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Buying Real Estate, or mutual fund For Your Childs Future?

Having myself a small child I was recently faced with this thought process myself.  Being that real estate investing is obviously my background and I have been fortunate enough to have a lot of success in this sector the choice should seem obvious?  I know with my strategies I have implemented time and time again that if I invest X amount I should generate X return.   I myself personally have completely removed my capital from the ups and downs of the stock market and focus solely on my long term and short term gains in the real estate sector. 

So why would it be any different for the future savings of my child?

In a perfect world of course it would be ideal to diversify and have several eggs in several baskets and for those capable of doing that then by all means do it because that gives the best of both worlds.  However if you are in a position where you have to make a choice for your childs college fund, or future savings of any kind this is something you might have also had to consider.

So what are the benefits of doing it the “Old Fashioned” way?

TAXES, TAXES and more TAXES!  – The government has set it up to give ridiculous tax benefits right now and later on to your child for setting up a 529 college savings plan.

The easiest and most common way to take advantage of this is by setting up the account through an entity such as Trowe Price, or many others.  I only say Trowe price because I ultimately did decide to throw a little money in this direction and they are who I ended up with.  The BIG downside for me is the lack of flexibility.  If you are the type that feels you can add a little value to the overall package yourself then this could be difficult to deal with the realization that your childs future savings are completely dependent upon the  fund management of people you have never met. This is possibly eliminated as a downside if you can structure it similar to a self-direct IRA which has become an exceptional and somewhat more common way to use your retirement account to invest in real estate.

Benefit #2: – Out of sight and out of mind! – For the same reasons I personally do NOT like the traditional model, it also can work very well for many people out there that don’t want to think about their savings everyday.  I say this with complete sincerity and it might sound a bit odd, but truly having your account on auto-pilot and not having to be involved can really be a nice way to have a forced savings account to some extent.  Many of us might have had that exceptional feeling where you even forget you have a small savings account only to find it after not checking for several months and realize there is more money there than you thought you had!  Somewhat like finding a hundred dollar bill under the sofa.

This automation and for diversification purposes (Not to mention the tax benefits are awesome) are why I ultimately decided to place at least a small portion of my childs long term savings in a 529 plan.  But now for the FUN part for me where I personally review why I think real estate should be much more strongly considered as a long term savings option for children:


The dream scenario perhaps for every real estate investor considering this as an option for their child would be a 3 tiered approach.

  • Finding a property that would cash-flow
  • Finding a property that would appreciate
  • And even finding a property that is near the long term hopeful (School, or job) that your child could actually one day live in the home during his/her young adult years

Try finding a mutual fund that can earn you 27% cash on cash for 15 years and then you can sleep in it when youre done!

Real estate assets as this type of investment can actually be a part of a longer tiered approach.  A positive cash-flow property for example could automatically put the monthly rental proceeds in to a mutual fund or direct savings account.  These funds could be saved to buy other properties, pay down the mortgage, OR put in to one of those old school mutual funds I just noted here.  



The great thing about real estate as most of us know is once you get the returns in the form of NET rental proceeds, it is cold hard cash in your pocket!  It doesnt have any risk for going down later like a stock or fund does.  In addition to these monthly proceeds the property WILL appreciate over time.  Real estate purely based on inflation will ALWAYS appreciate over that strong length of time and likely at a MUCH higher rate than the stock market.  You might end up with extra taxes to pay with this strategy but the stronger ROI should hopefully make up for that.

Once more when you invest in the real estate market instead of a piece of paper you have a flexible multi-purpose asset that you can use and adjust the use of throughout your childs life.

I personally also really love the idea of teaching my son or daughter how to collect rent, how to manage the asset and that he or she knows it is theirs and when they work taking care of their property they are investing in their future.  The sentimental aspects for a sappy son of a gun like me are hard to match when comparing this real estate investment to the stock market.

So ultimately as discussed I personally did decide for me that a roughly 90/10 ratio of real estate to mutual funds was the right mixture.

Everyones targets and items might be different but I hope at least those who have not realized it was an option now see the benefit of this as a possible long term strategy and if anyone has any insight on getting me those same tax benefits while investing in real estate please email me as that would make me even happier than I already am about the long term targets!=)

Thanks as always for those of you that read our blogs here and if you are not already on our newsletter please join HERE and we always will try to add some value where we can to your real estate and investing strategies.

Stephan Piscano










One comment

  1. I totally support the idea of investing in what you do. Much like one of Warren Buffett’s primary strategies – invest in what you know. And what you could possibly know more than what you do. Bonus to be able to use that investment as a teaching tool for your son/daughter also. Congrats on thinking this through, recognizing some of the nuances (tax issues) and making an informed decision.

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