I remember quite vividly when my first child was born. As an investor at my very core - I couldn’t help but get my head wrapped around the things I needed to do (as an investor) to help plan for my kids. As a new dad, I remember first hearing about this thing called an RESP. If you’re a parent, you probably have a similar experience.

What is an RESP? It’s a government-regulated (registered) account. In a nutshell, it’s a plan to help parents prepare for expensive university years for their kids. You contribute some money and the government pitches in a fraction of your contribution as a grant ($500/max per year, $7,200/max per child).

That usually is enough to end the conversation. As parents, we hear “free money” and decide right then and there that this is the perfect plan. We instantly forget to look for better alternatives.

I opened an RESP for my child, just as you may have as well. We contribute the maximum of $2,500 to score the “free money” each and every year. 7 years later, my wife and I looked at the account and saw our balance. It sat at $27,000! Great, right?! In terms of the countdown of years-to-go-until-university we’re almost halfway there. Surely we’re on track to cover all university costs?! The hard truth: no, we aren’t. Not even close. If we’re lucky, we’ll have saved only half of what actual costs will be. Have you ever run a calculator to see how much money you’ll need to save for university? Projected costs for kids born today are well over $100,000 for 4 years of university costs all-in by the time they’re 18. My calculations showed me $140,000. Wow.

Here’s what else happened the year my daughter was born: we started our first “UnRESP”. We bought a condo pre-construction in Toronto’s downtown. Let me assure you, we didn't buy this condo at a bargain. We paid market value for the place. Rounding it off, we paid $300,000 for the condo. We had to put down 20% over the course of a year so our investment was $60,000. Not insignificant. We were able to piece this together without having it make any impact to our lives. We had some in savings, pulled some money from our home equity line of credit (HELOC) and we sold off a couple of our mutual fund investments. All in, an amazing trade of assets, as you’ll see.

This investment was similar; we were as hands off as we had been in our RESP. It took a few years before the building was completed and when it was we had it rented quickly. We were careful, selected a glorious tenant and made a great home available to someone in Toronto, where there’s a shortage of good homes for rent. After not paying anything additional for years, we found that we had to be out of pocket $100-200 each month to help with costs for the condo. Not ideal, I’ll admit. However, we were paying down A LOT more than that each month and the place was appreciating at some massive numbers! It really was a win-win scenario.

Fast forward 7 years after we first put pen to paper to buy that condo. The condo had appreciated from $300,000 to $520,000 and we had paid down $20,000 towards the mortgage. When you add that up, that's $240,000 of value. Our $60,000 investment had just returned us $300,000! That's a $240,000 gain!! 400% return on investment in those 7 years. [Full case study, and others can be found here]

Astonishing results, right? Absolutely. And they are repeatable.

Remember that RESP we started at the same time, way back when? Well, we have maxed out our contributions in those 7 years ($17,500) and maxed out the government grants of course. The grand total of those savings as mentioned above is a whopping $27,000. 54% return on investment over the 7 years, or just under 8% return on our contributions (which includes the government grant). The actual investments are in a well-diversified mutual fund portfolio with a financial planner. At this pace with our RESP, we certainly will not have enough money to fund our daughter's post-secondary education.

I call this entire plan the UnRESP because it’s everything the RESP was supposed to be, and isn’t. When you drill down into the complexities of the RESP itself and the rules and regulations behind it, how there could be a claw-back, how the savings can only be applied IF your child qualifies for and enrolls in a “qualifying institution” - not to mention horror stories around loss of money, red tape and contracts - I personally feel as though the RESP isn’t the plan to solve the real problems parents like us face. I’m fortunate to have been in a position to make this happen for close friends and clients. We’ve recreated their education savings plan using the UnRESP. The results are staggering. One single UnRESP application can take care of multiple siblings. In the end, it’s targeted ownership of an income property with a specific purpose and goal. It appreciates and generates cash. It can become a home for your child, or yourself. It can be your pension plan with monthly rent cheques replacing your income as you age. The wrap-up options of this plan are truly fantastic and are extremely flexible.

Yes, I realize I’m a real estate broker and that many that read this will think there is an inherent bias in this message. I assure you, my only bias is towards results. If I had found a way to achieve the results for my family and ease my mind of these issues another way, I’d be singing it’s praises as well. Of course I want to help others achieve similar or better results. I strongly feel that the parents that own their UnRESPs are the real winners in this.

So, we’ve done away with the RESP (not saying you should, it’s probably a great idea to keep yours). It’s still there, though we have zero expectations or need for it. We’ve set up a 2nd UnRESP for our 2nd child. They’ll be fine, and so will we. Will you?