My tenants paid my children’s education fund- childrens education for free?

By Neil Vorster | 1 The power of property investment

childrens education fund

By Neil Vorster 

childrens education fund scolarship

 My tenants paid my children's education fund -  education for free? 

How can a childrens education fund be free? 

How could my tenants really pay for my children's education?

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

Surely a buy to let property is hard enough to acquire and then takes 25 years to pay off before you can sell it to pay for things like education? 

I can best answer these questions by showing you how I stumbled on a way.

Firstly, what is a buy to let property?

Simply put, a buy to let property is a let-able or already let 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 blog to be released soon.

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 on 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!

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 R1 600 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.

Initial Monthly cashflow

Income,

                    less

Expenses


Initial Monthly

Rental


Bond 

Rates and levy

Profit

R 2 300


R 1 600

R   400

R   300

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.

And into the future - my education fund

13 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, last year, this buy to let investment was mature early enough to pay close to 70% of his school fees every month ( Government schooling fee structure).

The recent interest rate reductions have assisted my cashflow nicely, and if he was going to a government high school, I would expect that by grade 9 his fees would be covered 100%.

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. 

Please feel free to ask questions below or email us on neil@organicgrowth.co.za and we will gladly post your comments for 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! 

FAQ 

Frequently asked questions:

How does buy-to-let property compare to an education fund?

How can we work out how much university fees will be in 15 years time when my children are ready for university?

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About the Author

Neil Vorster is a property investment coach, investment author and co-founder of Organic Growth. Aerobatics pilot and cycling nut.

  • Nicole van Niekerk says:

    I have been fortunate enough to have Neil Vorster mentor me in the ways of purchasing property for buy to let purposes. Neil encouraged me to buy my first property at the age of 24 in my own capacity. I was a bit nervous but with some guidance and advice from Neil i signed the offer to purchase. I have never had my unit empty and i started making a profit from day one.

    With a “bee in my bonnet” i could resist buying another property three years later with my then fiance. Neil again gave me advice on this property and we made a profit from day one. Without Neil’s encouragement i wouldn’t be the situation i am in now. I am 29 years old and i own two properties with an income of R1000 combined profit.

    I dont have any children yet but i plan to use these property incomes to fund my child/children education one day.

    • neilvorster says:

      I love it when a plan comes together, Nicole 🙂

      I am looking forward to reading your blog one day, ” My townhouses paid for my children’s schooling and university”

    • Heidi Shuttleworth says:

      Hi, I devoured your blog today as this is just what my husband and I have done for our boys. We went and sat with 2 investment bankers and listened to their shpeel on investement. I turned to my husband one night and said we could do this ourselves with property.

      So far we have 3 properties, one paid off, and the other 2 with 50% bonds on them. We worked out what we could receive in rent and the balance we paid in cash so that the bond repayments would be recovered from the rent.

      I searched google high and low for a mentor and you are the first person I have come across that gets where I am coming from! Everyone else just stares at me with this look on their faces like she is mental doing this herself!

      I look forward to reading more of your blogs!

  • Johannes Mongatane says:

    I am very scared that these words fall on deaf ears. When we come across this kind of information and we see that is really working in the long run we start opening our ears
    Thank you Neil for this information because we thought that in order to do this we need one need million in the bank. I hope I am not alone in seeing this.

  • neilvorster says:

    Heidi

    Your story sounds wonderful and a sad indictment of the options open to people who want to invest to secure their future.

    I have seen the need for mentorship, and have been doing it on an ad-hoc basis for people like Nicole.

    When I started on this investment journey, I had a head start, having been a commercial property broker for more than 10 years. I understood the basic property rules, lease agreements etc, but residential investment was very new to me, and like you I looked everywhere, but alas there were no teachers!

    Now 14 years later, I have owned a residential estate agency that specialises in
    townhouse management, sales and leasing for about 8 years and have a sizable portfolio that I grew out of ZERO cash. My first property was bought in 2001.

    We launched Organic Growth to share the knowledge that I have and to help others to financial freedom.

    If you haven’t done so yet, please subscribe to our blogs (one will be emailed to
    you each week). Or you can accelerate the process and read them on the website…they are all published there as well as emailed to you.

    We have an Organic Growth Mentorship program that we are planning to launch later this month, look out for the notification.

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