Buy or Rent?

[Fox]

I know people say rent is expensive, but what's wrong with buying?

 

Is it possible to buy real estate (condo, townhouse) under our parents name (so we don't have an asset for loans/ bursaries) and use our LOC to pay off the mortgage?

 

We build equity (unlike rent) and perhaps when we sell it after 4 years, we make a profit (enough to pay the principle+interest from using our LOC to pay off our mortgage). Even if we don't make a profit, we get a significant return .

 

Would appreciate if someone could clarify if the only "wrong" this is putting property under our parent's name when pay for it. This seems like the best way to save money for those of who are living away from home.

 

Appreciate the help!

[future_doc]

K.I.S.S. Keep It Simple Stupid. You could also lose on a sale, why be clever, you have enuf on your plate. Time enuf to make money later.

[Fox]

It's not about making money, it's about saving as much money as possible.

By owning, you build equity, and by selling, you get money back. Even if you sell the property at a loss 4 years later, the amount you lose is probably much less than the amount you would have to pay if you paid rent. With Rent you are losing money, with buying, you could lose money, but very unlikely to lose as much as you do with rent.

 

It could be that you sell the property enough to pay back the principle+intererst of the LOC used to pay for the place. In downtown TO, I would imagine you would sell the place for more than you bought it for.

 

If I could save money, I could actually afford to live on my own.

[duck_season]

If you're parents have the finances to mortgage another property and are willing to make an investment for you then why not? I know some students opt for condos because they know they might be in that city for years.

It all depends on you.

[A-Stark]

First, at most you can use the LOC to make a downpayment on the mortgage for a condo or (very small) house. You will be taking out another loan - i.e. the mortgage - on which you will be paying interest, and over a period in which your income will be zero, where your entire cashflow will depend on government student loans and the LOC.

 

Second, you can't borrow money under someone else's name.

 

Third, I'm not sure what you mean by "significant return". In the short term, you are at best likely to break even on the sale price of a property. Keep in mind that condos are much riskier investments than freehold townhouses or detached homes. Now while the sale price may be a bit greater than what you bought the place for, you need to factor in real estate and legal costs, to say nothing of mortgage interest, maintenance, and higher utility costs. Condos, for example, invariably entail "condo fees" which cover maintenance, utilities, parking, and sundry other amenities, and may run you several hundred per month or even close to $1,000.

 

If you have to move for residency, you will have to sell. This isn't an insurmountable task, but it's infinitely easier simply to give notice of termination of a lease. It's true you don't get any equity by renting, but you also don't get any additional debt (which by nature will always exceed that equity). There really is no rationale for taking on a mortgage when you will simply be making payments out of your LOC. Don't get caught up in the illusion of an "investment" in the short term. It almost never works that way and (honest) realtors will tell you that buying for the short term (e.g. under 5 years) doesn't really make financial sense.

 

In the end, you aren't "losing" money by renting. That would only be true if you could buy a property outright (do NOT do this).

 

(As for downtown TO, exactly how are you going to afford a mortgage on a $750,000 row house in the Annex?)

[Fox]

Thanks for the replies! Appreciate it.

 

What you mention makes a lot of sense A-stark. I hear of people paying much more than $1000/month and I thought something that significant probably went to some sort of mortgage rather than rent.

 

Anyways, just wanted to know. Many people don't get mortgages for a reason and now I know.

[Laika]

If anyone's interested in actual numbers to back up A-Stark's excellent points, check out these two articles from the G&M:

 

Choosing renting over buying

 

Would you be better off financially renting or buying a home?

[schmitty]

Don't forget you have to pay closing costs...for selling that will be around 6-7% of the selling price.

[MaeFleur]

K.I.S.S. Keep It Simple Stupid. You could also lose on a sale, why be clever, you have enuf on your plate. Time enuf to make money later.

 

Holy moly do you comment on every thread? It's impressive that you have so much time on your hands.

 

Fox feel free to PM me if you have specific questions, I purchased a house a month or so before starting med school. Everyone's situation is different and in some cases it makes financial sense to buy. However what others are saying is true, in a lot of situations it really isn't great. Some of the best advice I can give is to speak to MD management (which you have free consultations available when you're a med student) and they can set you in the right direction in terms of all money affairs. Good luck!

[rmorelan]

Don't forget you have to pay closing costs...for selling that will be around 6-7% of the selling price.

 

That is the real kick in the teeth I mean you are only there four years, interest makes up most of the mortgage in the beginning and then while the property may grow in value you get hit with selling fees etc, etc and up keep. You cannot be sure you are doing residency in the same city as med school (if you were then stretching it out to 4+5 years makes buying more favourable).