The tenant pays it off

A college savings plan compounds the money you put into it. A rental property compounds the whole house, and somebody else makes the payments. Over eighteen years that difference is not small.

The idea is plain enough that people wave it off. A child is born. You buy a modest rental somewhere in this region, not a trophy, something that actually rents, and you hold it eighteen years. At the end there is an asset, and it is not earmarked: tuition, or the down payment on a first house, or the house itself, or nothing at all if the child turns out not to need it.

Why it should not be earmarked

A 529 can only ever be education. Money pulled out for anything else takes income tax plus a ten percent penalty on the growth, and while the rules have loosened at the margins, the instrument is still built on an assumption about a child who has not been born yet. Plenty of children do not go to college, and deciding that at their birth is a strange thing to have to do.

The other use is the one getting harder every year, and the numbers are not subtle. In the National Association of Realtors survey covering July 2024 through June 2025:

A fifth of first-time buyers are already being helped by their families. That help is mostly ad hoc: a wire from a parent's savings at the moment of the offer, funded by whatever the market did in the meantime. What is being described here is the same help, decided eighteen years earlier, with a tenant retiring the debt in between. It is not a novel idea. It is a scheduled version of something a lot of families already do in a hurry.

And if the child does go to college, none of this is wasted. The asset does not care what it is spent on.

The arithmetic, worked out

Take a $400,000 townhouse at twenty-five percent down, on an investor loan at 7.4 percent, roughly three quarters of a point over the owner-occupied rate. That is $100,000 of your money controlling $400,000 of appreciating property, which is the entire mechanism. A savings plan can only ever compound the hundred thousand.

The FHFA All-Transactions index for Washington, Arlington and Alexandria stood at 100 in the first quarter of 1995 and 392.54 in the fourth quarter of 2024. That is a compound annual rate of 4.70 percent across not quite thirty years, and it is worth being clear about what that period contains: the run-up to 2006, the crash, the long recovery, and the pandemic surge. It is not a bull-market number.

At 4.70 percent the house is worth about $914,000 in eighteen years. The loan, amortising on schedule, is down to roughly $198,000. Gross equity is about $717,000.

The shape of it, which is the part nobody explains

It does not feel like a good investment for about a decade. Rent on that unit starts near $2,500 a month. The all-in cost starts near $2,985: principal and interest of $2,077, property tax and insurance, nine percent for management and vacancy, and eight percent set aside for turnovers and the roof. Year one loses about $485 a month.

Then the arithmetic turns, because rent rises and a fixed-rate mortgage payment does not.

That eight percent reserve is not padding, and leaving it out is how these plans fail. Over eighteen years a rental will need a roof, at least one HVAC system, two or three full turnovers, and an appliance suite. Modelling this with no capital reserve produces a number that is roughly forty thousand dollars too optimistic and it is the most common error in the genre.

What it might mean for you

If the child is very young. Time is the whole asset here and it is the one thing that cannot be added later. The difference between starting at birth and starting at eight is not eight years of appreciation, it is eight years of someone else retiring your principal.

If the child is already twelve or fourteen. The case gets materially weaker, and not mainly because of appreciation. A six-year hold means the transaction costs are spread over a third as much time, and it puts the sale inside a window you cannot choose. At that point a savings plan is probably the better instrument and there is no virtue in forcing this one.

If you want the asset rather than the money. Nothing requires a sale. At year eighteen the loan is nearly retired and the unit is producing real monthly income, which is a different kind of gift than a cheque and one a savings plan cannot make.

And eighteen is when the option opens, not when the clock runs out. A twenty-two year old rarely wants to live in the rental their parents bought. A thirty year old, looking at a median first-time buyer age of forty, may feel differently about a house that is nearly paid off. Holding it another decade costs nothing and keeps every option available, including the one where the child simply moves in and inherits a payment no one their age could otherwise reach.

What a savings plan does better, and it is not nothing

Its growth is tax-free for education and this is not. It de-risks itself automatically on a glide path as the child approaches eighteen, where a house does not, and a house does not sell on a schedule. Anyone who needed this money in 2009 found that out. Contributions may draw a state tax benefit depending on where you file. And a plan is a form you fill out, where this is a small business with a tenant, a roof, and a phone that rings at inconvenient hours.

There is also a plain question of temperament. A rental held for eighteen years will at some point involve a vacancy you did not plan for, a repair you did not budget, and a tenant dispute you did not want. Some people find that entirely tolerable and some find it genuinely miserable, and knowing which you are is worth more than any of the arithmetic above.

So which is right depends on whether you want a savings vehicle or a second job, and on how much time is left. Eighteen years is a long time to be right about anything, which is the honest argument for doing some of both rather than choosing.

I am not a financial adviser and this is not a projection anyone should treat as a promise. What I can do is tell you what a given unit is likely to rent for, what it will actually cost to hold, and whether the building or the block is one I would put a client into for eighteen years. That part is the part I know.