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Posted (edited)

Hi, I'm accepted in law school next semester at UdeM and will most likely apply for the 100k margin at prime. 

However, I'm considering to buy a condo since I have some savings and my father offered to cosign the mortgage, but I would obviously count on the margin to pay the bills once my savings are gone.

Will a mortgage affect my capacity to get the LoC without a co-signor? A representative at a TD branch told me it shouldn't be an issue but if anyone experienced a similar situation, please share. Thank you

 

Edited by Lawstudent199
Mistake

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I'd like to know the answer to this too. I'm debating whether to apply for an LOC first and then a mortgage, or vice versa. 

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Getting a mortgage when you have no consistent income for 3 years, and no idea what your income will be after that, just sounds like a questionable idea.

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I have a mortgage and am currently shopping the LOCs.  I haven't been given any indication that it would pose an issue to have a mortgage, but I will come back with news once I have my financing locked down.  My mortgage isn't fresh though, and the equity in my home could make a difference to whether they care.

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On 4/3/2018 at 9:18 PM, pzabbythesecond said:

Getting a mortgage when you have no consistent income for 3 years, and no idea what your income will be after that, just sounds like a questionable idea.

It really depends on the situation. I did exactly what you wrote and came out ahead. In Nov. 2015 I bought a condo , put a tenant in the unit and immediately quit my job. Then I went back to university for 2 years to finish my undergrad. The tenant paid my mortgage and the condo went up by nearly a quarter of a million dollars in value (in 2.5 years!). Call it luck if you want, but it was a very small risk IMO. I put up 42k in the pot, the bank put in hundreds of thousands. Worst case scenario I would've gone bankrupt in my early 20's and lost the 42k. That's the absolute worst case scenario. I'm selling the condo this month to help with law school. 

@Lawstudent199 I went to RBC last week and the agent told me that a mortgage is absolutely not an issue. Worst case scenario she said I would need a cosigner. She did a credit check and started the application. I didn't even need to negotiate for prime + 0%. She straight away gave me that number with a 125k maximum. But at the end she started asking me about my condo expenses and wrote down everything. Once she realized that I'm selling it she told me to email her and send her a copy of the sales agreement along with a copy of my proof of enrollment.

@Iheartcats You're going to U of A right? Have you tried RBC? The RBC agent asked me why I'm trying RBC first when I do my banking elsewhere. I said b/c RBC has the tier system and U of A is in tier A. She confirmed it straight away and said we can do prime+0% and 125k. It was completely pain free. 

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Posted (edited)
14 minutes ago, pzabbythesecond said:

Real estate does eventually drop in value. Then what do you do when you have to sell?

What do you mean it eventually drops in value? It could drop in value. Or it can go up. But that's like with every other asset class (securities, commodities etc...). It's a risk you have to analyze on a case by case basis (depends on the location, current value etc...). 

After I sell my condo I'm putting my 200+k in securities. I'll take some of the money for tuition. For living expenses I'll dip into the LoC. Or was your question more general? As in "RE always drops in value and what do you do when you have to sell"? RE doesn't always drop in value. Generally it always rises in value. More millionaires have been minted because of RE and Canada's capital gains tax exemption on primary RE than from every other asset class combined. And not just in Canada. It's a worthwhile risk to take in your 20's. Again, worst case scenario OP could go bankrupt and lose his/her measly down payment. Woopdedoo. Alternatively you can make hundreds of thousands in a short time period. Or you could make nothing, but have a roof over your head. 

Even if it drops in value in the short term, so what? When your retirement fund drops in value by 20% (when the stock or the bond market goes through a correction), do you immediately sell all your ETF's and mutual funds? Of course not. So why should it be any different with homes and condos? With a 10+ year time horizon, real estate is always a positive investment, one that you could also live in. 

Edited by Abii

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27 minutes ago, Abii said:

It's a worthwhile risk to take in your 20's. Again, worst case scenario OP could go bankrupt and lose his/her measly down payment. Woopdedoo.

I mean.. are you serious?

 

Also no I never said it always goes down.

 

27 minutes ago, Abii said:

It's a risk you have to analyze on a case by case basis (depends on the location, current value etc...). 

I just think with the uncertainty in knowing how much you'll be making, and also the certainty that you have no income for 3 - possibly 4 - years, it simply doesn't make sense to take the risk you're talking about.

 

And no. Bankruptcy is not whoopdedo.

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29 minutes ago, Abii said:

With a 10+ year time horizon, real estate is always a positive investment, one that you could also live in. 

I'm pretty sure this isn't true. @maximumbob knows more than me though.

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Wait, you're going to make 250k in profit on your real estate and only use it to pay tuition, while using a LoC to pay living expenses? Why would you not decrease your initial securities position and exit law school debt free? Especially given the current market uncertainty and rising rates. 

Also, the consequences of bankruptcy are definitely not to be understated. In fact, the good character requirement of the licensing process mandates disclosure of any prior bankruptcy and may or may not impact your call. Even ignoring the other impacts of bankruptcy, that should matter to you. 

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49 minutes ago, Abii said:

What do you mean it eventually drops in value? It could drop in value. Or it can go up. But that's like with every other asset class (securities, commodities etc...). It's a risk you have to analyze on a case by case basis (depends on the location, current value etc...). 

After I sell my condo I'm putting my 200+k in securities. I'll take some of the money for tuition. For living expenses I'll dip into the LoC. Or was your question more general? As in "RE always drops in value and what do you do when you have to sell"? RE doesn't always drop in value. Generally it always rises in value. More millionaires have been minted because of RE and Canada's capital gains tax exemption on primary RE than from every other asset class combined. And not just in Canada. It's a worthwhile risk to take in your 20's. Again, worst case scenario OP could go bankrupt and lose his/her measly down payment. Woopdedoo. Alternatively you can make hundreds of thousands in a short time period. Or you could make nothing, but have a roof over your head. 

Even if it drops in value in the short term, so what? When your retirement fund drops in value by 20% (when the stock or the bond market goes through a correction), do you immediately sell all your ETF's and mutual funds? Of course not. So why should it be any different with homes and condos? With a 10+ year time horizon, real estate is always a positive investment, one that you could also live in. 

That isn’t true.  Toronto real estate prices peaked in 1989 and didn’t return to that level for the better part of a decade.  California still hasn’t recovered from the 2007 crash, Tokyo... well... the less said the better.  I could go on.  And, recall, those are nominal price levels, not real prices.  When real estate bubbles burst, they tend to take a while to recover (because real estate is usually funded with debt, it takes a while to work off the debt overhang)  

Comparing real estate and securities investments are misleading,  because people don’t make “like with like” comparisons.  No people don’t typically sell their ETF portfolio when it loses 20% of it’s value.  But then, people don’t typically buy their ETF portfolio with 5, 10, 15, or 20 percent down and fund the rest with debt.  If you did, and you’re portfolio lost 20% you would almost certainly sell - your broker/lender would probably make you.  Yes, you can live in your house (although securities kick off investment income).  On the other hand, you have to pay property taxes, interest (on the mortgage) and maintenance.  And yes, if you hold for 20 years, you’ll probably end up ahead (ignoring inflation and expenses). But holding for 20 years is easier than it sounds - can you refinance if your house has lost 20%of its value, maybe,  but likely not from a conventional lender if you only put 20% down.  What happens if you have to move to find a job?  If you have a windstorm like the one we had one wednesday, do you have $30k kicking around to repair the roof?  Think you can borrow on a line of credit if your mortgage is underwater?  

It’s telling that most new condo buyers are renting out their properties and are cash flow negative - that tells you it’s cheaper to rent than to buy.  They’re counting on capital gains to make their investments profitable.  Ok, but as people have learned in the past year, real estate prices are a two way street - they don’t always go up.  Yes, they’ve gone up fairly steadily for the past 15 years, largely due to record low interest rates.  Think that’s going to last forever?  If interest rates return to the historic average, heck, if they return to the relatively low rates of the first decade of this century, current prices are wholly unsustainable.  

And going bankrupt is a “big whoopdedoo”?  Not if you want to be a lawyer - the LSUC would have concerns about that.   

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48 minutes ago, whoknows said:

Wait, you're going to make 250k in profit on your real estate and only use it to pay tuition, while using a LoC to pay living expenses? Why would you not decrease your initial securities position and exit law school debt free? Especially given the current market uncertainty and rising rates. 

Also, the consequences of bankruptcy are definitely not to be understated. In fact, the good character requirement of the licensing process mandates disclosure of any prior bankruptcy and may or may not impact your call. Even ignoring the other impacts of bankruptcy, that should matter to you. 

I currently have 30-40k in other debt that I will clear from the sale of the condo. After that I will be left with at least 200k, possibly more. I want to invest most of that money (all of it if possible) and use new debt for law school. When I graduate I will liquidate the TFSA and use the money to erase my LoC debt. It's a risk, but it could very well pay off. The interest on the LoC is lower than what I could get in the bond market. I'm aiming for at least 5.5%. If I can find a decent junk bond that gives at least 5.5% I will think about it. Anything more and I will 100% do this strategy. I will still graduate debt free, but in a round about way. 

 

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Posted (edited)

On Toronto’s real estate prices, here are the historical nominal prices:  http://www.trebhome.com/market_news/market_watch/historic_stats/pdf/TREB_historic_statistics.pdf

Note that Toronto didn’t recover 1989 peak until 2003.  THis is even more striking if you look at what has happened to prices in real, inflation-adjusted, terms:  http://www.torontohomes-for-sale.com/Toronto-average-real-estate-property-prices.html

  

Edited by maximumbob

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29 minutes ago, Abii said:

I currently have 30-40k in other debt that I will clear from the sale of the condo. After that I will be left with at least 200k, possibly more. I want to invest most of that money (all of it if possible) and use new debt for law school. When I graduate I will liquidate the TFSA and use the money to erase my LoC debt. It's a risk, but it could very well pay off. The interest on the LoC is lower than what I could get in the bond market. I'm aiming for at least 5.5%. If I can find a decent junk bond that gives at least 5.5% I will think about it. Anything more and I will 100% do this strategy. I will still graduate debt free, but in a round about way. 

 

How much contribution limit do you have stored in your TFSA? Why are you willing to utilize that limit for short-term investments? 

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30 minutes ago, maximumbob said:

That isn’t true.  Toronto real estate prices peaked in 1989 and didn’t return to that level for the better part of a decade.  California still hasn’t recovered from the 2007 crash, Tokyo... well... the less said the better.  I could go on.  And, recall, those are nominal price levels, not real prices.  When real estate bubbles burst, they tend to take a while to recover (because real estate is usually funded with debt, it takes a while to work off the debt overhang)  

Well, nominal vs real is irrelevant b/c most people don't look at real growth rates in the securities markets anyway. 

You're right about the individual periods, but what about the compound annual growth rate once we punch in the numbers for the positive individual periods? I actually haven't looked at the figures, but I HIGHLY doubt that it's a low number. My guess is that it's even higher than the growth rate of the S&P500 (I think the S&P has a CAGR of 7.5% since inception no?). Real estate in the long term, if bought in a AAA city, is a good investment, period. No doubt about it. 
 

Quote

Comparing real estate and securities investments are misleading,  because people don’t make “like with like” comparisons.  No people don’t typically sell their ETF portfolio when it loses 20% of it’s value.  But then, people don’t typically buy their ETF portfolio with 5, 10, 15, or 20 percent down and fund the rest with debt.  If you did, and you’re portfolio lost 20% you would almost certainly sell - your broker/lender would probably make you.  Yes, you can live in your house (although securities kick off investment income).  On the other hand, you have to pay property taxes, interest (on the mortgage) and maintenance.  And yes, if you hold for 20 years, you’ll probably end up ahead (ignoring inflation and expenses). But holding for 20 years is easier than it sounds - can you refinance if your house has lost 20%of its value, maybe,  but likely not from a conventional lender if you only put 20% down.  What happens if you have to move to find a job?  If you have a windstorm like the one we had one wednesday, do you have $30k kicking around to repair the roof?  Think you can borrow on a line of credit if your mortgage is underwater?  

I agree with everything you said here. But it's a risk that you can easily account for. When interest rates are low (or even low-ish) it's not too much of a reach to assume prices will automatically go up. In places like Vancouver, where real estate is always in demand, this is a perfectly legit assumption to make. Then you account for uncertainties in the long and short term. If you're not a complete idiot the calculation isn't too difficult to make (you try to figure out what a new roof costs, your anticipated salary, the market etc...). Worst case scenario you go live in your car and rent out the condo. Maybe that's just me at this stage of my life.

For a young person that doesn't have much cash and other assets, leverage is amazing. You're using someone else's money to get ahead. 

Quote

It’s telling that most new condo buyers are renting out their properties and are cash flow negative - that tells you it’s cheaper to rent than to buy.  They’re counting on capital gains to make their investments profitable.  Ok, but as people have learned in the past year, real estate prices are a two way street - they don’t always go up.  Yes, they’ve gone up fairly steadily for the past 15 years, largely due to record low interest rates.  Think that’s going to last forever?  If interest rates return to the historic average, heck, if they return to the relatively low rates of the first decade of this century, current prices are wholly unsustainable.  

And going bankrupt is a “big whoopdedoo”?  Not if you want to be a lawyer - the LSUC would have concerns about that.   

If we're going to go back in history we have to accept that the current environment is the same. I'm not sure if they are. Without sweeping zoning law changes in Vancouver, for example, where is the land going to come from? Yes, high interest rates will kill demand, but the bottom of the market won't fall when there's nothing available in the market. The population isn't going to stop growing either. And then you're also assuming that interest rates will go up to previous levels. Says who? Canadian interest rates follow in tandem with the rates in the US. The US will never enjoy the supremacy it enjoyed in the decades past. Its economy is inflated because of the current low rates. Look at the stock markets right now. They were falling even before the tariff nonsense, simply because of measly interest rate hikes. I don't see rates going up in any meaningful way any time soon. The Europeans haven't really touched theirs and the US itself is in no possession to do so, even now. Before we know it, the fed is talking about QE4 and we're back to 0.5%. 

The bankruptcy thing is a distant hypothetical. Yes, it could fuck you up, but it's worth the risk if you can make 200k in the short term (which I think you still can in the condo market). 

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1 minute ago, whoknows said:

How much contribution limit do you have stored in your TFSA? Why are you willing to utilize that limit for short-term investments? 

TFSA limits don't get eaten up once you take money out. So it doesn't matter if your investment is short term or long term. Plus, whatever the limit is at the time of deduction, that will be your new limit when time comes to re-contribute. Say you've never contributed and you have 50k in TFSA room. You double your money in the account and you take it all out in 2 years. Your new room is 100k! 

My current contribution room is 57,500. I've never contributed to my TFSA. I only have a locked-in RRSP. 

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15 minutes ago, Abii said:

TFSA limits don't get eaten up once you take money out. So it doesn't matter if your investment is short term or long term. Plus, whatever the limit is at the time of deduction, that will be your new limit when time comes to re-contribute. Say you've never contributed and you have 50k in TFSA room. You double your money in the account and you take it all out in 2 years. Your new room is 100k! 

My current contribution room is 57,500. I've never contributed to my TFSA. I only have a locked-in RRSP. 

Alright, good luck. Long SQQQ and JNUG. 

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Posted (edited)
16 minutes ago, whoknows said:

Alright, good luck. Long SQQQ and JNUG. 

haha somebody's subscribed to the Peter Schiff podcast.

He's been long gold since I was born. Not sure about that. That inverse-leveraged ETF is wayyyyy too risky for my heart rate, but if I had the cash I would put a small amount in. Tech companies are the future of the world. But I'm not sure if Twitter, Facebook and all the other social media garbage are worth their valuations. It's all based on ad revenue and selling user information to third parties. In the short term it might be a good investment to short them. Are you in or are you just monitoring those?

Edited by Abii

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ell, nominal vs real is irrelevant b/c most people don't look at real growth rates in the securities markets anyway. 

You're right about the individual periods, but what about the compound annual growth rate once we punch in the numbers for the positive individual periods? I actually haven't looked at the figures, but I HIGHLY doubt that it's a low number. My guess is that it's even higher than the growth rate of the S&P500 (I think the S&P has a CAGR of 7.5% since inception no?). Real estate in the long term, if bought in a AAA city, is a good investment, period. No doubt about it. 

Not to make the obvious points, but the numbers I cited are nominal numbers,  not real ones.  Look at the real numbers I cited for Toronto, we didn’t regain the 1989 peak in real terms until 2012-13.  And, yes, people don’t think in real terms.  They should.  

You haven’t looked at the figures, but you doubt that the return on real estate is a low number?  What’s your doubt based on if you haven’t any data?   In any event, I have looked at the data and the return on real estate in Canada is materially less than for stocks over the past 30 years (5.5% vs 8.5%).  If you look at longer term  numbers from the US you see similar results.  https://www.theglobeandmail.com/real-estate/mortgages-and-rates/renters-make-for-wealthier-investors/article17834799/

The certainty you show in the absence of any facts demonstrates why we get housing bubbles.

Quote

agree with everything you said here. But it's a risk that you can easily account for. When interest rates are low (or even low-ish) it's not too much of a reach to assume prices will automatically go up.

Obviously point,  but when interest rates are at record lows (and have been for a decade), you should expect prices to fall, not rise.  Prices and interest rates are reciprocals of one another, all else being equal, higher interest rates mean lower prices, if interest rates have no where to go but up - as they do now - prices have nowhere to go but down.  

The current housing boom has been driven by cheap money, with low real interest rates.  As those interest rates return to normal, prices are going to correct further.  

Quote

e going to go back in history we have to accept that the current environment is the same. I'm not sure if they are. Without sweeping zoning law changes in Vancouver, for example, where is the land going to come from? Yes, high interest rates will kill demand, but the bottom of the market won't fall when there's nothing available in the market. The population isn't going to stop growing either. And then you're also assuming that interest rates will go up to previous levels. Says who? Canadian interest rates follow in tandem with the rates in the US. The US will never enjoy the supremacy it enjoyed in the decades past. Its economy is inflated because of the current low rates. Look at the stock markets right now. They were falling even before the tariff nonsense, simply because of measly interest rate hikes. I don't see rates going up in any meaningful way any time soon. The Europeans haven't really touched theirs and the US itself is in no possession to do so, even now. Before we know it, the fed is talking about QE4 and we're back to 0.5%. 

Where’s the land in Tokyo come from?  Of course, Tokyo didn’t add more land, but real estate prices fell more or less continuously for two decades.  You think the fed isn’t going to raise interest rates?  The Chairman of the fed disagrees:  https://www.nytimes.com/2018/02/21/business/economy/fed-economy.html and http://www.businessinsider.com/federal-reserve-statement-on-interest-rates-march-2018-2018-3

And a “measly” interest rate increase of, say, 75 bps (e.g., the 3 25 bps increases forecast by the fed) would significantly reduce what lenders will lend and what buyers can afford to buy.  That alone would probably be sufficient, all else being equal to drive down prices by 7% or so. Go play around with one of the banks mortgage calculators and see what it does to affordability.  

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1 minute ago, Abii said:

haha somebody's subscribed to the Peter Schiff podcast.

He's been long gold since I was born. Not sure about that. That inverse-leveraged ETF is wayyyyy too risky for my heart rate, but if I had the cash I would put a small amount in. Tech companies are the future of the world. But I'm not sure if Twitter, Facebook and all the other social media garbage are worth their valuations. It's all based on ad revenue and selling information to third parties. In the short term it might be a good investment (SQQQ). Are you in or are you just monitoring it?

Monitoring. Always monitoring. I mostly own indexes, US All caps, S&P, and Canada all caps. Definitely looking into growth overseas. Also have a position in Cannabis that I'm looking to expand after the recent dip in order to cost average down. Most of my interest is in the genetics sector, but I won't have time to really research it until the summer, and won't even think of a position until then. 

The valuations these days are just fucking insane. Across the board. You have ten years of bull markets and cheap money and I just don't trust it. I think the social stuff is overvalued, and there aren't many deals in AMZN/AAPL/GOOG unless you really really believe in forward earnings projections, and even then....idk. Don't even think about TSLA. My expectation is a 20% correction soonish.  

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