Finance - work dilemma

[LisaP]

Hi all,

I'm hoping the collective brain power here on SS forum might be able to help me with a dilemma of mine.

To keep it brief: I'm currently completing my PhD. Up until now I have received an income via a scholarship ($35K per year for three years). In April, however, I entered my 4th year of study, and as such, this source of income has run out. I'm now working as a casual university tutor and doing some research assistant work, but this income is minimal.

I currently have two properties, purchased over the last seven months. Details are:

Property 1: Purchased for $252,000 (loan $230K) in Sep 2010; current value $330,000, rents for $400 per week.

Property 2: Purchased for $102,000 (loan $93K) in Feb 2011; current value $145,000, will rent for $230-240 p/week or $300-350 p/week (furnished). I plan to furnish it.

My plan had been to draw out the equity from Property 1 via a LOC, and use that to renovate Property 2, pay back a family loan and hopefully have enough left over for a deposit on a 3rd property.

However, I have run into a problem! While the rents will cover the loans, my bank will not provide me a LOC because my current income is too low (bordering on non existent!). I have decided to take 6 months off to establish an income so I can action the above plan.

But before I dive back into the world of work, I need to understand what the banks look for in terms of employement status and income. There are a number of hypothetical work situations that I am considering:

- Enter into a 6 month employement contract (high income, short term, easy exit)
- Undertake temp work for 6 months (low income, but will allow me more time to focus on PhD, easy exit)
- Obtain a full time job and exit after 6 months (high income, most stable in the eyes of the bank, but creates an ethincal dilemma, which doesn't sit comfortably with me)

So my questions are:

1. Do banks lend to people on a short term contracts, such as 6 months or even 3 months?
2. Do banks lend to casual, temp workers?
3. If yes to the above, how long do I have to be working in a role before I can apply for a loan?

Hopefully, the answers will help me sort out which option to take.

Thanks in advance!

Lisa

 

[dammit]

Hi Lisa
First of all, good on you for making such a great start with the 2 properties you have.

I can see in your current circumstance it would be very risky and possibly irresponsible for a bank to give you credit, given your current income from employment would not really be sufficient to repay it. (I have not calc'd how much this improves if you have a surplus income from your 2 properties rent incomes though).

How long do you have left until you graduate from Uni and could work full time? You need to be careful, because a lack of lending might tempt you to put on hold temp or permanently your study to allow you to gain more funds which could jeopardise your future earning capacity if you decided to give up uni or get distracted by employment.

banks do sometimes lend on short contracts, casuals etc. usually you would need a lot of info like previous tax returns, to prove you have steady income. a broker can probably comment a lot more on this.

i would suggest that you try and ride out your study, do things to help improve your employability immediately after your study is complete, so you can get settled into a high paying job quickly, and in the mean time try and save as much as possible from casual employment/income to help get you further ahead.

 

[LisaP]

Hey dammit,

Thanks for your reply Realistically, I've got about 6-8 months working full time on my PhD (doing some pretty heavy hours) before I finish my final draft. However, I need a LOC so that I can renovate my 2nd property and pay off a family loan, which I don't want to wait 6-8 months to do.

So I'm really torn at the moment between two directions. Would love to just get the PhD out of the way, but I have certain financial goals and responsibilites that I don't want to put on hold either.

 

[Bigtone]

Hey dammit,

Thanks for your reply Realistically, I've got about 6-8 months working full time on my PhD (doing some pretty heavy hours) before I finish my final draft. However, I need a LOC so that I can renovate my 2nd property and pay off a family loan, which I don't want to wait 6-8 months to do.

So I'm really torn at the moment between two directions. Would love to just get the PhD out of the way, but I have certain financial goals and responsibilites that I don't want to put on hold either.

Hey Lisa,

Welcome back!

Who are the current loans with on prop a and prop b?

Cheers

 

[locko24]

Hi Lisa

I was speaking to my broker today about an loc to reno a property that will settle in 8 weeks. She said i will have trouble with the loc unless i get quotes for everything! Are you sure you get get an loc to pay for a family loan?

Regards
Locko

 

[LisaP]

Hey Bigtone!

Thought I'd bump into you on here

Both loans with Commonwealth Bank. They gave me the loans based on my long history with them and good savings record. No-one else would touch me because the scholarship income was too low and it had an end date of April this year.

 

[Peter_Tersteeg]

Honestly it's a pretty tough sell. Most lenders will only consider casual income after you've been in the role for 12 months, in some cases 2 years. For contract work they usually want to see at least one renewal but generally they'll also want the same industry for 12 months or more.

I think you'd be best to continue studying, finish your PHD and see full time employment after that. Lender tend to look on this scenario more favourably when you're employed in the field you studied.

 

[LisaP]

Hi Lisa

I was speaking to my broker today about an loc to reno a property that will settle in 8 weeks. She said i will have trouble with the loc unless i get quotes for everything! Are you sure you get get an loc to pay for a family loan?

Regards
Locko

Given that people can live off their LOC's - I didn't think they cared what you spent it on. Maybe the brokers on here can shed some more light on this.

 

[Peter_Tersteeg]

Given that people can live off their LOC's - I didn't think they cared what you spent it on. Maybe the brokers on here can shed some more light on this.

LOCs are seen as a regular home loan (which they are with a couple of additional features), that has to be paid back eventually. Lenders don't see it as something you can live of, they see it as flexible access to borrowed funds. Lenders won't give you a LOC if your reason for it is to live off, you have to demonstrate that you can make repayments on the fully drawn amount.

The reason the end date of your scholarship is a problem is because when that expires, you could have spent all the money in the LOC and have no way to cover the interest because you don't have an ongoing income.

 

[LisaP]

Honestly it's a pretty tough sell. Most lenders will only consider casual income after you've been in the role for 12 months, in some cases 2 years. For contract work they usually want to see at least one renewal but generally they'll also want the same industry for 12 months or more.

I think you'd be best to continue studying, finish your PHD and see full time employment after that. Lender tend to look on this scenario more favourably when you're employed in the field you studied.

Thanks PT Bear. Would they look more favourably upon me if they knew my line of study was on DIY investors? Hmmm. Tough sell re length of time in industry. I've been in three completely different industries (banking, intelligence, academia) over the last 10 years.

So what I'm hearing is a 6 month contract wouldn't cut it?

 

[LisaP]

Lenders won't give you a LOC if your reason for it is to live off, you have to demonstrate that you can make repayments on the fully drawn amount.

The reason the end date of your scholarship is a problem is because when that expires, you could have spent all the money in the LOC and have no way to cover the interest because you don't have an ongoing income.

Scholarship has expired. Hence the need to look for alternative income to get the LOC. Rents will cover the interest on all loans, including LOC.

 

[Bigtone]

Hey Bigtone!

Thought I'd bump into you on here

Both loans with Commonwealth Bank. They gave me the loans based on my long history with them and good savings record. No-one else would touch me because the scholarship income was too low and it had an end date of April this year.

u r with the right bank.

take the job with the highest pay that relates as closely as possible to what u were doing before or to ur area of study

i understand long term serviceability will not be a problem it is just proving it now to achieve short term objectives of reno's and repaying family loan.

presented properly u should get it through no probs

good luck!!

 

[LisaP]

u r with the right bank.

take the job with the highest pay that relates as closely as possible to what u were doing before or to ur area of study

i understand long term serviceability will not be a problem it is just proving it now to achieve short term objectives of reno's and repaying family loan.

presented properly u should get it through no probs

good luck!!

Thanks BT

Would they consider a contract role, or should it be a permanent role?
I can't get a job as a lecturer until I finish the PhD, so that's out.
Might have to consider banking industry, research role, or going back to intel.

 

[Bigtone]

Thanks BT

Would they consider a contract role, or should it be a permanent role?
I can't get a job as a lecturer until I finish the PhD, so that's out.
Might have to consider banking industry, research role, or going back to intel.

contract will be fine, one payslip and u r in like Errol

 

[Mick C]

Lisa congrate on buying 2 properties already!!

I would avoid "temp"/ causal job as lender would want to see 12-24 month history min!

Go for Full time work, there are 4 lenders that will borrow even if your on probation and 1st day of work! - as long as your income you get form this "full time" job can meet serviceability you wont have any problem.



Regards
Michael

 

[Mick C]

For your situation - constructing is a big no...
There are 2 type of contractors;
1. Self employed - MIN 12 -24 month tax return
2. PAYG - Need to show 3 years work exp in the same industry or will be consider as an self-employed

Regards
Michael

 

[LisaP]

Thanks for the tips Mick.

contract will be fine, one payslip and u r in like Errol

BT - I like those odds!

 

[tgarthe]

How about focusing on your career rather than worrying about buying another house??

And don't take the higest paying job you can find, you need to be doing something you enjoy.

What's the point of having a 3rd IP if you have to spend 40-50 hours a week hating your life!

Also can you give me a heads up on where I can make 40% gains in a quarter and over 11% gross yield or have you undertaken a reno?

My 2c