Buying a place with your LOC

[kwasko@dal.ca]

I started med school last summer in Calgary and bought a house here. I think I bought at an OK time because prices had come down a bit. However, they fell further afterwards. I say it was an ok time because there was still such a thing as a 40 year mortgage and the bank wasn't so tight in lending money. That said, I still needed to put 20% down and had my grandfather co-sign the mortgage with me. I chose a floating mortgage and lucked out that interest rates subsequently plummeted so that my interest rate is around 2% right now. There are additional costs though, including higher utility bills, property taxes, home insurance, initial lawyer fees, and so on. I do think that when I need to sell in a couple of years I will get my money back though and I can't say the same if I had rented. I got my mortgage through RBC and applied the same day I applied for my LOC.

 

If you want to know more, just let me know.

[The_B]

I get what your point but the market can go either (high or low) way no matter when you buy a home. If anyone put a 15% on a 2 bedroom condo, after 4yrs of med sch, you can leave it as a rental property and wait till the market's favorable to sell again!! Renting is a bad bad bad idea especially if you can offord a substancial down payment on a not so expensive condo/townhouse. Renting is a loose loose situation, buying is in the most persimistic view and loose or win situation. I'm planning on getting a place soon here in Calgary regardless of where i'll get into med sch in the near future(i hope)..like David Bach puts it "you don't wait to get into the real estate market but rather get in and wait" to build some equity. Having said that the risk as with any investment still remains and anyone should be careful and thoughtful before make any move...

 

Just because you leave a property for rent, doesn't mean you rent it. And depending on where and the price you rent it for, you may not break even with taxes, condo fees, upkeep, etc.

 

And I counter your David Bach with David Chilton...who says that the decision to buy a home should be person dependent. It isn't always a good investment. I agree completely that if can be a wonderful investment. And for the most part, long term, it is probably the safest investment most people make in their lives. But if your time horizon is 3-4 years, and you don't want to be a landlord during residency, then it may not be a good investment. So I disagree with the way you say it in absolute terms. Hence why I think you should talk it over with a professional.

 

As for MD management, the reason I recommend them, is because their job is to give financial advice to people in medicine. They were set up years ago by physicians for physicians because people in medicine are famous for having lots of money, and no idea how to use it responsibly. They are non-commissioned financial advisors. Yes they also have negotiated LOC with a bank, but they don't actually "sell" them, as they have no vested interest in it.

[justletmein]

No vested interest?

 

Is this why they give out bags, lunches, set up info booths, sponsor every single med school event.....

 

stop pretending this is a group of people who are only here to help.

 

Not saying they are a bad company, they have some great services, but like evryone else they are trying to make a profit.

[TeaHatingBrit]

I'm also planning on buying a place on my LOC.

 

I have conditionally purchased a place already in Calgary. My plan is to pay 20% down payment on the LOC. I think it is a worthy investment - for the simple fact that the place is a 1 minute walk to the hospital + classes.

 

The market in Calgary has reached a low - this place will most likely not lose any value, rumors are strong that it will increase in value by 20% in 5 years. As a result, you make an profit on your investment. EVEN if the market doesn't go up - I can get back my initial investment - because a property near the hospital always has good value.

 

And if all else fails, I'll rent it out in 3 years to cover the mortgage costs until the market is more welcoming.

[smile]

How did you manage to get a mortgage AND a professional student LOC? Did you have a cosigner on the mortgage?

[TeaHatingBrit]

How did you manage to get a mortgage AND a professional student LOC? Did you have a cosigner on the mortgage?

Yeah, my dad is cosigning on the mortgage, sorry.

[Laika]

No vested interest?

 

Is this why they give out bags, lunches, set up info booths, sponsor every single med school event.....

 

stop pretending this is a group of people who are only here to help.

 

Yes... but unlike most other financial companies, their FPs are salaried, not on commission. So their advice is, on average, less biased than others.

[Hopeful Med]

Yeah, I'm gonna be running everything by my dad, who's been very successful in commercial real estate. If he thinks it's not a good idea, I'll rent, but after talking to him today, he said he doesn't feel very strongly one way or another, he just told me to do more research and then he can help me figure out whether it makes more sense to buy or rent. We'll see what he says once I send him some figures (gotta talk to the bank first).

 

Commercial RE is far different from residential. Reread smile's post about residential which is excellent.

 

I plugged in the numbers and it does not make sense especially the condo market. The 400% that some Albertans made will never again happen in our lifetime. They probably bought something bigger and now that 400% is gone plus much more.

 

Don't forget that condos have these very high maintenance fees and even then they can hit you with a 10K bill for new windows or some other stuff.

 

I also don't believe that RE will go up anytime soon or even in the next 5 years or so. I think it will go down a bit more and then level off for many a year. The economists are thinking that too. This recession is going to be long and very deep.

 

My parents have been through this with my older brother and it just has not been worth it. Perhaps I may buy a house someday but right now and for the next few years I will be renting.

[Wolvenstar]

It really depends on a number of factors. Including what kind of place you are buying. My plan has always been to pick up a cheaper detached house when i get into medical school. My family has built 3 houses and renovated several more (mostly on a whim, lol) and so I have the experience to buy a dive for cheap and rebuild it during the summer. You don't have to buy a condemned house to renovate it and sell it for more a couple years down the road. Plus the money comming in from rent can sometimes cover your entire montlyh mortgage payments if you are lucky.

[Jochi1543]

Plus the money comming in from rent can sometimes cover your entire montlyh mortgage payments if you are lucky.

 

I don't think I'd get that far with rent...70% would be my most optimistic estimate.

 

I talked to MD Management today and they were iffy about it, but we didn't discuss actual $ amounts. He seemed to be thinking more along the lines of me buying some gigantic house, but I'm thinking just a 2-bedroom condo. I'm meeting with RBC tomorrow to discuss both LOC and mortgage. I think what I'm gonna do once I get some figures and calculations out of them is wait til my LOC's approved and then see if I can get pre-approved for a mortgage - because if I can't, then obviously I can't buy, anyway.

[Ninjaface]

I don't think I'd get that far with rent...70% would be my most optimistic estimate.

 

Yeah, go easy on me Joch - I am a student you know.

[kaymcee]

Amongst my classmates, only the ones with some previous/current wealth (family money, previous lucrative job, current lucrative job, employed significant other) are the ones who have purchased a place. I never looked into owning a house, but I just figured it would be too much of a hassle buying, maintaining, and selling it all in just four years.

[Jochi1543]

Yeah, go easy on me Joch - I am a student you know.

 

Yeah, that's why I PMed you asking how much you could afford.

[Jochi1543]

For anyone who's also interested in buying - I spoke to one bank today and the recommendation I was given (as the rep covered her ears and sang "la la la la" and nodded in response to my questions about how to work the system ) was to apply for a mortgage first, while I'm still employed full-time, and THEN, once everything's finalized, apply for a LOC. The only catch here was that my LOC amount may be decreased from the $150K maximum depending on how big of a mortgage I'll be taking out (they did give me a figure at which I should not have to worry about having my LOC limited). No cosigner should be needed if my downpayment is at that "safe" amount.

[JewelLeigh]

The market in Calgary has reached a low - this place will most likely not lose any value, rumors are strong that it will increase in value by 20% in 5 years.

 

And if all else fails, I'll rent it out in 3 years to cover the mortgage costs until the market is more welcoming.

In hard economic times, people always say "we've reached the bottom." I have heard it said over and over again through the past few months and things have continued to decline. My father is a stock market analyst and has been predicting this economic slump for 2-3 years. His advice to me has always been correct and currently he thinks we are still on the down slope. So...just a word of caution on assuming we have "reached a low."

 

Regarding owning a property at the end of medical school: Since the end of medical school and start of residency is scheduled, you will have minimal flexibility when it comes to the timing of selling. If the RE market is difficult at the time, you will be forced to price cut in order to make a timely sale. Only a few months of carrying two properties while waiting to close on your medical school house sale can eat into your budget big time. While renting it out may sound like a good option at this point, you must consider a couple of things. First, residency is unbelievably busy, so being a landlord during this time would be difficult at best. Not to mention that it is not uncommon to end up doing residency in a different city/province from medical school. Being a landlord during residency from a different city would be next to impossible. Thus, you would have to consider hiring a person or company to manage this property for you - another expense eating into your rental income. The other thing to consider about renting out a property is the tenants. No matter how nice a tenant seems, you can never be guaranteed they will care for your property as you would like. When house shopping last year, my husband and I saw several condos/homes which were a mess as a result of poor tenants.

 

Finally, do not under-estimate the huge costs and debt associated with medical training. I know many of my resident colleagues who are barely staying afloat on their residents' salary because the interest payments for all of the student debts are so high. As physicians we will certainly make more than a reasonable income in the future, but in the meantime, it can be quite difficult to get by from a financial point of view.

[Hopeful Med]

Excellent post JewelLeigh and much food for thought as I've heard it said by many in the business world that the bottom is not yet here.

 

I too worry about debt load, poor tenants and the fact that the recovery may take many years.

 

One less stress in medical school and residency sounds like a plan for me.

[future_doc]

For anyone who's also interested in buying - I spoke to one bank today and the recommendation I was given (as the rep covered her ears and sang "la la la la" and nodded in response to my questions about how to work the system ) was to apply for a mortgage first, while I'm still employed full-time, and THEN, once everything's finalized, apply for a LOC. The only catch here was that my LOC amount may be decreased from the $150K maximum depending on how big of a mortgage I'll be taking out (they did give me a figure at which I should not have to worry about having my LOC limited). No cosigner should be needed if my downpayment is at that "safe" amount.

 

Or, just "before" you sign for the mortgage on the otherwise finalized mortgage, apply for your LOC, keeping from them that you will have a mortgage.

[Jochi1543]

Or, just "before" you sign for the mortgage on the otherwise finalized mortgage, apply for your LOC, keeping from them that you will have a mortgage.

 

I like the way you think... :cool:

 

 

EDIT: I would probably have to deal with 2 different banks for this to work out efficiently, though, wouldn't I?

[future_doc]

I like the way you think... :cool:

 

 

EDIT: I would probably have to deal with 2 different banks for this to work out efficiently, though, wouldn't I?

 

Hehe:)

 

Yes, well 2 different financial institutions, e.g., your real estate broker may recommend a mortgage broker whom you instruct not to approach Bank X, ...and is free to go to any other banks, insurance companies, wherever.

[rmorelan]

Hehe:)

 

Yes, well 2 different financial institutions, e.g., your real estate broker may recommend a mortgage broker whom you instruct not to approach Bank X, ...and is free to go to any other banks, insurance companies, wherever.

 

sounds very mission impossible - once you get a mortgage or loan etc it will show up on your credit report. It isn't like you can hide a major loan from anyone. Even requests for additional credit would appear.

[TeaHatingBrit]

In hard economic times, people always say "we've reached the bottom." I have heard it said over and over again through the past few months and things have continued to decline. My father is a stock market analyst and has been predicting this economic slump for 2-3 years. His advice to me has always been correct and currently he thinks we are still on the down slope. So...just a word of caution on assuming we have "reached a low."

 

Regarding owning a property at the end of medical school: Since the end of medical school and start of residency is scheduled, you will have minimal flexibility when it comes to the timing of selling. If the RE market is difficult at the time, you will be forced to price cut in order to make a timely sale. Only a few months of carrying two properties while waiting to close on your medical school house sale can eat into your budget big time. While renting it out may sound like a good option at this point, you must consider a couple of things. First, residency is unbelievably busy, so being a landlord during this time would be difficult at best. Not to mention that it is not uncommon to end up doing residency in a different city/province from medical school. Being a landlord during residency from a different city would be next to impossible. Thus, you would have to consider hiring a person or company to manage this property for you - another expense eating into your rental income. The other thing to consider about renting out a property is the tenants. No matter how nice a tenant seems, you can never be guaranteed they will care for your property as you would like. When house shopping last year, my husband and I saw several condos/homes which were a mess as a result of poor tenants.

 

Finally, do not under-estimate the huge costs and debt associated with medical training. I know many of my resident colleagues who are barely staying afloat on their residents' salary because the interest payments for all of the student debts are so high. As physicians we will certainly make more than a reasonable income in the future, but in the meantime, it can be quite difficult to get by from a financial point of view.

 

Alright; assuming the market does have some slip room still - highly conservative estimates (at least that I have heard); have said the market will pull up in 2010.

 

 

Given that; the property I purchased is right next to the hospital in Calgary; it is in prime location - an area that will always sell. And the price I purchased it at is a steal (they were worth 150 000 more a year ago). So even if I get my initial investment back, I am flying high and dry.

 

From everyone I have talked to however, they said the value of the particular place I bought should increase by around 50-100 000 in value within the next 5 years.

 

Not only that; coming out of med school, I will have debt - but I will also have a property; that will give me some leverage, the sale of which - should at the very least give me my initial investment back.

 

Despite the economy now, it is highly improbable that this place is going to lose much value over the next 5 years.

 

So immediately, I agree - it is a financial headache, but in 3 years when I graduate, I'd consider it a worthy investment. Especially since any money you are paying for rent - is just going to be lost.

 

Also - if I do resort to renting the property out; my parents live in Calgary - so the landlord situation is no problem.

[Jochi1543]

.

 

From everyone I have talked to however, they said the value of the particular place I bought should increase by around 50-100 000 in value within the next 5 years.

 

My partner at work just bought a house, and in the 1.5 months since, the value has already increased by $10,000 (purchase price was 300K).

[justletmein]

My partner at work just bought a house, and in the 1.5 months since, the value has already increased by $10,000 (purchase price was 300K).

 

what does this even mean? There is no black book on house values.

 

Unless he put it up for sale and was offered 310,000$, then your information is coming out of thin air.

 

 

By the way, I also bought a property for med school and share your exact same philosophy. Figure I will lose "less" in the long run, and if any profit comes from it, bonus!

[Jochi1543]

what does this even mean? There is no black book on house values.

 

Unless he put it up for sale and was offered 310,000$, then your information is coming out of thin air.

 

 

It's one house from 1 new development, so the houses were all selling for 300K, now they are going for 310.

[justletmein]

It's one house from 1 new development, so the houses were all selling for 300K, now they are going for 310.

 

ok, but be very careful.

 

Developers raise prices as the condos/houses start to sell since they figure the demand is there. My friend figured the same thing, hey that means my house goes up in value! That is true to a certain point... BUT... the problem with those new developments (and I cant comment on your friend's specific situation) is that you end up with a LOT of houses/condos which are almost identical so in 5 years they may be 10 people all trying to sell at once. If there are 10 identical houses on the market, do you really think anyone will pay 310? It would be a buyer's market.

 

Like I said, I cant comment cause I know nothing about the area. I just have friends who have been in that situation and realized that new developments often are great first homes, but they are not the ideal place if you are worried about resale.