By Neil Vorster 

My tenants paid my childrens education fund -  education for free? 

How can a childrens education fund be free? 

How could tenants pay for my children's education?

Or, how one can get your children's education fund for free?

When suggesting buy to let property as a solution, the objection normally arises, "Firstly, it is difficult to find and acquire a good property investment and then it takes another 25 years to pay off. Only then you can sell it to pay for things like education." 

Let me show you how I stumbled on the solution.

Firstly, what is a buy to let property?

Simply put, a buy to let property is a  property that one acquires for the sole purpose of leasing out to tenants for the sake of investment.

When I first started buying townhouses I searched far and wide for mentors but found a dearth of teachers and educational material on the subject.

 I had read Robert Kiyosaki’s book, Rich Dad Poor Dad, which helped me tremendously, but it did not give practical, local, South African property advice. Still, I could see enough of the benefits to disregard the bad stories that I had heard about investing in property so I went ahead and took the plunge.

One of the first mysteries I came across was how to own the properties – in my personal name, in a cc, a company, or a trust? My answer depended on who I talked to, so I did a bit of everything, which is subject for another time. There is no one-size-fits-all solution  as every person has different situations and requirements. We deal with this in detail when I coach new investors. 

The Education Problem

At the time (2001), I had two daughters approaching their teens with private school fees and university fees looming. If I only had a Rand for every time a parent had said to me, “our child starts school/university next year, how does one save for your children's education?

"Oh well, no more holidays for us - and time for bread and water rations”.

And unfortunately, they are right to be concerned. 

Let’s face the facts, and see what a year at university costs in today’s money (2021):

• University fees              R  45 000
• Books,stationery            R   8 000
• Residence                       R  50 000
• Pocket money                R  22 000
• Total                                 R 125 000

A four year degree therefore amounts to approximately R500 000 in today's money!

Companies like Old Mutual mutual offer various educational funds which are essentially savings accounts which offer return on investment approximately equal to inflation. The trouble most of us find ourselves in, is how do save R 500 000 or R600 000 in the next 5 years?

After all, if you can save R 10 000 per month on top of your existing monthly expenses, then you probably don't need an education fund!

The Education Fund Solution

In keeping with, what I called educated experimentation; I acquired two, one-bedroom townhouses in Morningside Sandton in 2002. I was fortunate enough to get a bargain, buying them for R130 000 each including transfer and bond costs (R50 000 less than their market value). 

The bank happily granted 100% bonds so bond repayments were approximately R1600 per month and levies R400 per month.

Both units were already let to tenants for approximately R 2300 per month (plus water and electricity), so the buy to let property formula worked well and from the first day of ownership my rental income paid the bond and levies every month.

In this eNCA television Interview, I briefly tell the story of how I started in Buy to Let Property and how I used property to pay for my daughters education plus how the properties have secured my retirement 

Below is the initial monthly cashflow per property back in 2002 showing that from day one I was earning a monthly profit.

Bear in mind that I obtained 100% finance so I had invested zero of my own cash to buy the property and the monthly rental covered all my costs, and I was making a profit of R 300 per month per property on a free investment. 

I had my fair share of struggling with bad paying tenants while I was still green in the buy to let market, but my rental deposits were sufficient to tide me over the humps.

 Each year the rentals increased, and happily for me the bond interest rate came down, creating a very positive and increasing cashflow situation each month.

When my daughters finished school and each had complied with the socially accepted semi-compulsory gap years 🙂 , it was off to university.

To fund this new activity, I applied for second bonds on both properties. I bonded the properties to the limit at which the new bond repayments were still covered by the now escalated rental income.

Today (nearly a 20 years after I purchased the properties) I can happily report that my eldest daughter finished a 4 year arts degree at Wits University  and my second daughter is finished her 4 year degree in nature conservation.

Thanks to the two buy to let properties, they both enjoyed the benefits of a full scholarship including tuition, residence fees, books and pocket money without their daddy having to put his hand in his own pocket once!

Wait…I lie, I did pay for an attorney to register my trust back in 2002.

For detailed insight into all the numbers of a buy to let property, watch this video

And into the future - my other childrens education fund

15 years ago, God blessed me with a son and one of the first things I did was go out and buy him an education fund in the form of a small Bryanston townhouse.

The market had changed a bit, so I had to subsidise the rental by about R 20 000 over the first two or three years of ownership. In the final year of his primary school, , this buy to let investment was mature early enough to pay close to 70% of his school fees every month (Government schooling fee structure).

If he was going to a government high school, (grade 9) his fees would be covered 100% by now. He is now in a private school, so this property only pays a portion of his monthly school fees.

By the time he gets to university, my options will be to continue paying the university costs with monthly rental income (which is not very tax effective), or simply refinance the property like I did for my daughters.

SCAM ALERT

If somebody had told me when my son was a toddler, that a R 20 000 investment would pay most of his school fees and his entire university career, I would have laughed and called it a scam!

If this childrens education fund strategy excites you, subscribe to Organic Growth (it’s free), and we will teach you how to do the same for your children this way. 

We offer free video based training, click here to get started on your free training

Please feel free to ask questions below or email us on info@organicgrowth.co.za and we will gladly assist you.

This story was posted by News24 on 11 July 2013 and revised in January 2021

Another media article on Fin24 published  my daughters response to this article. She responded to somebody calling me lucky!