No Down Payment Mortgage & How to Get One

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When you start them early enough, your investments can perform shocking feats of strength. They can even keep pace with the runaway cost of college tuition—which has more than doubled since 2000. The average cost of private college tuition and fees has reached $38,768, according to the Education Data Initiative, and you can expect that to keep skyrocketing between now and when your little one reaches college age. 

Fortunately, real estate can help. Try these creative approaches to paying for your kids’ college education so you can stop worrying and start getting excited about your children’s university years. 

1. Let Your Tenants Pay for Tuition

Imagine that the year your child is born, you buy a rental property for $360,000 and put down 20% on it. You borrow the rest ($300,000) with a 30-year mortgage at 6% interest. 

Here’s how the next 18 years of property equity look:

(Insert chart here: Property Equity Over 18 Years (30-Year Loan))

After 18 years, you now have $554,870 in equity. That’s a tidy sum to pay for tuition, hopefully with plenty left over to go toward your retirement. 

Your tenants have paid down your mortgage balance even as your property has appreciated in value. I assumed a 4% annual appreciation rate. For context, U.S. home prices appreciated an average of 4.8% annually from 1987-2023. 

Oh, and that says nothing of your cash flow. Your rents have risen alongside inflation, even as your mortgage payments remained fixed. Your rental property should be paying a princely sum each month by now. It probably cash flows so well that you won’t want to sell or refinance it.

If you want to get even more aggressive with paying down your loan balance, you could buy with a 15-year mortgage. Just beware that your cash flow will take a hit. Here’s that chart, too:

(Insert chart here: Property Equity Over 18 Years (15-Year Loan))

2. BRRRR: One Down Payment to Rule Them All

If you wanted to get more aggressive with your rental strategy, you could follow the BRRRR strategy (buy, renovate, rent, refinance, repeat). The idea is that you force equity through renovation, then refinance to pull your initial down payment back out. 

In the example, you still had to plop down $60,000 plus closing costs—no trivial amount. Imagine instead that you buy that property’s run-down neighbor for $240,000, put $50,000 into renovating it, and borrow the same $300,000 mortgage. 

You end up with all the same long-term numbers for appreciation and rental cash flow. But now you don’t have a penny tied up in the property. You can reinvest that money in stocks, syndications, or more rental properties. 

In fact, you could repeat the same BRRRR process indefinitely to generate infinite returns. Because there’s technically no limit on how many times you can recycle and reinvest the same capital, there’s technically no limit on your returns. 

3. Infinite Returns on Real Estate Syndications

The BRRRR strategy comes with a huge drawback: It requires a lot of labor. Sure, you can get your money back out of each property, but your time? That’s gone forever as a less visible but no less real part of your investment in each property. 

Some passive real estate syndications follow a similar strategy, just on a far larger scale. A syndicator buys a dilapidated apartment complex, renovates and repositions it as a higher-end property, and leases the units for much higher rents. They then refinance it and return passive investors’ initial capital—but all the passive investors retain their ownership interest. 

In other words, you and I get our money back, which we can reinvest elsewhere. But we also keep collecting cash flow from the original property. 

Many syndications target annualized returns in the mid-teens or higher. Here’s how your investments would compound over 18 years if you invested $5,000 per month at 15% returns:

(Insert chart here: 15% Compounding Returns on $5K/month)

“Uh, don’t most syndications require a minimum investment of $50,000-$100,000?” 

They do indeed—if you invest by yourself. That’s why I don’t. Our Co-Investing Club meets every month to vet deals together, and members (including me) can go in on them together with $5,000 or more. I use it as a form of dollar-cost averaging, a way to consistently invest more manageable amounts each month in high-performance real estate investments. 

And the math shifts even more to your favor when you get your principal back to reinvest again and again. But that’s messier to project forward into the future, so we’ll leave the graph at the standard compounding rate. 

Besides, we invest in other types of passive real estate investments, such as private partnerships, private notes, debt funds, and more. Infinite returns sound great on paper, but I’m more interested in finding asymmetric returns. 

4. Flip Houses with Your Teens

As your kids get closer to college, you can involve them in paying for their own higher education. 

Flip a few houses with them. The profits from each house you flip could cover the cost of tuition for a year or more. 

Even better, your teen will learn real-life skills such as forecasting ROI, negotiating, budgeting for projects, managing contractors, navigating bureaucracy such as permits and inspectors, and home improvement. 

And maybe they’ll actually show up for those 8 a.m. classes if they helped pay for them by swinging a hammer and sweating all summer. 

5. Kiddie Condo House Hacking

It turns out there’s a loophole for owner-occupied mortgage financing: Your adult children can satisfy the occupancy requirement. 

That means you can buy student housing for them and their roommates with a primary residence loan. And their roommates can cover the mortgage payment for you, removing the need for either you or your child to pay for housing. 

Again, your kids can learn some real-life skills, such as property management. Just make sure you only partner with them if you can trust them to manage an asset worth hundreds of thousands of dollars.

When they graduate, you can decide whether to keep the property as a rental or sell it and hopefully walk away with some profits. 

6. Roth IRA Real Estate Investments

Roth IRAs offer more flexibility than any other retirement account. You can withdraw contributions at any time, penalty- and tax-free. You can even withdraw earnings early if you put them toward qualified education expenses, such as:

• Tuition and fees
• Books and other school supplies
• Equipment required for attendance
• The cost of special needs related to attendance

Imagine you invest in passive real estate investments for those 15% returns in the chart through a self-directed IRA. After 18 years, you decide you have enough to spare to help your kids with tuition—and so you do, tax-free. 

Just make sure you actually can spare it. Your kids have dozens of ways to pay for college. You only have one way to pay for retirement. 

Look Into Creative Combinations of Real Estate Investments

You can mix and match all these strategies, like Lego sets, to build an education fund. And these are just the tip of the proverbial iceberg. 

Have you considered house hacking your own residence? You don’t necessarily need to move into a multifamily or bring in a housemate—my cofounder at SparkRental and her husband hosted a foreign exchange student, and the stipend covered most of their mortgage payment. Or you could add an ADU. Or you could rent out some or all of your home as a short-term rental, perhaps even when you’re not using it. 

As mentioned, it helps if your kids have some skin in the game. Make them contribute in some way, and make your help contingent upon performance. That could mean a minimum GPA or some other metric to make sure they don’t take your help for granted. 

Get creative with paying for college with real estate. It doesn’t have to take a huge bite out of your net worth, but it does require advanced planning, thoughtful strategizing, and clean execution.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.