How can I afford to school my child?

By Neil Vorster 

An Investment solution is required to the question that is asked over and over by parents in all economic spheres of our wonderfully diverse South African population.

The less affluent parents’ only hope is local government non-fee-paying schools, which include most peri-urban, township and rural schools.

Parents living in more affluent areas have access to expensive private schooling or fee paying government schools. These fee paying public schools have differing fee structures;

In a recent news24 article, Paul Colditz, the CEO of the Federation of Governing Bodies of SA Schools (Fedsas),  said fee-paying schools were divided into three categories.

The first charge between R5 000 and R12 000 a year and have few sports facilities, extramural activities or additional subjects.

The second charge up to R20 000 and offer above-average sporting facilities, extramural activities and additional subjects.

The highest category of schools, he said, cost up to R31 000 a year and were attended by wealthy children who enjoy the best sports facilities, music classes, teachers for extra subjects and a wide array of extramural activities.

Private Schooling

The costs of private schooling are much higher and also varies greatly dependent of facilities, reputation and location. This year, 2013, expect to spend between R50 000 and R80 000 per annum for primary school and R100 000 per annum for high school.

When one looks at the costs, it becomes evident that no amount of frenzied saving up will pay for your child’s school fees, so what does one do (apart from the obvious – work hard earn a lot and be able to afford the fees out of your monthly budget)?

My solution

In a recent article published by news24 I explained how I used two buy to let properties to finance my two daughters’ university educations, but this article is about an investment solution to pay for schooling. Here is my plan for my six year old son’s education.

We live in an area which has a number of very good fee-paying public schools, so my son will be starting school next year at a public primary school with fees of R 16 000 per year. We are able to afford this so we have not had to make provision for the costs of his junior schooling.

We then plan to send him to a private high school or high category fee-paying public school with fees of upwards of R 30 000 per year (in today’s money) and it is to finance these costs that we are planning to make use of a buy to let investment property solution.

In 2007, when my son was born, I purchased a small townhouse in Bryanston for R290 000. I obtained a 100% bond, so the only cash I had to invest was the amount required to pay for the bond registration and property transfer costs. If my memory serves me correctly it amounted to roughly R 15 000.  For the first two years, I had to subsidise the bond and levy costs by a few hundred rand per month and thereafter it has run at a net monthly profit.

The beauty of budgeting into the future using well located residential property is that the property values and rentals keep pace with or beat inflation. My townhouse is in Bryanston, so I can expect it to grow in value at a rate significantly higher than the national average.

Knowing that property values and rentals keep pace with inflation, lets to the calculation based on today’s costs.

I am going to need R 30 000 X 5 years= R 150 000 and I plan to raise the money by taking a second bond on the property when it is required.

We bought the property 5 years ago and despite the biggest property slump in years, it is already worth R 450 000. That is R 160 000 more than I paid for it!  In investment speak, I would say we have R 160 000 worth of equity in the property due to the capital growth.

I am very comfortable that this very well placed property will continue to grow in value so that when I need the money, a second bond will easily fund his high school education.

The next question is how do we pay for his university… simple, university comes 6 years later, and the property will have grown enough in value to enable us to obtain a third bond to pay for his university—the same strategy that I used to finance my daughters’ tertiary education.

There is an added bonus to financing your child’s education this way. By keeping them informed through the whole process, you effectively coach them in the principles of property investment. This is an education they won’t get anywhere else! Click here to see my daughter, Sam’s response to this approach.

Has this article given you hope or helped you strategise?

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