# Student seeks general advice



## lawstudent (Sep 27, 2009)

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


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## FrugalTrader (Oct 13, 2008)

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?


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## Henry (Jul 12, 2009)

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.


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## lawstudent (Sep 27, 2009)

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.


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## Berubeland (Sep 6, 2009)

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)


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## FrugalTrader (Oct 13, 2008)

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.


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## lawstudent (Sep 27, 2009)

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?


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## Rickson9 (Apr 9, 2009)

lawstudent said:


> 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.

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.


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## FrugalTrader (Oct 13, 2008)

lawstudent said:


> Thanks everyone, your comments are appreciated.
> 
> The only downfall is losing a place that I love or have been emotionally attached to...
> 
> ...


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.


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## Berubeland (Sep 6, 2009)

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.


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## Ben (Apr 3, 2009)

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.


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## lawstudent (Sep 27, 2009)

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.


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## Rickson9 (Apr 9, 2009)

lawstudent said:


> 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.


Ouch.


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## OhGreatGuru (May 24, 2009)

lawstudent said:


> 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.)


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## Elbyron (Apr 3, 2009)

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.


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## PMREdmonton (Apr 6, 2009)

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.


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## 83gemini (Apr 4, 2009)

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.


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## sprocket1200 (Aug 21, 2009)

sell it if you can


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## specialk (Jul 14, 2009)

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.


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## lawstudent (Sep 27, 2009)

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.


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## Rickson9 (Apr 9, 2009)

lawstudent said:


> 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.


Congratulations! You're off to a great start!


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## George (Apr 3, 2009)

lawstudent said:


> Thanks everyone, your comments are appreciated.
> 
> The only downfall is losing a place that I love or have been emotionally attached to...


It's a condo, not a family heirloom. The memories you have from the place will remain even after you sell it.

Emotions should be avoided when talking about real estate - the dollars at stake are too high to be swayed by emotional appeals. 

My vote would be to sell the place, clear up the student loans entirely, and start fresh. If you're a junior lawyer then renting a place will give you an advantage - you'll be far more mobile and able to pick up and move as needed. Plenty of law firms have offices across the country, and you never know where your skills will be in high demand.


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## Canadian CC (Oct 14, 2009)

lawstudent said:


> I was recently lucky to win about $13,000 from a lawsuit.


Never mess around with a law student ;-)

Seriously, why are you not using the equity in your condo to remortgage and pay your student debts (if the interest rate is higher than your mortgage rate). I would apply for a 5 year term mortgage with a 5 year amortization (to make sure you pay it off quickly).

If you do not plan on moving, this is what I would do. 

And if you move and invest your profit on the market, where are you going to live?

If you consider renting, why don't you rent your condo and keep it? This could be another solution (after remortgaging it).


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