Private line of credit + full ride = opportunity? Forum

[curiousfred]

Hi everyone!

Avid lurker, first time poster. I'm not sure this is the right forum for this question -- mods, feel free to move? It's not about financing per se, etc.

TLS helped me a ton when I was preparing for the LSAT and deciding on schools to apply to. However, this is a random thought I had that I thought I'd bring up here. Why? Because it's so off-the-wall that I figure someone will be able to explain to me why it's a horrible idea. I can't quite figure out if it is or not.

Let's say I were to receive a full ride to NYU or Columbia (I have a 3.94GPA and a 177 LSAT, so it's possible!). I'm able to get a private student line of credit from my bank here in Canada (I live in British Columbia usually, and I'm not a US citizen so wouldn't be applying for gov't loans and the like down there). My bank has offered me a line of credit up to $250 000, all available immediately. Repayment is minimal -- only interest until I graduate law school.

Now here's the kicker -- my hometown has pretty low real estate prices. Like $120 000 for a full house (and that's assuming one doesn't barter them down by vowing to pay it all up front cash). I'm positive the housing market is going to shoot up pretty quickly due to some recent precious mineral prospecting. There's already something of a housing shortage; the market has begun to self-correct but certainly hasn't reached anywhere near the point of popping yet.

So if I get a full ride, what's stopping me from taking that student loan and putting a huge chunk of it toward purchasing a house? You know, collecting rent on the side. Take the money that I would have sunk into law school, and was prepared to owe anyway, and instead sink it into a venture such as this? Even if the housing market doesn't shoot up, I'd have a house to show for it at the end and 3 years of the "mortgage" would have been immune from principle payments..Having read the loan terms it doesn't seem to be illegal...Any thoughts on this? Is it a horrible idea? I feel like it must be, but I can't reason it out to be. And I mean since the interest rate is just 3%, why not just sink it all immediately into some fund that returns around 5%? I'm sure there must be some sort of catch here.

Anyway, thoughts welcome + appreciated! Thanks TLS.

[Renzo]

Congratulations--you've invented leverage.

If the housing market where you live is as robust as you say, why not just take out a mortgage and buy a house? Why the need to deceive the bank about the uses to which you will put the funds?

[curiousfred]

Well there's a 0% chance I'd be approved for a mortgage. Their student loan thresholds are significantly lower for professional programs than their thresholds for other loans.

[curiousfred]

The word 'deception' is sort of telling, though. Veering back to law on top of all this -- provided this doesn't contravene anything in the loan's contract, could it still be a C&F issue?

[Tiago Splitter]

Congratulations--you've invented leverage.

Doesn't sound like he even wants to take advantage of leverage since he's going to buy the house with 100% cash. Don't really see the point of this given all the extra hassle that goes with owning real estate.

[EvilClinton]

I can't believe that someone with such good stats could come up with a plan that is this stupid.

[PRgradBYU]

I can't believe that someone with such good stats could come up with a plan that is this stupid.

Don't really see the point of this given all the extra hassle that goes with owning real estate.

Seems like a silly plan to me, too. Just goes to show that hard numbers aren't entirely indicative of intellectual capacity.

[PBateman1]

Congratulations--you've invented leverage.

Doesn't sound like he even wants to take advantage of leverage since he's going to buy the house with 100% cash. Don't really see the point of this given all the extra hassle that goes with owning real estate.

It's still leverage because the cash used to buy the house was borrowed. You'd have to look at the terms of the line of credit to see if it specifies what it is allowed to be used for but if theres no prohibition then I don't see why you couldn't go through with your plan. That being said, owning real estate, especially if you're not going to be local, is a much bigger headache than most people realize when they're getting into it.

[WanderingPondering]

So you basically have 200k to invest (I assume you're going to use some of it for living expenses), and can keep only the profits on the investment. Are you sure you want to go into the real estate market? What a pain in the ass. TCR is to diversify your investments through a wide range of categories. Sinking it all into housing in this situation is really dicey. Maybe overexpose yourself to special minerals since you're sure its going to be popular in the coming years.