34 - Getting started, again

RepeatAs mentioned, we’re looking at doing it all again with a second investment property build on the cards. It’s not so much that the first property has already performed that well (it’s done neither well nor badly—it’s far to early to tell) but we’ve still got unused equity sitting in our family home and, hopefully—if the banks agree, some borrowing capacity. To be clear on this point, we’re not “duplicating” just yet.

Having been through the first IP build with Open Corp, we’re comfortable with the process and the principles. The land purchase, construction, and tenant selection for that property went very, very smoothly and I don’t think we could have expected more in a first purchase/build. I’d be very happy if we can match our first experience a second time around.

Sure, it would be great to see some strong initial growth in the Brisbane market but I’m confident that growth will come—if not in the next few years then in the next ten. The tenants only moved into the house in September and, very simply, we’re in this for the long-term: if the growth takes time, I don’t really care when it comes (assuming it will come eventually, of course!). Remember the Brisbane market has been flat for some time now (years) and everyone in the Australia was saying “it’s Brisbane’s turn in 2015”)… which didn’t happen. Now it’s a question of “when”. The sooner the better as that growth can then be leveraged to duplicate with no dependence on our family home.

Growth aside, the holding costs for the first IP are almost negligible (a final reckoning will come at tax time but even then we’ll have only a partial picture with the wife having been on maternity leave for most of this financial year).

Having been busy back at work myself for the last quarter, we’re looking to Open Corp again. As noted, I’m confident in their process but not so much in my ability to implement their process. It’s also a risk management thing to my mind, especially with these crucial first purchases. Open Corp have pointed us to Melbourne and identified some initial areas and properties to looks at.

I’ve meanwhile been speaking with our broker from Mortgage Choice, Nathan, to start the finance pre-approval wheels turning. Nathan and I met to go through a pre-assessment completed by Mortgage Choice, which gave us a rough indication of what we might (or might not) be able to borrow and which lenders might be in the mix.

In our case, we had only one lender to consider (one of the big four) following the recent belt tightening by the banks and the banking sector regulators and so we’re moving forward on that basis. As with the IP#1 pre-approval, we had to submit pay slips, credit card statements, bank account and mortgage statements, drivers licenses and passports, and the tenancy agreement for the first investment property.

All just a formality—or so it should be—but it all got a little bit hairy since my employment contract runs out early next year and I haven’t (yet) been offered a new contract. My wife already has contracts signed for when she returns to work from maternity leave and, interestingly, while the bank wouldn’t consider her future income, they were insistent on sighting her contracts. They also requested a letter from my employer stating my current arrangements and that they would (in principle) be on-going.

Mortgage Choice tells me we had a particularly hard bank-side assessor (especially for a pre-approval, thought I!) but we prevailed in the end. I find there’s no point in stressing about financing as the ultimate decision is beyond my control. It’s more a case of follow the bouncing ball, supply the information requested in a timely matter, and hope for the best!

We’re now back to Open Corp and waiting for a block to come available before our pre-approval expires in thirty days.

I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. This content is not professional advice and is not tailored to your situation. I'm learning too and expect to make many, many mistakes along the way.

Enjoy,

Michael

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