# Please help me out. Paying off student debt while saving money for house?



## Guvner (Oct 22, 2012)

So here is my situation, please help me figure out how to tackle it properly.

I'm 32, single, I just graduated from nursing school and have landed my first nursing job making $30/hr. At this point I have accumulated about $37,000 in debt with various lines of credit and family loans, right now I'm trying to consolidate it with Scotiabank except for the student LOC since the interest rate is low. 
10,000 student LOC with TD Bank at 4.5%
25,000 soon to be LOC with Scotia, rate TBD but expecting 5-6% (current rate is 9% with TD)
2,000 OSAP 4.5%
No credit card debt

I have approx $2200/mth in expenses before any loan payments. I have no assets, no savings (divorced killed any hopes of that). Now I could if I get enough hours at work pay down $1000/mth towards debt and have most of the debt paid for in 3yrs, but that leaves me with almost nothing left at the end of the month and will simply put me back to a clean slate in 3yrs with still no savings...scary.

Now of top of paying down my debt I want to buy a house ASAP so I can build some equity. My house plan is to get into rental properties by first buying a house with a basement rental, then progressing into full rental properties in the future.

My dilemma is not knowing how to approach this, do I pay down my debt first no matter how long it takes and continue to rent or pay down a reasonable amount of debt while saving some for a downpayment? I figure for my housing market $12-15K will be a 5% downpayment. I also have to think about the fact that my car is old and will not last forever. 


Thoughts? Advice?? Bueller?


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## Sherlock (Apr 18, 2010)

I don't have an answer to your question, but can I ask why you've decided to buy a house and become a landlord as opposed to, say, invest in a diversified portfolio of stocks and bonds?


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## slacker (Mar 8, 2010)

You are too poor and make too little money to own a house in the next few years.


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## Sherlock (Apr 18, 2010)

Not really, $30/hr is probably about $60k/yr (more with overtime) and that is enough to buy an average house in many parts of the country. I know the common wisdom is that a house shouldn't be more than 3x your income but almost no one adheres to that these days.


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## Guvner (Oct 22, 2012)

Sherlock said:


> I don't have an answer to your question, but can I ask why you've decided to buy a house and become a landlord as opposed to, say, invest in a diversified portfolio of stocks and bonds?


Well lets say I have a $1100/mth mortgage and a tenant in my basement paying $750/mth, my effective mortgage cost if $350/mth. The difference could be used to pay down debt, save and/or invest. After enough equity is built in the house I take some of it out for a downpayment on another house say a duplex or triplex, and maybe another property in the future. Properties appreciate in value over time, tenants pay mortgage down. 
That said I'm very new to all of this, its just a rough plan right now.


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## Guvner (Oct 22, 2012)

$30/hr is just starting and does not count overtime, night and weekend shift premium. With full time hours I could gross $65,000 or more and I live in Kingston, housing is $250,000 on average.


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## timelessfinance (Aug 24, 2012)

Guvner, I'm not saying this to brag or to be a jerk, I'm saying this for your own good before you ruin your life.

I'm younger than you, make $70k a year, and have no debt. Including my partner, our household income is well north of 100k. Compared to most home buyers nowadays I'm super qualified because I could do a 20% downpayment without breaking a sweat (although cashing investments might break my heart). Yet I'm renting.

The smart money is staying on the sidelines because Canada is in the midst of a gigantic housing bubble. When a 32-year-old, divorced recent graduate with $35k+ in debt and just a $60k income (nursing is great to start but income growth SUCKS, and just wait til "austerity" really plays out in Canuckistan) is desperately looking to get into the housing market, you know it's a fool's game.

Please look at your past decisions and ask yourself: "If I'm fixated on running headlong into this major financial decision, chasing the equity goose, does that make me smart or just another average Canadian idiot who will get ruined when the housing bubble inevitably pops?"

Stop being house horny. Check yourself before you wreck yourself. May the peace of Garth Turner be upon you.


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## Guvner (Oct 22, 2012)

timelessfinance said:


> Guvner, I'm not saying this to brag or to be a jerk, I'm saying this for your own good before you ruin your life.
> 
> I'm younger than you, make $70k a year, and have no debt. Including my partner, our household income is well north of 100k. Compared to most home buyers nowadays I'm super qualified because I could do a 20% downpayment without breaking a sweat (although cashing investments might break my heart). Yet I'm renting.
> 
> ...



I appreciate you're bluntness. I have been burned on real estate before so I should know better, the ex and I bought November 2007 at the height of the last real estate boom and just months later the economy went into recession. We sold the house 3 yrs later, we lost about $10,000 not to mention the renovation costs we never recouped and that is something I swore I would never get myself into again. 
So are you saying wait till the bubble bursts, prices drop then when it stablizes BUY? Until then just pay off debt and rent? And rent even when where I live rent is often the same as owning?


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## Xoron (Jun 22, 2010)

timelessfinance said:


> *Stop being house horny*. Check yourself before you wreck yourself. May the peace of Garth Turner be upon you.


Ok, this has to be one of the best ways to put it that I've seen in a long time. 

To the OP: I think paying down debt first is the right move. Put the home ownership aside for a few years and get yourself on a better financial footing before you buy. 

My wife and I both had 0 debt, and rented for 2-3 years after we got married. We bought our house in 2005, and we used those renting years to build up a sizable down-payment.


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## blin10 (Jun 27, 2011)

There are two types of people here in terms of housing. Type number one: we are in some type of crazy bubble that will burst and we will pick up million dollar houses for $300k sometime very soon, people who buy houses now are fools and bla bla. Type number two: housing is an amazing investment and it will continue make money even if you buy right now. I say both need to come off their meds.



Guvner said:


> I appreciate you're bluntness. I have been burned on real estate before so I should know better, the ex and I bought November 2007 at the height of the last real estate boom and just months later the economy went into recession. We sold the house 3 yrs later, we lost about $10,000 not to mention the renovation costs we never recouped and that is something I swore I would never get myself into again.
> So are you saying wait till the bubble bursts, prices drop then when it stablizes BUY? Until then just pay off debt and rent? And rent even when where I live rent is often the same as owning?


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## jcgd (Oct 30, 2011)

Aha, I think housing is very overvalued but I doubt many markets will come down more than 25-30%. I would guess 10% or less for most areas outside Vancouver and GTA where homes prices are most frothy. I don't think it'll be a huge crash either, more like a bit of a drop and then prices will go nowhere while inflation brings down the relative values. 

OP, I'd pay off all the debt first. Start saving a down payment after that and buy into the market in 6-10 years when you are on your feet. By then the market may have corrected. It could be going down, going up or going sideways. I'd just buy in when you have no plans to move for 10-15 years (from the city) and are in good financial shape.


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## Sherlock (Apr 18, 2010)

blin10 said:


> There are two types of people here in terms of housing. Type number one: we are in some type of crazy bubble that will burst and we will pick up million dollar houses for $300k sometime very soon, people who buy houses now are fools and bla bla. Type number two: housing is an amazing investment and it will continue make money even if you buy right now. I say both need to come off their meds.


Actually I wouldn't say most people on this forum fall into one of thsoe two categories, I've foudn most here to be pretty sensible on RE.


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## Sherlock (Apr 18, 2010)

Guvner said:


> Well lets say I have a $1100/mth mortgage and a tenant in my basement paying $750/mth, my effective mortgage cost if $350/mth. The difference could be used to pay down debt, save and/or invest. After enough equity is built in the house I take some of it out for a downpayment on another house say a duplex or triplex, and maybe another property in the future. Properties appreciate in value over time, tenants pay mortgage down.
> That said I'm very new to all of this, its just a rough plan right now.


That's a best case scenario you've outlined. In reality things are rarely so simplistic. First of all if you collect rent you have to pay tax on that rent, so a good portion of your $750/month will be taken by the government. Then you have to take into account that it will be vacant at least some of the time, you have to calculate costs to fix thigns the tenant breaks, and of course there is the stress of dealing with a difficult tenant (laws are very pro-tenant in Ontario).

You are also considering putting all your money in real estate, so you will have no diversification and no liquidity. Real estate is an asset class and any investor should diversify across asset classes rather than putting all his net worth into a single asset class. That's like putting all your money in 1 single stock, it's crazy.

Also, who rents a basement for $750, especially in Kingston? I was paying $450/month to rent a basement in Toronto a few years ago (sharing the basement with 1 other guy). In Kingston someone could probably rent a 2 bedroom apartment for $750 which is much more private and desirable than a basement.

I'm not saying don't do it, just be realistic about what kind of return you can make on this investment instead of assuming the best-case scenario will play out in your favor.


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## Guvner (Oct 22, 2012)

Sherlock, vacancy rates in Kingston are low so landlords charge more rent. My friends were renting their 2 bed basement apt out for $880/mth inclusive, but it was nice and new, and many other 'quality' rentals charge the same or more. Here $4-500 rents you a tiny bachelor or a room. I owned a place back in 2006, townhouse condo, many owners rented them out for $1200+ which amounts to owning one.

Anyway I really appreciate the advice here, I'm going to pay down debt and continue to rent for the foreseeable future, my place is nice and rent is cheapish. Being a nurse allows be access to a great hospital pension so I have that to work with, I'll just have to do my research and find out the best way to supplement a pension. Given my age I won't have a full pension so I'll have to figure something out.


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## timelessfinance (Aug 24, 2012)

Guvner, I think it's really cool that you came here with an open mind and to receive input, rather than running with an idea and just looking for confirming evidence.

What's happening in Vancouver will happen in the Toronto condo market. The imploding market will have a ripple effect both ways down the 401 and beyond. How severe will it be outside TO? I'm not sure. But I'm certain it'll wipe out the equity of people with a 5% downpayment. The bubble we're in has been fueled by government intervention, cheap debt, and the greed of greater fools -- all three of these inputs are dying or dead.

The people telling you to buy now -- Realtors, mortgage brokers, the banksters, and their media lackeys -- were saying the same thing 10 years ago and they'll be saying the same thing 10 years from now, regardless of market conditions.

I'm not a perma-bear on housing. I think it's a fantastic investment when there's safe, positive cash flow.

But looking at price:rent, price:income, consumer debt, and a slew of other numbers, even a schmuck like me can see the writing on the wall.

Pay off your debt and focus on building your life as a free man.


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## Echo (Apr 1, 2011)

Here's an American's take on Canadian housing. Very well researched - http://moneymamba.com/canadian-housing-bubble-2013/


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## blin10 (Jun 27, 2011)

biggest slide in years of stock market in 09, in a heart of bush passing 800bill package, when lehman collapsed, when Gm collapsed, in a heart of doom and gloom, if all that didn't do much do the house prices in Canada why do you think all of a sudden people will get wiped out? why do you think it's a bubble (banks have tough rules on who gets mortgage, even tougher then before)? banks are not stupid they will not raise interest by a big amount (if they do raise it at all)... sure, a correction 5-15% might come, but that's normal ... if I listened to people like you i would never bought a house 8 years ago, even back then everyone was screaming how we are in a bubble



timelessfinance said:


> Guvner, I think it's really cool that you came here with an open mind and to receive input, rather than running with an idea and just looking for confirming evidence.
> 
> What's happening in Vancouver will happen in the Toronto condo market. The imploding market will have a ripple effect both ways down the 401 and beyond. How severe will it be outside TO? I'm not sure. But I'm certain it'll wipe out the equity of people with a 5% downpayment. The bubble we're in has been fueled by government intervention, cheap debt, and the greed of greater fools -- all three of these inputs are dying or dead.
> 
> ...


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## timelessfinance (Aug 24, 2012)

CMHC has directly insured $600 billion in mortgages; all of them, by definition, are sub-prime. You do realize that Canada had 0% down, 40 year mortgages with qualifications based on 5-year variable rates, right? (The government has gradually tightened these, but only recently really put a chokehold on the market with the latest budget. We're only starting to see this impact now.)

Banks responded to this socialist incentive -- the guarantee of their capital AND return on mortgages -- in a logical way: they loaned as much as they possibly could.

The Banks don't care about raising rates. If it picks off the worst borrowers - the ones insured by CMHC - they get all their $$ back from CMHC. When CMHC's 1.5% of equity has evapourated, guess who's on the hook? (Spoiler: taxpayers)

You do realize there are 53,000 un-sellable condos coming online in Toronto and, in September, TO sales hit an all-time low?

Four years ago, we hadn't hit all of the pinnacles reached by the American housing bubble. Now we have. Price:Rent (sorry, it's not Europe, there's lots of land outside the GTA if you hadn't noticed), Price:Income, the % of GDP committed to housing, dependence on construction jobs, Debt:Gross Income -- all of these ratios are now worse than America was at ITS peak. Irresponsible government intervention perverted the market and built an epic bubble. Every other real estate market that has reached these inane levels has been ruined.

If you listened to "people like [me]... 8 years ago" you'd hear the opinion of a very prideful teenager who was blind to his own folly. I think that sounds a lot more like you, the Realtors, the Banksters, et al, when you say "This time it's different!"


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## blin10 (Jun 27, 2011)

"I think that sounds a lot more like you" NO my dad can beat up your dad! sounds like you are that prideful teenager.... 

"You do realize that Canada had 0% down, 40 year mortgages with qualifications based on 5-year variable rates, right?" listen when I was buying a house 8 years ago before crush it was a pain in the *** to qualify even with 100k+ income, I had to prove a ton of stuff, I REALLY DOUBT anyone was given a mortgage 0 down just like that with no proof of anything (like in states), so don't make it seem like they were giving it away like candies

"You do realize there are 53,000 un-sellable condos coming online in Toronto and, in September, TO sales hit an all-time low?" do you know what all time low is and how they count it? it's based on a period of time like stocks, it can go up 1000% for 5 years then in the next year might be down to "all time" low versus previous year...

"sorry, it's not Europe, there's lots of land outside the GTA if you hadn't noticed" right, so you saying people can buy a house way further out and commute to work for half a day one way ? that point is so bad I didn't even want to reply to it

"more like you, the Realtors, the Bankster" i'm far from telling people it's the right time to buy now, in fact I don't think it is, it is an ok time if it's long term, I just hate people in tin foil hats always screaming how there is end of the world... with my case, even if houses loose half of the value I will still be even and not loose a cent


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## timelessfinance (Aug 24, 2012)

My Dad's dead. The rest of your opinions are demonstrably wrong. There have, in fact, been many mortgages/home equity loans issued by your vaunted banksters without income verification, particularly to immigrants and the self-employed.


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## blin10 (Jun 27, 2011)

there will always be articles like that, even if you have one of the best something there will always be a guy expressing his opinion on that something... I'm just speaking from pure personal experience...


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