Is it possible to get the 150k line of credit as a lump sum?

[HBP]

Looks like you have your plan.

[xorht]

Looks like you have your plan.

 

I appreciate everybody's input!! Got me thinking and helped me come to a better alternative I think.

[A-Stark]

Hey guys, sorry I need to be more clear I think!

 

I won't have living expenses as I will still be living at home with my parents. This property will used as a long term investment.

 

I don't mean to be overly critical, but I still think this is a bad idea. I gather that you are not yet in med school, so assuming you get in where you prefer, I'd argue that there are considerably better investments that pose less risk and offer better returns. Investing in property can be dicey at best for an individual, and condos are generally not a good bet for making a good return in the end. Using the LOC to invest is not a bad idea at all, but you'd be better off with a mix of GICs and mutual funds which would give you more liquid assets with better (or guaranteed in the case of GICs) rates of return. Unless you can reasonably expect a significant return on your investment sufficient to cover the costs of many years of debt servicing, I wouldn't consider it.

[Laika]

I don't think it's a good idea either. I don't know what city you'll buy in, but real estate is probably overvalued in several Canadian cities now. There's a good chance the condo will decline in value. Also, you can't predict what the interest rate on your LOC will be in several years.

 

If you insist on using your LOC to speculate/invest during med school, I agree with A-Stark. Invest it in stocks/bonds/mutual funds, and you can deduct interest charges.

 

Finally (and I'm not an expert here), if you're not living in the condo, you'd need to pay tax on any capital gains (assuming it did increase in value) if you sold it. This removes one of the major advantages for using real estate as an investment.

[Ollie]

I don't think it's a good idea either. I don't know what city you'll buy in, but real estate is probably overvalued in several Canadian cities now. There's a good chance the condo will decline in value. Also, you can't predict what the interest rate on your LOC will be in several years.

 

If you insist on using your LOC to speculate/invest during med school, I agree with A-Stark. Invest it in stocks/bonds/mutual funds, and you can deduct interest charges.

 

Finally (and I'm not an expert here), if you're not living in the condo, you'd need to pay tax on any capital gains (assuming it did increase in value) if you sold it. This removes one of the major advantages for using real estate as an investment.

Agreed. I really think you should sit down with a financial adviser and crunch the numbers on this. I think it's pretty risky and there is a very real possibility that you will lose money in the end. Also, if you own a property that is not your principle residence, you won't qualify for student loans, and you should really be maxing out your student loans before dipping in to your LOC.

[xorht]

Thanks for the input everybody. No worries for being overcritical.

 

A-Stark: I am starting medical school in the Fall, and will be setting up my LOC this week. You're right in that condos tend to depreciate in value with age and are hence not a very good long term investment (as compared to houses in old areas). However, the condo property I am looking at is beyond the point where age depreciates its value. It is in one of the few condo buildings with historical designation.

 

In terms of investment, I don't think GIC's would be good because interest at the moment is 1.25% at best (while interest on the LOC is 2.225%). As well, if the interest on GIC's increases, without a doubt prime would increase as well. The bank is not going to set itself up to lose money like that. Mutual funds may be a good bet; but, in the end I would like a property because I, or my siblings, may actually end up living in it once I make money (thus serving two functions: investment and future home).

 

Ollie: I did not know that I wouldn't qualify for student loans. Is there a reason why it's better to use student loans before a line of credit? I am not familiar with student loans as I have never taken one out.

 

Laika: Agreed. There's tons of speculation that most Canadian cities are in a bubble. However, I'm in a city that, according to real state buffs and local news, isn't in a bubble. As well, the price point of the condo is quite low (in absolute terms). Also, you mentioned that I would need to pay tax on any capital gains. I don't think I'll be able to own the enitirety of the condo any time soon (hence why I'll be taking out a mortgage ammortized over 25 years); so I'll actually have tax benefits while it is being rented out (rental income is almost balanced with interest on the mortgage).

 

Ultimately, my intentions are to hold the property far into the future (10-15 years) and am not concerned with short term fluctuations.

 

I still agree with everybody here...I do think using my LOC to pay for most of a property is risky, especially since the repayment period is so short once I start residency. Hence, you guys are right in that I should take out a mortgage and co-sign with my parents...which is what I will be looking into this week!

 

Am I still crazy??

[cheech10]

Not crazy, but inexperienced.

 

Most serious real estate investors will only look at properties that generate positive cash flow from month to month (ie. rent > mortgage + utilities + property tax + maintenance). Your plan doesn't do this, and doesn't take into account any vacancy (most investors factor in 1 month per year vacancy into their projections). In other words, you're only making money if the property appreciates - by no means a guarantee, especially as interest rates are likely to rise due to the massive stimulus programs our governments have enacted, which will put downward pressure on real estate values (see Japan, lost decade for a similar situation).

 

This is a very risky plan, almost as bad as real estate speculating.

 

Other issues:

A very old condo may have issues with an inadequate reserve fund to finance upcoming major maintenance costs - think boiler, air conditioning, etc. You could get hit with a special assessment to cover these, or large increases in monthly maintenance. I don't know the details of this condo, but this should be looked at carefully prior to purchase, preferably by an expert.

 

Agreed that GICs are not a good investment currently, and mutual funds and other equities are likely to be very volatile for some time. Would stay away because I'd be too anxious, but I don't have any better investment ideas for now.

 

Student loans are great: no interest accrues during your studies, and a portion is forgiven/issued as a grant. You should use these as much as possible. Then, when the loan starts charging interest, use your LOC to pay it off immediately, leaving you a much lower interest charge.

 

Good luck whatever you decide, but I would take a long, hard look at the numbers before jumping in. I would also be conservative in my projections: assume minimal appreciation and factor in ~10% vacancy.

[xorht]

Not crazy, but inexperienced.

 

Most serious real estate investors will only look at properties that generate positive cash flow from month to month (ie. rent > mortgage + utilities + property tax + maintenance). Your plan doesn't do this, and doesn't take into account any vacancy (most investors factor in 1 month per year vacancy into their projections). In other words, you're only making money if the property appreciates - by no means a guarantee, especially as interest rates are likely to rise due to the massive stimulus programs our governments have enacted, which will put downward pressure on real estate values (see Japan, lost decade for a similar situation).

 

This is a very risky plan, almost as bad as real estate speculating.

 

Other issues:

A very old condo may have issues with an inadequate reserve fund to finance upcoming major maintenance costs - think boiler, air conditioning, etc. You could get hit with a special assessment to cover these, or large increases in monthly maintenance. I don't know the details of this condo, but this should be looked at carefully prior to purchase, preferably by an expert.

 

Agreed that GICs are not a good investment currently, and mutual funds and other equities are likely to be very volatile for some time. Would stay away because I'd be too anxious, but I don't have any better investment ideas for now.

 

Student loans are great: no interest accrues during your studies, and a portion is forgiven/issued as a grant. You should use these as much as possible. Then, when the loan starts charging interest, use your LOC to pay it off immediately, leaving you a much lower interest charge.

 

Good luck whatever you decide, but I would take a long, hard look at the numbers before jumping in. I would also be conservative in my projections: assume minimal appreciation and factor in ~10% vacancy.

 

I really appreciate your insights cheech, and you've made me reconsider. I too am worried that interest rates will go up in the short term, and if they go up to what they were back in the 80's, I'd be destroyed. I think I will have to settle for the cheaper unit that has rental income that far exceeds my monthly costs. It is a tough decision to make because I am certain that this other unit has much less growth potential than the one I legitimately want (the more expensive one, which won't give me any net rental income)

[xorht]

I just called rbc and they said I wasn't allowed to access the whole amount. Wtf??

[justletmein]

I just called rbc and they said I wasn't allowed to access the whole amount. Wtf??

 

Try calling around to different branches and see if they give you the same story.

 

I was told there were no restrictions, but then again I have never tried taking out the full amount, so I can't be sure they would allow it.

[chuck62]

IF you read the information re: student professional line of credits, there is a list of acceptable expentitures using your LOC, ie. tuition, living costs, books, tools etc.

You are not SUPPOSED to use your money for purchasing a house, and certainly not one that you wont even be living in. I think that you will definately have a HARD time finding a bank that will give you money if you're going to be honest about your investment plans.

The reason that banks have an annual cap (ex. 50K) is because there is not quarantee that you wont simply drop out of school, then be stuck with a massive debt and no method to pay it off.

When you apply for a LOC they will do a check on you as well, so keep that in mind.

Honestly, you're going to be making enough money in 5 or six years to buy property much more easily, without as much hassel and risk. patience is important.

[Jochi1543]

I don't like your plan. If you were going to at least live in the property and rent out part of it, then it'd make sense, but if you are not living there, why take actual money and put it into something that may very likely end up being worth less? Also, keep in mind the costs of buying and selling. You will likely need like $5000 for closing costs and you will lose part of your selling price to commission, as well. It's also a pretty demanding process to buy a place. You should expect it to become a full-time job for at least a month.

 

Also, if you want to be able to sell, you have to be careful with the mortgage terms. If you get a 5-year fixed mortgage and decide to sell this place when you start residency (after 4 years), you will have to pay the bank extra fees in order to get out of the 5-yr term.

 

I bought a place that I live in and that can also be used as a rental property. Personally, I would NEVER use my LOC to buy a rental-only property, for a variety of reasons already mentioned.

[Guest viscous]

Not crazy, but inexperienced.

 

Most serious real estate investors will only look at properties that generate positive cash flow from month to month (ie. rent > mortgage + utilities + property tax + maintenance). Your plan doesn't do this, and doesn't take into account any vacancy (most investors factor in 1 month per year vacancy into their projections). In other words, you're only making money if the property appreciates - by no means a guarantee, especially as interest rates are likely to rise due to the massive stimulus programs our governments have enacted, which will put downward pressure on real estate values (see Japan, lost decade for a similar situation).

 

This is a very risky plan, almost as bad as real estate speculating.

 

Other issues:

A very old condo may have issues with an inadequate reserve fund to finance upcoming major maintenance costs - think boiler, air conditioning, etc. You could get hit with a special assessment to cover these, or large increases in monthly maintenance. I don't know the details of this condo, but this should be looked at carefully prior to purchase, preferably by an expert.

 

Agreed that GICs are not a good investment currently, and mutual funds and other equities are likely to be very volatile for some time. Would stay away because I'd be too anxious, but I don't have any better investment ideas for now.

 

Student loans are great: no interest accrues during your studies, and a portion is forgiven/issued as a grant. You should use these as much as possible. Then, when the loan starts charging interest, use your LOC to pay it off immediately, leaving you a much lower interest charge.

 

Good luck whatever you decide, but I would take a long, hard look at the numbers before jumping in. I would also be conservative in my projections: assume minimal appreciation and factor in ~10% vacancy.

 

Interest does accrue on student loans while one is in school, at least on Canada-Ontario Integrated Student Loan it does. Although the government pays it for the time one is in school. Or are you referring to student LOCs?

[justletmein]

Interest does accrue on student loans while one is in school, at least on Canada-Ontario Integrated Student Loan it does. Although the government pays it for the time one is in school. Or are you referring to student LOCs?

 

He is talking about government student loans.

 

Technically, yes the interest accrues. But, as you said, the gov't pays the interest while you are in school.

 

In math class, they used to teach that 1-1=0.

 

So the fact remains that while you are a med student, the loan can be considered INTEREST-FREE.

[Guest viscous]

He is talking about government student loans.

 

Technically, yes the interest accrues. But, as you said, the gov't pays the interest while you are in school.

 

In math class, they used to teach that 1-1=0.

 

So the fact remains that while you are a med student, the loan can be considered INTEREST-FREE.

 

interest still accrues whether i have to pay it or not. It is different fromt interest not accruing. I wonder how can you do medicine without being accurate.

[HBP]

Stop ****ing bickering. Interest accrues but it doesn't compound because it's paid by the government. Thus, interest is a non factor. This is all that matters.

[justletmein]

Stop ****ing bickering. Interest accrues but it doesn't compound because it's paid by the government. Thus, interest is a non factor. This is all that matters.

 

THANK YOU.

[cheech10]

interest still accrues whether i have to pay it or not. It is different fromt interest not accruing. I wonder how can you do medicine without being accurate.

 

Big talk from someone just starting med school. You might want to tone it down a bit, given your lack of experience.

 

As for the interest issue, of course I'm aware that interest does accrue on a government student loan, like all loans. However, the interest portion during the study period is paid by the government, not the loan recipient, as was mentioned earlier. So, from the loan recipient's point of view, there is no interest payable by them until the study period is done, nor is that interest ever charged to the loan recipient, making it essentially an interest free loan. Add this to the loan forgiveness/grant portion, and it's the best deal any of us will get on a loan in our lifetimes.

 

There. Is that accurate enough for you?

[Guest viscous]

Big talk from someone just starting med school. You might want to tone it down a bit, given your lack of experience.

 

As for the interest issue, of course I'm aware that interest does accrue on a government student loan, like all loans. However, the interest portion during the study period is paid by the government, not the loan recipient, as was mentioned earlier. So, from the loan recipient's point of view, there is no interest payable by them until the study period is done, nor is that interest ever charged to the loan recipient, making it essentially an interest free loan. Add this to the loan forgiveness/grant portion, and it's the best deal any of us will get on a loan in our lifetimes.

 

There. Is that accurate enough for you?

 

Justletmein must tone down his arrogance a bit when he replied to my post. So should HBP.

 

You were providing wrong information to people that interest does not accrue. Even if you are aware that govt pays it, you might want to reconsider how accurately you tell people what you know. I merely pointed an inaccuracy out initially with no ill-feelings but justletmein took it personally. But if your ego makes you think that you are a superman, then I cant force you to live in reality.

 

Otherwise you have provided good information on this thread. I have no issue with you.

[Guest viscous]

Stop ****ing bickering. Interest accrues but it doesn't compound because it's paid by the government. Thus, interest is a non factor. This is all that matters.

 

How does it equate to "no interest at all?" You should stop babbling. You dont need to take your anger out for being waitlisted at UT on me. Blame yourself.

[runningdoc]

How does it equate to "no interest at all?" You should stop babbling. You dont need to take your anger out for being waitlisted at UT on me. Blame yourself.

 

Arguing with people on the internet is a wonderful way to go about things. Stop complaining about semantics and dragging down the topic with insults.

[HBP]

Amazing how fast personalities change post May 13.

 

Typical pre-medders.

 

BTW viscous: I was telling everyone to stop bickering, not just you.

[cheech10]

Alright, the discussion has veered off course a bit, but I think we're all mature enough to let the bickering die off. Back to the topic at hand.