childrens education fund
By Neil Vorster
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
Rates and levy
R 2 300
R 1 600
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%.
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!
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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!