14 - Progress Update: Plans Approved

We received a quick note from Open Wealth today noting the builder has confirmed building plans and permits have been approved. The start date for construction—preparation for the slab pour—is next Monday!

I’m certainly ready to see this house built so we can get tenants in and start recouping costs. The holding costs have been minimal to date but now that we’ve settled on the land we’re accruing interest on the mortgage for that component and our first interest payment of nearly $700 came due just this week. That amount is paid from our line of credit and capitalised as interest during construction so it’s no problem from a cash flow perspective—and was budgeted for—it’s just a bit scary seeing it all start to happen for real now.

In contrast to our new build, Gemma’s father recently popped into town (they live south of Perth) with the intention of buying a second residence to accommodate them when they come up. They located an existing house in one day, put in an offer that equals the asking price, and settlement is due in the next few weeks. In effect, they’ll be able to move in soon and the time between their offer being accepted and move in day will be less than a month (if everything goes smoothly).

Two of the reasons why Open Wealth advocates building over buying is to take advantage of depreciation as a non-cash tax benefit and to avoid paying stamp duty on the building component of the purchase (i.e. the house). With a new build, we’ll pay GST to the builder (10%) and while the depreciation will be a substantial bonus, we’ll be accruing interest for many months before the house is tenant ready (again, assuming the build goes smoothly). I haven’t done my figures to determine which is the most cost-effective route but I imagine it would be close.

Note building new also brings builder’s and structural warranties, greater tenant appeal, of course, and potentially a greater valuation so you can leverage the equity and do it all again.

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

12 – Progress Update: Settlement

Settlement day today and everything went smoothly, as far as I know. I received an SMS from the bank to notify us settlement is complete, an email from our solicitor, and an email and phone call from our Client Liaison Manager at Open Wealth to say congratulations. So I’ll call that done.

I’d suggest this would be a good occasion to pop a bottle of bubbly but the wife is pregnant and heading out for dinner with the girls tonight, no less. So, in our usual way, we’ll let the occasion pass without much excitement. What investment property?!

Here’s a picture of a pile of dirt—but it’s our pile dirt (er, the bank’s pile of dirt rather)! Good to see the skies are blue in Queensland so hopefully progress can be made without too many disruptions from the weather.

I’m told by Open Wealth “the builder has arranged the soil test, engineering plans and working drawings and the plans have been submitted into council for approval”. “While the plans are being approved the builder will be organising the site works, retaining walls, sediment barriers, driveway shake-down and signage.”

Open Wealth expect 6-8 weeks for permits (ideally six since we paid the 5% builder’s deposit up front and should have jump-started the process) and then things start to really get underway.

I would have preferred to be further along by now, with the original aim of having tenants in place by the end of the 2014/15 financial year but settlement has pushed us out to October (worst case, on the basis of the 30-week construction guarantee Open Wealth includes). Naturally, this will be particularly awesome timing—he said sarcastically—as I’ll likely be overseas as we transition from construction to rental.

The base stage complete milestone is next, which is everything before framing starts.

All said, I’m impressed with myself for a) doing this and b) doing this as well as I possibly could using my newfound knowledge. When we built our PPOR in 2006, we were clueless and did as we were told. Rather than try and understand the process, we followed the bouncing ball. We lucked out in general, but for an investment property I felt complete engagement was necessary. This will be one of several (future) income generating assets which I intend to run as a business and I believe it would have been amiss of me not to dive deep into the semantics. Yes, we’ve still followed the bouncing ball in general because the process outlined by Open Wealth is aligned to my knowledge and strategy but I now understand why the ball bounces and I’ve not hesitated to correct its trajectory when I felt it was heading in the wrong direction.

Time will tell whether we’re doing the right thing but right now I’m comfortable knowing I’ve taken the first steps to secure my financial future and done it in a way that I understand and believe to be correct.

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

7 – Progress Update: Land Settlement

As mentioned in previous posts, settlement on our Queensland block of land was delayed in late January; apparently adverse weather conditions over Christmas and throughout January “may” have led to delays for the developer—presumably in to relation finalising all things tied up as part of the land division such as sewerage and services, roads, lighting, etc.

I’ve now been told to expect settlement in the coming days (now late February) and this will mean building plans can be submitted to council for approval and building permits obtained.

This process is very opaque to me but from what I understand, the land developer is required to bring the land to an agreed standard as part of subdivision, council will then approve that work, and the development process for individual developments (i.e. construction) can then commence subject to the rigours of the council building process.

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