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Why Buying a Rental Property Can Fund Your Child’s Education Better Than an RESP

Why Buying a Rental Property Can Fund Your Child’s Education Better Than an RESP

When it comes to saving for your child’s post-secondary education, most families default to an RESP. While it’s a well-known and widely used tool, it’s not the only option—and in many cases, it’s not the most effective one.

Let’s break down the math behind an alternative strategy that has the potential to not only fund your child’s education, but also build long-term wealth: investing in a rental property.

📘 The Traditional RESP Route

Let’s look at the Smith family.

To save $135,000 in an RESP over 15 years, they would need to contribute $372 per month (or $4,472 annually). Assuming an average annual return of 8%, this would get them to their education savings goal by the time their child is ready to head off to university.

Not bad, right? But what if that same $372/month could do more?

🏘️ The Rental Property Strategy

Instead of putting $372 into an RESP, the Smiths use that money to cover the interest on a loan used for a rental property down payment.

  • Monthly contribution: $372

  • Interest rate on down payment loan: 6%

  • Total loan they can service: $74,500

That $74,500 can serve as a 20% down payment, allowing them to purchase a rental property worth approximately $372,500.

💡 Monthly Rental Costs vs. Income

The Smiths take out a mortgage for the remaining 80%:

  • Mortgage amount: $298,000

  • Interest rate: 5.39%

  • Amortization: 30 years

  • Monthly mortgage payment: $1,660

  • Taxes, insurance, maintenance: $440

  • Total monthly carrying cost: $2,100

As long as they collect $2,100 in monthly rent, the property is cash flow neutral—meaning the rental pays for itself.

This is achievable in many Canadian markets for a property of this size.

📈 Long-Term Growth: RESP vs. Real Estate

Now here’s where things get interesting.

Using a conservative 3% annual appreciation rate (half of the 15-year Canadian average of 6.11%), the Smiths' rental property is projected to grow in value significantly over the 15 years:

  • After 15 years:

    • Property value: ~$578,000

    • Remaining mortgage: ~$222,600

    • Net equity: $355,400

From here, they can refinance the property to extract the $135,000 needed for education. And unlike the RESP, they’re not draining the entire investment—they still have over $220,000 in equity left in the property, plus ongoing rental income.

🔄 Flexibility, Cash Flow, and Long-Term Wealth

By year 15, rent has increased with inflation and is now over $3,700/month. Even after refinancing to pull out $135,000 for education, the property still generates positive monthly cash flow.

In comparison:

  • The RESP strategy provides $135,000 once, then it’s done.

  • The rental strategy provides $135,000 for education plus continued income, equity, and flexibility.

🧮 Even in a Worst-Case Scenario…

If real estate only appreciated 1% annually (an extremely conservative estimate), the property would still outperform the RESP by $35,000 over 15 years.

At that point, you may need to sell to access the funds, and real estate fees could reduce the benefit—but it still represents a comparable or better result than the RESP, even in a low-growth environment.

✅ The Bottom Line

Both strategies can work—but only one of them builds long-term wealth while paying for education.

  • The RESP gives you a one-time education fund.

  • The rental property gives you education funds, ongoing equity, passive income, and long-term wealth-building—with similar or lower risk, if done wisely.

Of course, there are variables involved: market performance, tenant management, and lending options. But the math makes a strong case for real estate as a smart, flexible investment for your family’s future.

Curious how this could work for your family?
 We’d be happy to help you run the numbers based on your market, income, and down payment options. Reach out to our team for a free consultation or custom scenario.

BOTTOM LINE

By equipping yourself with comprehensive knowledge of rental property funtionality and leveraging the resources and expertise offered by Level Up Mortgages, homebuyers can successfully navigate the mortgage approval process and ultimately secure their ideal commercial property.

Level Up Mortgages is a mortgage broker team focused on helping the self employed, new immigrants, non-residents, and investors, access best rate and alternative lending in Canada. We have been nominated for best up and coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.

See What You Qualify For Or Contact Paul To Get Your Pre-Approval.

  • Paul Davidescu (www.levelupmortgages.com)

  • Level Up Mortgages

  • 604-809-3188

  • paul(at)levelupmortgages.com

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Paul Davidescu