Tough to evaluate your situation without more info. Where are you going to live after grad? If you sell, are you going to buy a place or live at home? If you do keep the property, do you plan on renting it out or living in it? If you rent it out, will it be cash flow positive?
Student seeks general advice
I am in my final year of a law degree from a top Canadian university, I am in my late twenties. I have worked really hard during my undergraduate and legal studies but have also accumulated about $47,000 in debt which will need to be repaid to the government and a bank.
I was recently lucky to win about $13,000 from a lawsuit. These funds will pay off my current bank debt which services a monthly interest fee. I will have remaining: $34,000 debt.
I also made a smart decision to purchase a condo with a family member during my legal studies. It's in a great location, we fixed it up a bit and my neighbor wants to purchase our place. I can personally make a profit of $50,000 - 60,000 simply from selling the place. This would essentially eliminate all my student loan debt even before I graduate and leave me with 20,000-25,000 in my bank account.
A few questions:
(1) is it best to hold onto property to keep as an asset?
(2) might it be a better strategy to hold onto the condo while paying off the $34,000 student loan debt?
(3) should i sell and be debt free, how should i invest that 20-25K?
Any opinions are appreciated. Thanks
I was recently lucky to win about $13,000 from a lawsuit. These funds will pay off my current bank debt which services a monthly interest fee. I will have remaining: $34,000 debt.
I also made a smart decision to purchase a condo with a family member during my legal studies. It's in a great location, we fixed it up a bit and my neighbor wants to purchase our place. I can personally make a profit of $50,000 - 60,000 simply from selling the place. This would essentially eliminate all my student loan debt even before I graduate and leave me with 20,000-25,000 in my bank account.
A few questions:
(1) is it best to hold onto property to keep as an asset?
(2) might it be a better strategy to hold onto the condo while paying off the $34,000 student loan debt?
(3) should i sell and be debt free, how should i invest that 20-25K?
Any opinions are appreciated. Thanks
1 - 20 of 23 Posts
Try this calculator: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2&oref=slogin
There are people who are very bearish or very bullish on Canadian real estate. You can try to research on this topic further, since you do own real estate.
There are people who are very bearish or very bullish on Canadian real estate. You can try to research on this topic further, since you do own real estate.
Frugal Trader:
I'm leaving Montreal for Ottawa next summer. If i sell I will move directly to Ottawa and probably rent for a year and then decide where I want to stay long in the long term. There is a possibility of returning to Montreal but i'm unsure.
If i rent out the current property I might come short $100-200 per month, not including externalities. It may or may not be slightly challenging to manage the place given the distance between both cities.
I'm leaving Montreal for Ottawa next summer. If i sell I will move directly to Ottawa and probably rent for a year and then decide where I want to stay long in the long term. There is a possibility of returning to Montreal but i'm unsure.
If i rent out the current property I might come short $100-200 per month, not including externalities. It may or may not be slightly challenging to manage the place given the distance between both cities.
I would sell the condo and duplicate your success in Ottawa. 
It is pretty risky to find good tenants and while it is possible it makes it even harder when you are in another city. What if the tap leaks etc. all those things add layers of complexity. Then if they wreck the place you have to repair it.
Plus the property not being cash flow positive is a problem if you can sell it and make 60k I would. if you keep it you are gambling on 2 things, the tenants will be good and the building will maintain it's value. Lots of things can reduce the price of a condo including maintenance fee increases and newsworthy items (such as a death in the building)
It is pretty risky to find good tenants and while it is possible it makes it even harder when you are in another city. What if the tap leaks etc. all those things add layers of complexity. Then if they wreck the place you have to repair it.
Plus the property not being cash flow positive is a problem if you can sell it and make 60k I would. if you keep it you are gambling on 2 things, the tenants will be good and the building will maintain it's value. Lots of things can reduce the price of a condo including maintenance fee increases and newsworthy items (such as a death in the building)
I second what Berubeland wrote. With you changing provinces, and it being a cash flow negative property if you rented it out, if it were me, I would sell the property. It would eliminate the headache, expense and allow you to pay off all your debt.
Thanks everyone, your comments are appreciated.
The only downfall is losing a place that I love or have been emotionally attached to...
Yeah the headache of managing the place and balancing the payoffs of doing so vs the risk, would be gone. Renting it would also mean that i'll have to pay taxes down the road vs selling it and keeping all profits since it is a principal residence. Most importantly, the student loans would be completely paid off. Rather than spending the next 3-4 years aggressively repaying those student loans off I could instead save that income. I could also purchase something new in Ottawa and get a very low rate, assuming these all time low interest rates will remain for the first half of 2010.
Do you think it would be more wise to spend that 50-60k profit and reinvest it into a new place or pay off the entirety of my student loans off?
The only downfall is losing a place that I love or have been emotionally attached to...
Yeah the headache of managing the place and balancing the payoffs of doing so vs the risk, would be gone. Renting it would also mean that i'll have to pay taxes down the road vs selling it and keeping all profits since it is a principal residence. Most importantly, the student loans would be completely paid off. Rather than spending the next 3-4 years aggressively repaying those student loans off I could instead save that income. I could also purchase something new in Ottawa and get a very low rate, assuming these all time low interest rates will remain for the first half of 2010.
Do you think it would be more wise to spend that 50-60k profit and reinvest it into a new place or pay off the entirety of my student loans off?
I would clear the debt.Do you think it would be more wise to spend that 50-60k profit and reinvest it into a new place or pay off the entirety of my student loans off?
PS: I think it would be funny if the title of this thread was "Law Student Seeks General Counsel" but I'm corny that way.
I'm with Rickson, I would clear the debt and start from scratch. Check out the housing prices in Ottawa and compare the mortgage costs with the cost of renting. With your high earning potential, shouldn't take long for you to build wealth.Thanks everyone, your comments are appreciated.
The only downfall is losing a place that I love or have been emotionally attached to...
Yeah the headache of managing the place and balancing the payoffs of doing so vs the risk, would be gone. Renting it would also mean that i'll have to pay taxes down the road vs selling it and keeping all profits since it is a principal residence. Most importantly, the student loans would be completely paid off. Rather than spending the next 3-4 years aggressively repaying those student loans off I could instead save that income. I could also purchase something new in Ottawa and get a very low rate, assuming these all time low interest rates will remain for the first half of 2010.
Do you think it would be more wise to spend that 50-60k profit and reinvest it into a new place or pay off the entirety of my student loans off?
I'm disagreeing with Rickson and Frugal Trader here.
You have a demonstrated ability to make money in real estate. I would buy in Ottawa put a decent down payment down, do not buy more that you have to to live. In this way you will in a sense be your own landlord. You always have to live somewhere. From what you said you fixed the property up with is like a second income in way except you are putting money in your property rather than getting a paycheck.
I think your ROI on your wise property purchase will be more than your student debt. Then go nuts on the student debt.
When you get older and have a family they probably won't like moving every few years so the time to do this is now.
You have a demonstrated ability to make money in real estate. I would buy in Ottawa put a decent down payment down, do not buy more that you have to to live. In this way you will in a sense be your own landlord. You always have to live somewhere. From what you said you fixed the property up with is like a second income in way except you are putting money in your property rather than getting a paycheck.
I think your ROI on your wise property purchase will be more than your student debt. Then go nuts on the student debt.
When you get older and have a family they probably won't like moving every few years so the time to do this is now.
If it were me:
1. Sell the place. It's cashflow negative, and would likely be more so as a landlord from afar (require tradespeople even for the smallest of repairs).
2. Pay off debt, fund emergency fund with most of the remainder. Play a bit of defense before going on the offensive.
3. Rent in Ottawa for a while and build wealth.
4. Scope out the lay of the land, and if you decide to buy eventually, you'll be sure to buy the place that is right for you. The logistics of selling in Montreal and buying the right place in Ottawa at the same time could be challenging.
Nobody knows the future of real estate. You'll have to decide whether you think appreciation or depreciation is more likely, pick a side, and play your hand accordingly.
1. Sell the place. It's cashflow negative, and would likely be more so as a landlord from afar (require tradespeople even for the smallest of repairs).
2. Pay off debt, fund emergency fund with most of the remainder. Play a bit of defense before going on the offensive.
3. Rent in Ottawa for a while and build wealth.
4. Scope out the lay of the land, and if you decide to buy eventually, you'll be sure to buy the place that is right for you. The logistics of selling in Montreal and buying the right place in Ottawa at the same time could be challenging.
Nobody knows the future of real estate. You'll have to decide whether you think appreciation or depreciation is more likely, pick a side, and play your hand accordingly.
Thanks for the advice everyone.
A new twist to this is the breakage fee on my 5 year fixed mortgage contract. I had assumed it would be three months interests (so about $3500) but found out I will have to pay the Interest Rate Differential which I was told would be about $15,000 If i broke the contract today and about $10,000-$15,000 If i broke the contract next summer. I'm thinking of prepaying the maximum on my mortgage (10%) for 2009 and also in 2010 to reduce the overall amount that the IRD will apply. Even then I'm looking at a fee anywhere from $7,000-10,000.
A new twist to this is the breakage fee on my 5 year fixed mortgage contract. I had assumed it would be three months interests (so about $3500) but found out I will have to pay the Interest Rate Differential which I was told would be about $15,000 If i broke the contract today and about $10,000-$15,000 If i broke the contract next summer. I'm thinking of prepaying the maximum on my mortgage (10%) for 2009 and also in 2010 to reduce the overall amount that the IRD will apply. Even then I'm looking at a fee anywhere from $7,000-10,000.
Ouch.Thanks for the advice everyone.
A new twist to this is the breakage fee on my 5 year fixed mortgage contract. I had assumed it would be three months interests (so about $3500) but found out I will have to pay the Interest Rate Differential which I was told would be about $15,000 If i broke the contract today and about $10,000-$15,000 If i broke the contract next summer. I'm thinking of prepaying the maximum on my mortgage (10%) for 2009 and also in 2010 to reduce the overall amount that the IRD will apply. Even then I'm looking at a fee anywhere from $7,000-10,000.
That might change the economic analysis a bit, but for life style reasons I would still suggest selling in Montreal, paying off the remaining debt, and buying in Ottawa. As an articling lawyer starting off your career you are not likely to have any spare time to manage a rental apartment in Montreal. (You're a lawyer - maybe you can negotiate a deal with the mortgage company to waive the fee if you agree to take out your new mortgage with them.)Thanks for the advice everyone.
A new twist to this is the breakage fee on my 5 year fixed mortgage contract. I had assumed it would be three months interests (so about $3500) but found out I will have to pay the Interest Rate Differential which I was told would be about $15,000 If i broke the contract today and about $10,000-$15,000 If i broke the contract next summer. I'm thinking of prepaying the maximum on my mortgage (10%) for 2009 and also in 2010 to reduce the overall amount that the IRD will apply. Even then I'm looking at a fee anywhere from $7,000-10,000.
Most mortgages are portable, even to another city. Of course, you wouldn't have the option of renting in Ottawa, but if it can save you $10,000 then it might be better to just buy something right away. You can always move again later if you don't like it (moving within a city isn't going to cost 10k!).
In regards to your comment about paying taxes upon selling a rental unit, you should note that you only pay capital gains on the difference in value between the time you converted to a rental and the time you sell it. The $50,000 you've made so far on your principal residence will never be taxed.
In regards to your comment about paying taxes upon selling a rental unit, you should note that you only pay capital gains on the difference in value between the time you converted to a rental and the time you sell it. The $50,000 you've made so far on your principal residence will never be taxed.
You're probably best off buying a condo for a few years to avoid that penalty. If you buy from one of those for sale by owner type sites you could avoid the real estate fees.
Also depends where you work. I'm articling now and if you work 12-14 hours a day you can't landlord effectively unless you know a reliable property management.
Does your family member partner have any interest in keeping it? Maybe they could buy you out and you are free from any sticky contracts holding you back.
The only thing that can be harmful here is that you are doing this deal with a partner,particularly family. This type of thing can work out great, but sometime it can turn sour, I would just be careful with that part of it. If it's me, I would get away from it and be debt free with an emergency fund. You can get another house later after you move, it's just a house, they are on every street corner. On the other hand, you wouldn't be stupid to stay there as long as the payments make sense vs your income and you get on a mega mega tight budget and get the debt cleared off as fast as you can.
The only thing that can be harmful here is that you are doing this deal with a partner,particularly family. This type of thing can work out great, but sometime it can turn sour, I would just be careful with that part of it. If it's me, I would get away from it and be debt free with an emergency fund. You can get another house later after you move, it's just a house, they are on every street corner. On the other hand, you wouldn't be stupid to stay there as long as the payments make sense vs your income and you get on a mega mega tight budget and get the debt cleared off as fast as you can.
Thanks for the great comments everyone.
I have agreed to sell to the purchaser. The funds will net me a handsome return, about $52,000. I think I will pay off most of my student loans but leave about $10,000. I will be motivated to pay them all off during articling and will have some $30,000 to start investing in other projects. It feels extremely relieving to know that I will be mostly debt-free, especially since I had expected to be paying them off for years.
I have agreed to sell to the purchaser. The funds will net me a handsome return, about $52,000. I think I will pay off most of my student loans but leave about $10,000. I will be motivated to pay them all off during articling and will have some $30,000 to start investing in other projects. It feels extremely relieving to know that I will be mostly debt-free, especially since I had expected to be paying them off for years.
1 - 20 of 23 Posts
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