How can I leverage college money for an inv. to afford college?

[Brent Fisher]

My daughter wants to go to NYU. It's $55K/year (oh my). We saved up $25K for college, so we are short! However, I have a $250K of equity in my house in terms of a HELOC that has a 10 year deferred payment option at 3%. I'm looking to buy an investment property. I'm wondering if she could use the cash as an equity partnership in a deal that would allow her investment to gain nearly 40%/year until she graduates to help pay the loans that will be due. After 4 years, that initial investment, growing on this leverage 40% return would be nearly $100K

That would be quite a chunk against her $200K loans. 3 more years and she can pay off the whole thing, but she'd have to figure out how to pay her $2600/month student loans in the mean time.

Also, since it wouldn't be very liquid, I'm not sure how I could cash her out when she needs the money, besides selling the house at that point.

[William Hochstedler]

Just to clarify, are you suggesting that she pools her $25K with your $250K HELOC money to invest in something that would return 40% on her equity? Does the $250K have to make a return other than the interest only debt service?

If I understand correctly, the two of you would bring $275K into a deal.  With leverage this would afford a $1M asset, right?  If the total return on this in 4 years only needs to be $100K, you would need to have non-negative cash flow after all the debt service and an appreciation (or forced equity) of around 2.5%.   That seems doable.

However, from spending well over a decade including college in NYC, I would not recommend having her try to manage something there.  I bet managing a fourplex in the Bronx is not the NYU experience she is hoping for.  Maybe consider a more turnkey investment in a kinder market that you're both comfortable with?

This is an interesting thought indeed.