I Bought My Kids Houses. The Reasons Will Surprise You

But from an economic standpoint, the investment is probably far less than you might think, and the rewards are likely far greater.

How we did it

So, how did we make this all work financially? Ultimately, it boiled down to careful budgeting and planning.

We set a modest housing budget for each child based on the local real estate market and our financial comfort level. We bypassed high-end properties, but the residences needed to be in good condition and in safe neighborhoods. We prioritized locations near campus, to ensure the properties would be attractive to future student renters.

In Austin, we aimed for properties around $200,000 to $250,000. Aziza’s home, located in the charming Hyde Park neighborhood just north of campus, cost $210,000. We wound up shelling out $25,000 from our savings account to secure the property: a 10 percent down payment, or $21,000, plus about $4,000 in closing costs. The mortgage we obtained was a 30-year, fixed-rate loan at 4.5 percent.

In Raleigh, our budget was lower due to different market conditions and our desire to ensure that we didn’t overextend ourselves. Personal circumstances, timing factors and North Carolina rules about securing in-state residency all loomed large in our decision making.  

In June 2019, my husband, youngest daughter and I moved from New Jersey to the suburbs of Houston. We bought a new primary residence, and we still have a mortgage on it. A couple months later, we purchased Jakada’s townhouse, located minutes from NC State, for $158,000 in cash. I wouldn’t recommend that to other parents, but we were facing a tight deadline. We had to close on the property by August 2019 to ensure that Jakada lived in the house for one full year, making him eligible for residency and in-state tuition when school started the following August.

When our mortgage lender kept dilly dallying about closing our loan on time, we opted to use personal savings and do an all-cash purchase. That might seem like a drastic maneuver and, in retrospect, it was.

But we did it, knowing that it was temporary. We had excellent credit, and got 100 percent equity in the property immediately, so we had confidence that we’d be able to quickly secure a so-called “delayed financing” mortgage. It’s basically like a cash-out refinance. The plan was for us to keep 20 percent equity in the Raleigh house, and get a cash-out mortgage giving us back 80 percent of the funds we’d paid doing the cash deal.

Once again, it all worked out. We subsequently went to another lender and got a 30-year, fixed-rate mortgage on the property, also at an interest rate of 4.5 percent. The payment on the property was a modest $619 a month.

To pay for ongoing housing costs, we required our kids to have roommates and charge them rent to cover the mortgage, taxes, homeowners association fees and insurance costs. This point is crucial, since the rental income effectively eliminated the housing costs while our older two children were in college. For example, the mortgage payment, taxes, insurance and HOA fees on Aziza’s condo added up to $1,400 a month, and her two roommates collectively paid $1,400 in rent, fully offsetting the costs.

Aziza shared her room in the condo, just like she did in the college dorm her freshman year. But the big difference was, had she remained in the dorms at UT, on-campus student housing would have set us back about $1,000 a month — and we wouldn’t be building equity in a real estate property.

What we gained

Overall it’s been a win-win situation: we didn’t have to waste money on dorm fees, and our kids learned about the rights and responsibilities that come with homeownership. Specifically, Jakada had to troubleshoot home maintenance issues, such as a patio leak and a faulty dishwasher; Aziza joined the board of her homeowners association, getting a first-hand look at the decision-making and intricacies of an HOA.

Not only did we save gobs of money on tuition and housing, but the properties have also appreciated tremendously. The $210,000 Austin condo we bought in 2017 for Aziza is now valued at roughly $340,000, an increase of more than 60 percent. Jakada’s Raleigh townhouse today is worth nearly $300,000, about a 90 percent gain in just five years due to the soaring home values over the last few years.

But the benefits go beyond dollars and cents. By purchasing our children their first homes, we’re empowering them to achieve long-term financial security. They’ve built equity, established good credit and gained invaluable experience in property management and financial responsibility.

This approach aligns with research showing the importance of homeownership in building generational wealth. One recent NAR report found that homeowners have 40 times the household wealth of renters. By giving our children a head start on homeownership, we’re hoping to break the cycle of wealth disparity that has long plagued the Black community.

Our “Wealth Starter Kit” concept also served as a powerful motivator for our children. We made a deal with them: if they attended a public college, maintained good grades and stayed on the right path, we promised to put them through school debt-free, buy them their first house, and even throw in a car. (Earl jokingly told our kids, “You get the car so you can drive away. We don’t want you living in our basement.”)

By helping our children avoid student loan debt, we’re also enabling them to start their adult lives on solid financial footing.

Tips for other parents looking to accomplish what we did

To be clear, our strategy isn’t without its challenges and limitations.

For one thing, a parent would need the available funds to front the money for a property. Home lenders typically want a minimum 10 percent down payment if the unit is classified as a family home or second home, and 20 percent down if it’s an investment property. Your credit must also be in good shape, and your debt-to-income ratio satisfactory to a mortgage lender; generally, lenders look for a credit score of 620 or higher (preferably 700-plus) and a maximum total debt-to-income ratio of 43 percent.

Separately, if your main goal is to lower tuition, this strategy only works for those with kids going to out-of-state public colleges and universities, since private schools charge the same tuition rates to all students, regardless of residency. On average, four-year public institutions charge out-of-state students nearly three times the tuition charged to in-state residents, the latest data from the College Board show.

Finally, many states have strict residency requirements for in-state tuition eligibility. In Texas and North Carolina, for instance, a student must “establish domicile” for a minimum of 12 months before they’re eligible for in-state tuition.

If you’re interested in exploring this strategy, FinAid.org provides comprehensive information about in-state tuition policies across different states. 

The surprising impact on our retirement plans

As we approach retirement age, some might wonder if our strategy of buying homes for our kids has negatively impacted our financial security. Surprisingly, it’s had the opposite effect.

Real estate has become the cornerstone of our retirement plan. We now own eight properties, including those we’ve purchased for our children. The rent we collect for the properties that we bought for our kids provides a steady stream of passive income, supplementing our retirement savings.

In sharing our story, we hope to inspire parents of all backgrounds and socioeconomic levels to think creatively about how they can position their children for financial success. While buying a house outright for your child may not be feasible, perhaps you can help them save for a down payment, teach them about investing and homeownership, or simply guide them in making smart financial decisions.