Two months ago, my wife and I welcomed Rosie into the world — our first child. Last week, I had her entire college education paid for without spending a single dollar of my own money. How? Through a single real estate investment.
The theoretical plan was simple, if not necessarily easy:
- Buy a piece of property.
- Let my tenant pay off the mortgage over the next 18 years.
- Sell or refinance the property after it has been paid off.
- Use the proceeds to pay for my daughter’s college tuition — or whatever future she wants.
In my case, I purchased a four-unit property in my local area. Fixed up, it should be worth around $160,000 in today’s market; and assuming an average increase in inflation of around 3 percent, I estimated the property to be worth around $275,000 in 18 years. This should be more than enough to cover four years of Rosie’s college education — or if she chooses not to go to college (which I would support wholeheartedly), provide the funds to start a business.
The beauty is, I’m not the one paying for it — my tenants are. Each month, the mortgage is paid down lower and lower, but the funds are coming from the rental income on that property. At the same time, the value of the property will likely climb each month to keep pace with inflation — increasing my wealth (and Rosie’s college fund) each and every month.
What’s even better, I bought this property for no money out of my own pocket. Sure, I could have put down a large down payment, but real estate is so much more fun when you can put together a deal using only other people’s money. For this particular purchase, I used a private money lender to fund the entire purchase and a rehab of the property.
Once the property has been completely remodeled, I’ll refinance the loan into a long-term, fixed-rate mortgage with a local bank. I call this the “BRRRR Strategy” (buy-rehab-rent-refinance-repeat), a strategy I’m very fond of and discuss in more depth in The Book on Rental Property Investing.
Four Steps to Success
Of course, this strategy is not going to work for just anyone who buys a piece of real estate. Instead, it took several key steps.
First, I had to find the right property — perhaps the most important step in this process. So, I spent a good amount of time prospecting for potential deals in my local market. This property came from a direct mail letter I sent to the owner several months ago. I determined my maximum allowable offer based on a thorough analysis of the property and negotiated hard to get the deal I needed. In real estate, you make your money when you buy — so don’t underestimate the importance of doing a proper analysis on any real estate deal.