Teaching your kids about real estate is important. Here’s a guide on things to ponder.
15-Year vs. 30-Year Mortgages
Different investors have varying views on this. Two separate investors brought up an interesting reason to have a 15-year mortgage: paying for college. They mentioned that putting the house on a 15-year mortgage means they will be paid off before the kids leave for college. Buying houses when the kids are tiny, and then doing the “sweat” equity of managing them. While requiring a lot of money in starting costs (down payments for investments are 25%), if managed well, the houses could be fully paid off with just the tenants’ income and your sweat equity. So, win/win — plus, they are “locked” down for college education so there are multiple paths by which one could use this investment later. One real estate investor said they plan on not telling their kids that they are paying for college because they want some “sweat equity.”
Teaching Kids About Real Estate
So that brings another idea. What about buying a house for each of our kids and TEACHING them how to manage the home? From painting/laying tile to screening the tenants to using to a 1031 exchange. Instead of just running the property for them, we would teach them how to run their own. This would hopefully instill the value of money and hard work while not taking away from their educational responsibilities.
All this brings a question: If you are just teaching your kids “book” smarts, are you failing at your kids’ educations? Those skills are what got most adults here today, which leads back to the question. If you were to buy each of my kids a house at their birth (or shortly after), put it on 15-year mortgage and teach THEM to run it, with the 15-year mortgage, that would give them 3 years of cash flow before they went to college. Over the years we could discuss reinvesting, growth, etc. Would you be providing them both the money and skills to succeed, rather than just giving them money when they get into their dream school? You’d even be giving them the tools to realize the “costs” of college education.
Real estate is important to us. Visit our location at 3695 South Sare Road, Bloomington, IN, 47401. Or call us with any questions at: (812)332-3001.