Real Estate Investing for Baby

Real Estate Investing That Will Revolutionize Your Baby’s Future

How a small investment grew to $240,000 and also paid for a 4 year University Tuition

7 months after my son was born, his father and I divorced…

What a terrible way to start a story, right?

Sorry about that, but I need to start there so you’ll know where I was financially and mentally, so you can feel how much real estate investing changed a future.

By the way, if you want to jump ahead, here are some jump links:

How the deal came together
What the original payment looked like
How did this lead to covering a 4 Year University tuition?
Where does the investment stand today

Back to the original story:

After the divorce, I was left with debt, and worried about how I was going to create the life I wanted to provide my son..

I was also starting a new career path. I’d left my 8am-5pm career and I had gotten my real estate license so that I would have more flexibility and so that I could work with my mom, a solo Real Estate Broker. Together we could take turns taking care of the baby while we worked.

If you’d have told me at that time that I would be buying a house for that baby just one year later (almost to the day!), I would never have believed you. I had no idea how much real estate investing would change his future and also change my life.

Here’s how I did it, and what it led to….

How to create wealth investing in real estate

The Purchase:

It was 2003. There was a small home for sale (3 bedroom 2 bath, approx. 1100 sq ft) in a cute neighborhood in a growing part of town. It was in good condition and the roof was relatively new.

Being a real estate agent meant that I earned commission when selling a property.

The commission on the house was 3% to the selling agent. I don’t even remember who the client was that I was showing the house to, but they decided the house didn’t work for them. However, I thought it was a good deal.

What I had:

I had a little bit of money saved up. It had been a year since the divorce and I never went out (home taking care of baby), and I didn’t spend much on food (it was boring cooking just for myself), and being a Realtor was going pretty well.

I also had the belief that if the property needed anything (other than a/c, roof, plumbing, or electrical), I could handle it myself. I enjoyed being handy and I felt confident that I could put work into the property if it became necessary.

How it came together:

The houses in the area were selling for approximately $100,000.

This particular home was an estate sale where the children were selling the home of their deceased mother who had lived there for years. She did not die in the home, I know you’re wondering about that

I was able to negotiate the home down to a price of $90,000

At that time you could find an investment loan with 5% down payment. (That’s a bit harder to do right now when real estate investing, but loan products keep changing and down payment amounts change periodically too. So we just have to remain knowledgeable about current loan products)

The real estate commission on the deal was 3% to me. That’s $2700. Normally a real estate agent then splits their commission with their office, but sometimes when an agent is buying a home for themselves, the realty office allows them to keep the commission. In this particular case, I was working for my mom’s office and she was happy to allow me to use the entire commission toward the down payment.

That means I had to come up with an additional $1800 to complete the 5% down payment, and I also had some closing costs to pay. (I did ask the sellers to pay part of my closing costs as part of the transaction.) Using my savings, I was able to purchase the property with less than $3000 out of pocket (not counting the commission since that never even reached my pocket).

I was the proud owner of a real estate investment property that came along with $85,500 in debt. At that time the interest rates were running at around 7%. Isn’t that crazy? Today interest rates are half of that! But, that’s what it was at the time.

So my payment amount looked like this:

Principal and Interest payment $570

Property Taxes and Insurance $250

Total of $820

I secured a tenant for the property who was paying $945 per month. I know that you can’t find a house these days for that kind of rent, but remember this was back in 2003.

The net profit was $125 per month.

This is a small number. Smaller than most investors would recommend. Typically I hear them recommend a profit of $250 per month so that you can build reserves for repairs.

But this was 2003, and $125 per month seemed like plenty to me and the home inspection had indicated no major issues that I was worried about.

And so it started….

How Real Estate Investing Starts to Build Wealth

Every month the tenant paid, the mortgage went down just a little, and I started building up a little cushion in a separate account.

** By the way, I can’t stress enough how important it was for me to set up a separate account for those funds. If I had put that money into my account, I would have definitely ended up using it. Money was tight and it would have been easy to spend. But the fact that it was in a separate account, which I knew was growing for my son, and which I could see inching upward every month, was really motivational. It doesn’t cost anything to open a second account, so just do it, and you’ll feel differently about that account.

Want to see the actual Excel spreadsheet showing the income, expenses, and accumulating profit for the past 7 years? Fill out the Password Library form at the bottom of this page. You’ll have access to the personal financials on some of my transactions (so you can see how it really works). You’ll also have access to free downloadable forms that you can use in your real estate investing.

So how did this lead to covering a 4 year University tuition?

This is where things get more interesting and where the real estate investing creativity comes in (thanks mom for the idea!).

It’s not like I just used all the savings and didn’t think about college. There was, at that time, a program in our area called the Florida Prepaid College program (I don’t recommend it because the current investment plans seem to be a lot better and give you more options). Anyways, at that time you could contribute into your plan using monthly payments and when your child is ready for college, their 4 years at a State University are completely covered. I enrolled Eric into the 4 year University payment plan. The payment was $65 per month.

So, the account where I had the $125 of rental income accruing every month then had an automatic monthly deduction of $65 per month. Leaving the monthly income at a whopping $60 per month. But, the house was gaining in value, the mortgage was being paid down every month, and his University was being completely prepaid! Totally worth it.

Could things have gone wrong? Yes, real estate investing has risks. There could have been expensive repairs or a non paying tenant. However, the tenants were screened well and there were no major issues with the house (knock on wood). Well, there was one plumbing leak under the slab years later but it was covered by insurance. They even paid for some new flooring in the house. I did have my own savings that I was working on in case this house needed anything. The little account started to grow bit by bit.

In 2013, interest rates were much lower than they were when I purchased in 2003. I was able to refinance the property at a 4.25% interest rate. That was after 10 years of payments at 7%. The loan balance after paying for those 10 years was $69,750. The lower interest rate allowed me to go to a 15 year loan when I did the refinance. Lowering that interest rate made a HUGE difference. The Principal and Interest payment actually dropped to $525

That’s LESS than when I was paying to start with. The refi also allowed me to shorten the mortgage term.

What does this mean today?

Long term real estate rental investment

So, as we sit today, I’ve made rental increases but not big ones at all. You see, I’ve had the same tenant in the house for about 8 years already. She doesn’t complain about little things and I don’t give her any big rental increases.

She pays $1125 per month

My current monthly payment is:

Principal and Interest Payment: $525

Property tax and insurance: $315

Total of $840

That means there’s now a monthly net profit of $285.

My son is now 18 and in the University. This means that I no longer have the $65 coming out of the account every month for the Florida Prepaid. Now money accumulates in the account. This has been good because we have had some expenses now that the home is getting older. There’s also been enough left over to allow for me to make a few extra payments toward the principal balance of the home. It should be paid in full by 2026.

At that point, my son will hopefully have graduated college and gotten his MBA (that’s his current plan). He’ll have a home that is fully paid off that he can:

  • Live in,
  • Continue to rent and gain passive income from, or he
  • Could sell it when he’s ready to start a family of his own and buy a different property.

The house is currently valued at approximately $240,000

Pretty amazing to think of everything that was accomplished with some scrimping and saving and commission money.

That 5% down payment ($4500 at the time) plus some closing costs, is leading to a $250,000 home (free and clear) plus 4 years of University education.

I really hope this has helped you to think about the flow of money in a slightly different way. I could have just paid the $65 monthly for the college plan, and never taken the risk of real estate investing. But look at everything I would have missed out on. Buying an asset that would pay for the college plan itself was so much more financially rewarding and freeing.

Let me know if you’ve done something similar and message me with any questions!

Want to see the actual Excel spreadsheet showing the income, expenses, and accumulating profit for the past 7 years? Fill out the Password Library form at the bottom of this page. You’ll have access to the personal financials on some of my transactions (so you can see how it really works). You’ll also have access to free downloadable forms that you can use in your real estate investing.

PS–My son also loves real estate investing! At the age of 18, he just completed his first condo flip. You can view that (step by step) here. You can also take a peek at the expense sheet and final profit.

Eric’s First Condo Flip, Start to Finish

Here’s the sign up form if you’d like to subscribe to the blog, get more info, and view the financials:

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