How I’m Investing for my Son 📈

In 2 days, I’m hosting a free real estate investing class with former financial advisor Jaime Ramirez. We are going to be covering how you can get into your first fix and flip even if you don’t have any money. The class is 7pm-8pm Eastern time and will not be recorded. It’s totally free but spots are limited, so if you’re interested make sure you reserve your spot today! Register here 

Hi there! It’s been a bit since my last post, sorry about that 😕 Since I last sent out a newsletter, I had baby!! Life looks a lot different now in a lot of ways, and my finances are no different! So here’s what I’m doing with my money now to help my son financially in future!

Step 1

I’m not the type of person that believes you will only be successful if you go to college. With that said, I also believe you HAVE to go to college for certain professions - think Doctors, lawyers, accountants. So I’d like to have some money set aside to pay for school if that is something that my son would like to do in the future. Why start saving today when he’s only 1 month? Because that means I don’t have to set aside as much since the money will have time to grow. If I set aside $10,000 today for college (let’s face it right now that’s not even the cost of 1 semester these days) after 18 years that could grow to over $55,000. You can use a compounding interest calculator to help you come up with these estimates.

But Neyra, $55,000 won’t be enough for school either. Well, the great thing is you can invest more! That was just an example of why I would rather invest $10,000 today, when he’s still a baby, rather than wait until he’s 18 to come up with $55,000.

So how would I do this? I could just open a separate brokerage account, invest that money, and know that account is earmarked for my sons college fund - but that wouldn’t come with any tax benefits. This is where a Qualified Tuition Program (also known as a 529 plan) and a Coverdell Education Savings Account (Coverdell ESA) come in.

These are slightly different accounts but work in a very similar way. They’re both accounts meant to help pay for a beneficiaries education (in this case my son, but it doesn’t haven’t to be your child). You contribute money into these accounts, generally there is no deduction federally, however, contributions a 529 plan may be deductible on your state return. You invest the money, like other investment accounts these are just accounts, and the money can grow tax free. Then, as long as the money is used towards qualified education expenses, it can be spent tax free. This isn’t just for college either since qualified education expenses can include elementary-college. For more information on these programs look up Publication 970 on the IRS site.

Step 2

Buy a rental property. A quick Google search tells me 95% of millionaires own real estate.

Almost every millionaire owns real estate, do you know why that is? Because it can build wealth (multiple ways at once), be a source of passive income, and, the best part, it comes with sooooo many tax benefits. Let’s talk about it.

My plan is to buy my son an investment property this year and rent it out. Each month, he will be earning rental income. I can save this, invest it, or use it to cover his monthly expenses. I would expect to make money two ways: 1 - rental income (money coming in > expenses) and 2- equity growth.

Even if the property never goes up in value, which will probably not be the case due to inflation, the equity is growing. That is because of the loan pay down. Someone, the tenant, is paying down the loan every month. So each month, the difference between what the house is worth and what is left on the loan gets bigger. This is also known as equity, and as the years go by it will continue to grow.

Now once my son is done with college he will have a few options on what happens to the property next. We can leave it as a rental and he can keep getting monthly income passively. We can sell it and he can use the $$$ for another rental (tax free by doing a 1031 exchange), for a wedding, or for a down payment on his first house. Lastly, we can do nothing and I can add it to my estate plan to leave to him tax free.

I hope this gave you a glimpse of just how powerful real estate can be in creating wealth. If you want to learn how to acquire your fix and flip property and start creating generational wealth for your family, don’t forget to sign up for my free class with Jaime Ramirez. Jaime is a local real estate investor in my area and we’ve been hosting free classes to help people get started investing in real estate. The next class is 8/7 at 7pm Eastern, you can find registrations details here. Like I said earlier, the class is free but capacity is LIMITED, so make sure you reserve your spot today!

Step 3

Other investment accounts. This is something I want to do as well, but I need to do some research here. I need to be mindful of what accounts I actually open for his as those investments could be factored into his FAFSA application and affect any chance of financial aid. So more to come on that!

I hope this helped get you start thinking about how you’d like to create wealth for your loved ones. See you next week!

-Neyra