Two Qs: OSAP and buying a house during MD Program

[iFlayx]

Hi everyone, I just have two questions in regards to managing finances during med school. Fyi, I will be attending a three program at Mac where tuition is expected to cost around 28k/year.

From my understanding, the new OSAP allows for students in professional programs to qualify. Since most students are out of high school for 4 years, most of us would qualify for OSAP as independents with no income. In this case, how much OSAP can we be expected to pay back? My friend at Mac has said that most of them get around 24k in OSAP + 4k in bursaries from McMaster. He also said that he is only expected to pay back around 11-13k only. Therefore getting around 10-15k in essentially...free money for school. Could anyone confirm if this situation is true? 

Secondly, my parents are offering to help me buy a house during my medical school studies. I am only expected to contribute 100k towards the purchase and down payment. Fyi, I have a good relationship with my parents and they are comfortable with taking on the financial risks (depreciation) associated with this purchase. My questions here are: 1. would this be considered a good idea from my perspective? 2. would purchasing a house under my name reduce my OSAP funding?

 

It would be greatly appreciated if some experienced members here could offer me some advice. Thanks everyone!

 

 

[NeuroD]

1 hour ago, iFlayx said:

Hi everyone, I just have two questions in regards to managing finances during med school. Fyi, I will be attending a three program at Mac where tuition is expected to cost around 28k/year.

From my understanding, the new OSAP allows for students in professional programs to qualify. Since most students are out of high school for 4 years, most of us would qualify for OSAP as independents with no income. In this case, how much OSAP can we be expected to pay back? My friend at Mac has said that most of them get around 24k in OSAP + 4k in bursaries from McMaster. He also said that he is only expected to pay back around 11-13k only. Therefore getting around 10-15k in essentially...free money for school. Could anyone confirm if this situation is true? 

Secondly, my parents are offering to help me buy a house during my medical school studies. I am only expected to contribute 100k towards the purchase and down payment. Fyi, I have a good relationship with my parents and they are comfortable with taking on the financial risks (depreciation) associated with this purchase. My questions here are: 1. would this be considered a good idea from my perspective? 2. would purchasing a house under my name reduce my OSAP funding?

 

It would be greatly appreciated if some experienced members here could offer me some advice. Thanks everyone!

 

 

@rmorelan is the expert on these things, but I think I've read his posts enough times to know that OSAP does not count owning your home against you.
Also, those Mac OSAP numbers sound right, as long as you demonstrate need. Not sure if the new OSAP is different though.

[rmorelan]

5 minutes ago, PhD2MD said:

@rmorelan is the expert on these things, but I think I've read his posts enough times to know that OSAP does not count owning your home against you.
Also, those Mac OSAP numbers sound right, as long as you demonstrate need. Not sure if the new OSAP is different though.

True OSAP won't count the home - but it would important not to have any of the money "lying around" in a bank account during the process so you can be honest about your bank balances on the OSAP form 

For students that are supported the housing route in the past has been profitable for many. Still have to be careful of course - you won't actually be in the medical school city for sure longer than just under 4 years so turn around on the housing can be an issue. If you are relatively sure you will stay there for residency, can keep the house working even if you have to go somewhere else for residency, and/or plan to be in the city longer term you being to add considerably to your safety factor. 

 

[iFlayx]

10 minutes ago, rmorelan said:

True OSAP won't count the home - but it would important not to have any of the money "lying around" in a bank account during the process so you can be honest about your bank balances on the OSAP form 

For students that are supported the housing route in the past has been profitable for many. Still have to be careful of course - you won't actually be in the medical school city for sure longer than just under 4 years so turn around on the housing can be an issue. If you are relatively sure you will stay there for residency, can keep the house working even if you have to go somewhere else for residency, and/or plan to be in the city longer term you being to add considerably to your safety factor. 

 

Suppose I have these two options here, which one would you recommend?

1. Buy the home under my name with support from parents. This means my parents will be giving me a lumpsum to assist with the purchase. However I am worried this route might result in the problem you just mentioned where I have excess, large sums of money in my bank account.

2. My parents will purchase the home under their name and I will use a partial sum of my LOC (say...100-150k) towards that purchase. Would this be a better choice?

In regards to the long term outlook, I will most likely sell the house should I match outside of Mac. I think my rationale for buying the house would be is that the risk for this investment is a lot less because of parental support and that long-term reward is still quite good with the recent drop in housing prices (still expensive but cheaper than before...ha) and I would saving money on rent and at the same time I could rent out rooms to chip away at the mortgage/investment. 

 

 

[rmorelan]

Just now, iFlayx said:

Suppose I have these two options here, which one would you recommend?

1. Buy the home under my name with support from parents. This means my parents will be giving me a lumpsum to assist with the purchase. However I am worried this route might result in the problem you just mentioned where I have excess, large sums of money in my bank account.

2. My parents will purchase the home under their name and I will use a partial sum of my LOC (say...100-150k) towards that purchase. Would this be a better choice?

In regards to the long term outlook, I will most likely sell the house should I match outside of Mac. I think my rationale for buying the house would be is that the risk for this investment is a lot less because of parental support and that long-term reward is still quite good with the recent drop in housing prices (still expensive but cheaper than before...ha) and I would saving money on rent and at the same time I could rent out rooms to chip away at the mortgage/investment. 

 

 

Ok so if you sell a house potentially short term with closing fees, real  estate fees etc there is potential you won't break even particularly if the market is fall or stagnated. Since rates are in flux, and market is cooling those are risks to consider. Backing yourself into a short term corner is one common way to lose money in real estate. You have to be prepared for that risk.

By the numbers you probably won't be saving rent precisely - you will be trading it for interest on the mortgage but if you have other tenants then you start to get into the investment side of things ha, and have greater options (some of this is wording I know but I don't like the idea that renting is throwing money away - the math doesn't actually support that). There is also the option of NOT selling the house potentially right away even if you leave, even if a management company is needed to run the investment. Not a bad idea to remain flexible in a market that is uncertain - never back yourself into a corner where you might have to sell low. Everyone does real estate investing their own way - I am very much the buy an hold type of person using refinancing to acquire multiple properties - ha, basically I am playing monopoly - so I am very much a long term type of player. Not the only approach.   

Don't worry about the money in the bank thing - all of that can be handled so there isn't actually money your accounts etc. Make those lawyers earn the 2K they will charge you.

Now the next point gets a bit tricky in part because this is a simple forum so we are glossing over a few things. One point is of course if your parents own the house, then your parents own the house. That means, no matter how unlikely you think it, there is a risk there as you basically have loaned your parents 100K+ and have no ties to it. We don't like to imagine something happening but I can think of dozens of ways that could go wrong (all improbable but still possible - it did have one friend whose family stole money from them that way).  also If they already own a house then they have a principal  residency - that probably means they cannot hold the other house in the same tax sheltered way when it is sold. That potentially can be a big deal - as in many thousands of dollars type of deal. Advantages both ways but I personally would want to own things I am dumping that kind of money in, particularly if OSAP doesn't care (because I want that free money too). Plus it make the entire thing more real - this isn't just a saving idea, this is personal training/education on how to run an investment. You fight harder to protect something that is yours. 

There is a third option you may be describing, that may be possible particularly with your parents help at some banks. You can not use the LOC at all or at least not as much, and you actually get a mortgage on the property and hold the LOC in reserve. More flexible. Mortgage rules have changed so that might be a bit of a bigger fight but that is actually what I did, and what a lot of residents/med students do. You have to protect that LOC - you need it for potentially the next 6-11 years. If possible don't make yourself less liquid for no reason. I am not sure how much the house you are considering is but you said 100-150K LOC use PLUS parent support, which if going to the downpayment at 20% standard would be an extremely expensive house, ha. Suggesting smaller LOC amounts could be used etc if a mortgage was employed. Parents potentially can be a co-signer, and help with the magic of the down payment (you cannot be seen to use the LOC as a downpayment on a house - that would result in punishing increased mortgage rates. I had to show I had assets equal to the downpayment elsewhere, even if I could at least in theory use the LOC to restore those other assets if I used them for the downpayment. )

 

 

[iFlayx]

21 minutes ago, rmorelan said:

Ok so if you sell a house potentially short term with closing fees, real  estate fees etc there is potential you won't break even particularly if the market is fall or stagnated. Since rates are in flux, and market is cooling those are risks to consider. Backing yourself into a short term corner is one common way to lose money in real estate. You have to be prepared for that risk.

By the numbers you probably won't be saving rent precisely - you will be trading it for interest on the mortgage but if you have other tenants then you start to get into the investment side of things ha, and have greater options (some of this is wording I know but I don't like the idea that renting is throwing money away - the math doesn't actually support that). There is also the option of NOT selling the house potentially right away even if you leave, even if a management company is needed to run the investment. Not a bad idea to remain flexible in a market that is uncertain - never back yourself into a corner where you might have to sell low. Everyone does real estate investing their own way - I am very much the buy an hold type of person using refinancing to acquire multiple properties - ha, basically I am playing monopoly - so I am very much a long term type of player. Not the only approach.   

Don't worry about the money in the bank thing - all of that can be handled so there isn't actually money your accounts etc. Make those lawyers earn the 2K they will charge you.

Now the next point gets a bit tricky in part because this is a simple forum so we are glossing over a few things. One point is of course if your parents own the house, then your parents own the house. That means, no matter how unlikely you think it, there is a risk there as you basically have loaned your parents 100K+ and have no ties to it. We don't like to imagine something happening but I can think of dozens of ways that could go wrong (all improbable but still possible - it did have one friend whose family stole money from them that way).  also If they already own a house then they have a principal  residency - that probably means they cannot hold the other house in the same tax sheltered way when it is sold. That potentially can be a big deal - as in many thousands of dollars type of deal. Advantages both ways but I personally would want to own things I am dumping that kind of money in, particularly if OSAP doesn't care (because I want that free money too). Plus it make the entire thing more real - this isn't just a saving idea, this is personal training/education on how to run an investment. You fight harder to protect something that is yours. 

There is a third option you may be describing, that may be possible particularly with your parents help at some banks. You can not use the LOC at all or at least not as much, and you actually get a mortgage on the property and hold the LOC in reserve. More flexible. Mortgage rules have changed so that might be a bit of a bigger fight but that is actually what I did, and what a lot of residents/med students do. You have to protect that LOC - you need it for potentially the next 6-11 years. If possible don't make yourself less liquid for no reason. I am not sure how much the house you are considering is but you said 100-150K LOC use PLUS parent support, which if going to the downpayment at 20% standard would be an extremely expensive house, ha. Suggesting smaller LOC amounts could be used etc if a mortgage was employed. Parents potentially can be a co-signer, and help with the magic of the down payment (you cannot be seen to use the LOC as a downpayment on a house - that would result in punishing increased mortgage rates. I had to show I had assets equal to the downpayment elsewhere, even if I could at least in theory use the LOC to restore those other assets if I used them for the downpayment. )

 

 

Oh the home isn't that expensive, we probably expect to borrow less than 100k from the bank for a mortgage. I guess I'll look into a lawyer and get that stuff sorted out. It's good to hear that owning a home doesn't get in the way of OSAP

 

 

[rmorelan]

3 minutes ago, iFlayx said:

Oh the home isn't that expensive, we probably expect to borrow less than 100k from the bank for a mortgage. I guess I'll look into a lawyer and get that stuff sorted out. It's good to hear that owning a home doesn't get in the way of OSAP

 

 

so how much would you putting down on the house?  The ratio of your contribution to the mortgage is a pretty big deal

[iFlayx]

1 minute ago, rmorelan said:

so how much would you putting down on the house?  The ratio of your contribution to the mortgage is a pretty big deal

I'll pm you but my contribution is expected to be around 100-150k

[rmorelan]

Just now, iFlayx said:

I'll pm you but my contribution is expected to be around 100-150k

Ha, no problem - we can carry over there. 

[gwgswgvgv]

-

[la marzocco]

1 hour ago, leothelion said:

Does anyone know how renting out the house to other students affects OSAP? (While also living in it) Does receiving rental income to pay the mortgage count against my OSAP loan?

By virtue of you reporting rental income to the CRA, you will also need to report this income to OSAP. If you are more than 4 years out of high school, you are allowed to have a principal residence and have it not count towards your assets, but other than that I do not believe the OSAP algorithm takes into account your mortgage load although there is some factoring in of costs if you're living away from home versus at home. 

What is more interesting are the tax consequences as you will have a deemed disposition of a portion of your house (i.e., by square footage if you rent out a room) if you do not elect to have it not be considered as a change in use. That election lasts for 4 years where you can still claim it to be a principal residence while using part of it to generate rental income. There are some clauses for you to use the election beyond the 4 year mark, see link below. There will be some capital gains triggered if your house has appreciated in value between the time of purchase and the time of starting to rent out that property so make sure you file that election to avoid this if you do decide to rent out that property. Here are more details: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate/changes-use/changing-your-principal-residence-a-rental-business-property.html

[rmorelan]

25 minutes ago, la marzocco said:

By virtue of you reporting rental income to the CRA, you will also need to report this income to OSAP. If you are more than 4 years out of high school, you are allowed to have a principal residence and have it not count towards your assets, but other than that I do not believe the OSAP algorithm takes into account your mortgage load although there is some factoring in of costs if you're living away from home versus at home. 

What is more interesting are the tax consequences as you will have a deemed disposition of a portion of your house (i.e., by square footage if you rent out a room) if you do not elect to have it not be considered as a change in use. That election lasts for 4 years where you can still claim it to be a principal residence while using part of it to generate rental income. There are some clauses for you to use the election beyond the 4 year mark, see link below. There will be some capital gains triggered if your house has appreciated in value between the time of purchase and the time of starting to rent out that property so make sure you file that election to avoid this if you do decide to rent out that property. Here are more details: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate/changes-use/changing-your-principal-residence-a-rental-business-property.html

well net income - I mean after expenses if you are doing it correctly most rental properties don't actually have real net income. That is one of their tax deferral strategies. The full income goes to the business after all, not the person, and then there a ton of ways of playing with the net result - all perfectly legal and even within the spirit of the law (the government wants rental housing after all and makes policy to support it as a result). 

You are completely correct there a lot of tax complexities here and rules to follow ha (annoyingly I would say not many people renting out there personal home actually bother with all of that and continue to claim full tax protection as primary residency. It is kind of hard to track really, but it is not in line with the rules.)

[rmorelan]

1 hour ago, leothelion said:

Does anyone know how renting out the house to other students affects OSAP? (While also living in it) Does receiving rental income to pay the mortgage count against my OSAP loan?

So directly no.....any profit from your rental business though would be a yes. But you need that company between you and the income. 

[la marzocco]

11 minutes ago, rmorelan said:

well net income - I mean after expenses if you are doing it correctly most rental properties don't actually have real net income. That is one of their tax deferral strategies. The full income goes to the business after all, not the person, and then there a ton of ways of playing with the net result - all perfectly legal and even within the spirit of the law (the government wants rental housing after all and makes policy to support it as a result). 

You are completely correct there a lot of tax complexities here and rules to follow ha (annoyingly I would say not many people renting out there personal home actually bother with all of that and continue to claim full tax protection as primary residency. It is kind of hard to track really, but it is not in line with the rules.)

Completely agree, but you need to do the whole apportionment of expenses if you do rent out part of your primary residence and that's quite a nightmare (in my opinion at least) - athough it has been made simpler with recent CRA guidance on using square footage as proxy for apportioning. I just find renting out a part of your principal residence to be cumbersome - mainly to deal with personal use v. business use.

 

[mavrik13]

Honestly think it is a bad idea to buy a house when starting medical school, particularly at a 3 year school like Mac. Financially, it doesn't make sense - selling commission is 5%, plus other costs of upkeep/etc, not to mention the workload of actually maintaining a house for only 3 years... full disclosure is that I bought a house for a 5 year residency, and even with running those numbers over 5 years, I don't expect to be that far ahead, even with a housing market that has gone up significantly.

People like to think "I bought a house for $350k and sold it for $450k 5 years later" but neglect to tell you about the 30k invested in a bathroom renovation, 20k in selling commissions, 15k in property taxes, ~90k in mortgage payments (the majority of which go directly to the bank in interest unless you have a significant down payment). Oh, and let me tell you about the stress of dealing with a broken furnace, water heater, leaky roof, etc... I miss the days of renting where you called the landlord and they dealt with it.

Enjoy renting for as long as you can. Think long and hard about it before buying a house at this point in your life.

[casajayo]

On 5/29/2018 at 7:15 PM, iFlayx said:

Suppose I have these two options here, which one would you recommend?

1. Buy the home under my name with support from parents. This means my parents will be giving me a lumpsum to assist with the purchase. However I am worried this route might result in the problem you just mentioned where I have excess, large sums of money in my bank account.

2. My parents will purchase the home under their name and I will use a partial sum of my LOC (say...100-150k) towards that purchase. Would this be a better choice?

In regards to the long term outlook, I will most likely sell the house should I match outside of Mac. I think my rationale for buying the house would be is that the risk for this investment is a lot less because of parental support and that long-term reward is still quite good with the recent drop in housing prices (still expensive but cheaper than before...ha) and I would saving money on rent and at the same time I could rent out rooms to chip away at the mortgage/investment. 

 

 

This calculator is pretty good at balancing the rent vs buy question for short term holdings (i.e. it can help to decide if it's worth it to buy now if you're planning to sell in a short amount of time): https://mdm.ca/tools/rent-or-buy-calculator

[iFlayx]

On 5/30/2018 at 6:21 PM, ninja7292 said:

How do the 4k bursaries from McMaster work? Is this their need-based scholarship?

Yes I believe so. I think it's based on your OSAP. This number is anecdotal however but I've had multiple friends confirm a number around there.

[NeuroD]

29 minutes ago, iFlayx said:

Yes I believe so. I think it's based on your OSAP. This number is anecdotal however but I've had multiple friends confirm a number around there.

2-4k is more accurate

[NeuroD]

2 hours ago, ninja7292 said:

@iFlayx @PhD2MD My OSAP estimate is 24 800 (loan + grant) and my family net income is sub 60 000 would this be enough to get me some dough from Mac?

I'm not sure what the cutoff from family income is. I suspect you could still get some if you wrote a good app (most of these scholarships require some sort of app, or at least a statement of why you qualify.