Buying a flat (apartment)

[shetland]

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Hiya,

Have anyone bought a place whilst at medical school?

I have a LOC and got approved for a mortgage. I would have to put 20% down for downpayment and use my LOC to pay mortgage.

My question is that, is that advisable? I mean I dont have an income and will be using my LOC to pay for my mortgage. I am pretty sure I would stay in the area for residency. The market price for housing (in Vancouver) is low but the intertest is high at the moment.

What do you guys think? Continue paying rent until I am in residency... or buy a place now with my LOC??

Good Luck in December/ Board Exams

 

[ZagDoc]

I know people who have purchased property. Personally, I would advise against it, because of the freefall the housing market is in, and because you never know where you are going to match for residency. But that's just my 2 cents.

A properly managed piece of property can be a good investment, even if you end up having to leave for residency. I just wouldn't want the burden.

 

[njbmd]

Moving to Finance and Investment.

 

[otl]

It is financially very risky to use LOC to pay mortgage. It is like using one Visa card to pay off debt from another credit card. U.S. is having its worst real estate bubble since Depression, and millions of Americans today are losing their homes because they can no longer afford LOC and mortgage payments. I am told Vancouver house price has gone up 90% in last 4 years, and would soon tumble. It is better to buy years later after market correction. Without income, I would rent, or share accommodation to minimize living expenses until I graduate and can pay with my own income. I won’t use LOC except for tuition fees and education related costs. I know of a newly qualified doctor who has lost his home and is bankrupt due to extravagant use of his student LOC for holidays, cars, gifts and other luxuries.

 

[The White Coat Investor]

Several things to consider here.

First of all, what is the interest rate on your line of credit? If it is above 5% you probably shouldn't be using it to invest "on margin," even in a home you'll live in.

Second, are you familiar with the term "upside down" in reference to loans? For example, if you buy a $20K car on credit ($20K loan), in 2 years you might still owe $15K, but the car might only be worth $12K, you'd be "upside down." If you buy a $100K house, and never pay the interest (because you're just shifting it from your mortgage to the LOC) and the interest compounds in addition, you almost surely will be upside down in the home by the time you're ready to sell, which means you leave the house in a few years with nothing but a big debt to show for it.

Third, if you're going to pay a mortgage with a loan, at least do it with a loan with favorable terms, like a student loan.

Fourth, the decision to rent or own isn't a purely financial proposition. How important to you is it that if the furnace breaks someone else is responsible? How important is choosing the color of the paint on the walls?

Fifth, in a typical market, you need to own 3-4 years to break even. Those who bought in 2003-2006 got lucky. Don't expect to get lucky. I owned a condo in med school from 99-03. It didn't appreciate a bit. Overall it was a loss after realtor fees and rehab costs. It was fun to own my own place, but it wasn't a good financial decision. Given the recent rapid appreciation in real estate, it seems unlikely that you'll get rich off this decision. I'd say be happy if you break even in today's real estate climate.

Just rent and spend your free time in Squamish, that's what I'd do!

 

[otl]

‘ActiveDutyMD’ is correct to point out that government student loan has favorable terms in that interest is waived while student is still in school. On the other hand LOC’s interest rate is compounded from the day of drawdown, and based on prime which is not fixed but will escalate over time. Most borrowers under-estimate such daily compounding effects. This is a major factor for the sub-prime mess now causing millions of Americans to lose their homes. I know of a medical student who merrily used up his $210,000 LOC for trips, cars, gifts, etc, thinking that he could easily pay off the LOC with his expected over $100,000 salary upon graduation. 8 years later when he completed residency, he was shocked to learn that prime rate had increased to 12%, and his LOC owed to the bank totalled over one half million dollars due to compounded interests. He was more shocked when he found out his net income is only 55% of his expected gross salary after deducting for income tax, insurances and contributions to pension. After missing a few monthly loan repayments, he has forced into bankruptcy by the same ‘friendly’ banker turned loan shark. I have been in finance and investment field for years and observed that some doctors and lawyers seem to have little understanding of personal finance and budget.

 

[etf]

I have been in finance and investment field for years and observed that some doctors and lawyers seem to have little understanding of personal finance and budget.

well hopefully this forum will help some current/future healthcare professionals avoid a similar fate.