slower, maybe 1 a year instead of 2 a year.
We bought our first purposeful rental winter of 2018, another summer 2019 and another one winter of 2019.
Providing a backstop of housing for my kids is a small potential way of helping them build wealth. Matching funds for retirement accounts is a big part of our plan going forward when they start working.
Well that makes a lot of sense. Very impressive achievement.
Thank you for sharing!
Hi Sam,
I hope to leave our primary residence to one child and our vacation home to our other child, both mortgage free. The kids joke that one wants the vacation home and the other primary residence, so not issues there! They are also of equal value today.
Additionally, the homes provide a retirement margin of safety. I have no plans to do this, but we could take out reverse mortgage on one or both the properties. This would provide another income stream in retirement should we need it.
Hopefully it never comes to that but it is nice to know it is there, if needed.
I can afford a vacation home but we’d never have the time to go…is it still worth it if you only got a few times a year?
At this point I may be able to justify it as our eventual retirement home…
I wouldn’t buy a vacation property if you don’t go for at least 30 days a year and can rent it out for at least 65% of the time.
Check out this article: https://www.financialsamurai.com/the-only-time-you-should-consider-buying-a-vacation-property/
Hi Sam,
I can’t agree with you more about the cons of a vacation home.
Here is we finally decided to buy in Ocean City, NJ
1. Location – the home is only 100 miles from our primary home. Getting there is no problem.
2. My kids, now in their 20s, drive there and spend time with us at the beach. They often bring their friends too.
3. Per your chart, the cost was a little over 20%of our net worth
4. We made settlement on my 60th birthday. At what point do we start enjoying our money? Did we want to wait until 65 or 70?
5. Surprisingly, I accepted early retirement package at the age of 62. I started my blog based on your advice. I built the site and wrote my first 14 posts at my vacation home. I plan to write many more posts there in 2020.
So for my wife and I, at this point in our life, the vacation home makes sense. We are not 100% tied to it. We could rent it out for $25,000 a season, sell it, or hang onto it. Time will tell.