43 - Recapping the IP#2 land purchase

What a roller coaster ride we’ve had “just” to buy a plot of land over the last six months! We’re nearly there now and I wanted to briefly highlight some of the issues we encountered in securing the block of land and finance. In summary, the land titles have registered and we’re finally approaching settlement.

If you’re interested in the details, I’ve linked to earlier posts below.

Step 1: Difficult finance pre-approval

We kicked off towards the end of 2015 when I asked our mortgage broker to look into finance pre-approval following my return to work several months prior. Although the wife was on maternity leave, I’d nonetheless been tinkering with the idea of a second investment build. The broker deemed our bank-appointed credit assessor to be unreasonably pernickety but finance was provisionally approved on the basis of servicing via my income alone.

I then needed to convince dear wife a second investment build is a good idea and gave Open Corp the okay to proceed once we reached agreement.

Step 2: Property selection do-over

All was looking rosy with the first property selected for us by Open Corp until the vendor mysteriously sat on the signed land contract for some weeks. It turned out we’d been gazumped by a large buyer who apparently bought out all remaining blocks in the release—including those blocks with unexecuted contracts.

By this point, our bank pre-approval was due to expire but Open Corp quickly found us a similar, alternate property in a neighbouring estate. It was slightly larger, with a correspondingly larger price tag. In the interest of time, we nominated Open Corp to purchase the property on our behalf.

Step 3: Short valuation

The Valex-appointed valuation company contracted by the bank to value this second block came back with an ill-considered short valuation. We were told by Open Corp and otherwise of the view the property value was in line with the contract price. Appeals to the valuer (Peter Jones from Lee Property) and the bank to review or reconsider a similar valuation that came in at cost for a similar property in the same estate fell on deaf ears. In brief, the valuer considered an inappropriate set of comparable properties and didn’t do his job. Unfortunately, there would be no getting around this and we’ll need to contribute the shortfall from our equity loan.

Step 4: Finance do-over

Throughout the valuation shenanigans, the contract I was on at work came to an abrupt end and left us as a no income, two kids (NITK—my acronym?) household—not all that appealing to a lender when it comes to their evaluation of a client’s ability to make loan repayments. The wife was still on maternity leave and, although she had a contract to resume work (and was actually on leave—maternity leave), the initial finance application was based on my income alone because our mortgage broker didn’t think her potential income would be considered. With my last pay stub showing the drop off in hours, it was difficult to prove to the bank we could afford this loan. For good measure, my overarching head contract also ran out!

Meanwhile, our deadline for finance approval with the land vendor was due to expire. A one-week extension was approved, provided the deposit was paid in full by the original due date. I wasn’t terribly comfortable paying the deposit until finance was unconditional but both Open Corp and our (independent) mortgage broker confirmed it was fully refundable.

Through a tip from another mortgage broker, I persuaded our broker to approach the bank about taking into account the wife’s signed work contract, commencing on her return to work from maternity leave and well before settlement. I’d been told the bank we were working with had recently softened their stance on maternity leave. Of course we first had to find the wife’s contract, which was buried in her work emails as an attachment she couldn’t access remotely. Her maternity leave had also been paid upfront so she had no recent pay slips.

The final hurdle was the build contract, signed by nomination, which the bank wouldn’t accept. A new contract was couriered out to us and signed in a hurry before being couriered back to be executed anew by the builder.

With the build contract sorted, the maternity leave strategy delivered and finance was finally approved.

Step 5: Deposits

Although the Open Corp land deposit is normally $2,000, our land contract stipulated the typical 5% deposit. As mentioned above, the extension required us to pay the balance before finance was unconditionally approved.

The builder’s deposit (5% of the build price) also came due just after finance approval and the balance of Open Corp’s fee was also payable.

It’s at this point—when significant amounts of money are moving out of the account—that it all starts to get real. Of course land titles haven’t yet registered and settlement hasn’t yet come about. Perhaps more importantly, in terms of getting a paying tenant through the doors, construction hasn’t yet started.

Step 6: Finance re-do over

A final twist to the finance saw our request for an LMI waiver come through shortly after signing the first loan documents, which necessitated the inconvenience having the loan documents signed again. We weren’t sure how this was going to play out before this point so it was a happy surprise, at least.

Step 7: Certified ID

As a final poke in the eye, I heard from Open Corp—two days before our anticipated settlement date—to say the solicitor needed a certified copy of our ID. On very short notice, the wife was fortunately able to find a Justice of the Peace at the hospital who could certify her ID… the head pharmacist, he was paged and materialised from a sterile room in a full biohazard suit to help her out!

Subject to the bank, settlement is scheduled this week.

Update (bonus Step 8!)

Wow, we’ll never cut a break with this one!

We settled on Thursday morning at midday but first had a call from our Eastern states solicitor at 7am to say the bank wanted a $25,000 owner contribution (the day before it was $0). That amount was not only more than I could transfer online given our daily transfer limit but it was also more than the bank’s first-line call centre rep could manage for us.

I asked to speak with the rep’s supervisor and, after going through some additional identification questions and a nuclear launch sequence involving call backs and temporary passcodes, I was able to make the transfer.

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 not selling anything and I do not receive any form of commission or incentive payments for any companies or individuals I endorse. I'm learning too and expect to make many, many mistakes along the way.

Enjoy,

Michael

40 – Short Valuation

It’s just one problem after another with the finance application for the second investment property.

Most recently, the valuation ordered by the bank came back under the contract price (short), specifically citing a discrepancy between the construction price and comparable build costs of around $35k. Annoyingly, the replacement value (which might be used when nominating an insured amount, for example) is noted as being above the contract price.

Our mortgage broker asked me to take this up with Open Corp, who note several points when it comes to valuations:

• No two valuers will value a property at the same price. The valuation comes down to the valuer’s experience, knowledge of the area, and subjective interpretation of comparable sales and the area’s price point. Of course, the valuer is attempting to (efficiently) compare houses on different streets, of different designs, built of different materials in different eras, and in a changing market—this isn’t apples and apples stuff.
• The properties we buy from Open Corp are full turn-key house and land packages, constructed as investment properties (i.e. to house tenants). The internal finishes are of a high quality to attract tenants and because they’re often hard-wearing. The house is 100% complete and includes landscaping, fencing, washing line, letter box, etc. I previously questioned Michael Beresford from Open Corp on the cost difference between the standard house and land packages for sale on realestate.com.au and the properties in the same development being sold by Open Corp and he made the same point in the context of that conversation.

Open Corp supplied me with a valuation for a similar, smaller property in the same area which did come back at the contract price. As plan A, I asked Mortgage Choice to submit this alternate valuation to the bank, requesting it be substituted for the original. This would in part be a test of the mortgage broker’s relationship with the bank but would more likely come down to the individual personalities at the bank’s end—more subjectivity—and in conjunction with whatever risk algorithms they apply.

Perhaps not unsurprisingly, the bank was unwilling to accept the alternate valuation and our mortgage broker subsequently took up the matter with the original valuer and and their minder, Valex (the valuation panel through which valuations are ordered by lenders). I have no experience contesting a valuation but understand it’s often a difficult proposition. The finer points seem to hinge on the comparability of the ‘comparable sales’ cited in the valuation—in other words, suggesting our build is comparable but at the higher end of the spectrum. As anticipated, the valuer (Peter Jones from Lee Property) wouldn’t budge and was apparently quite direct with our mortgage broker on this point.

In the meantime, Mortgage Choice ordered an independent valuation through another lender, giving us the option to supply that valuation to the original lender or proceed with finance through the second lender. This valuation came back at the contract price but was also not accepted by the first bank. Interestingly, many of the comparable sales cited for this valuation were in the same development whereas the comparable sales in the original valuation were from further afield.

Our last option was to challenge the valuation with the bank directly but that was equally unsuccessful.

In order to secure any form of financing from this application, we made the decision to reduce the loan amount (aligning to the original valuation) with the difference contributed from our line of credit (at a slightly higher interest rate and with the added risk of the increased LOC balance being secured by our PPOR).

This would have done the trick if I had a current pay slip for the bank—which I don’t because I was unexpectedly stood down by the firm I was contracting for earlier in the year when their pipeline of work dried up. Of course the wife’s still on maternity leave and won’t be back to work for another few months and the bank won’t accept her signed contract in place of a pay slip. Of course this also makes applying for finance through another lender a tricky proposition.

What a saga.

Finance is due in four days, on Friday. Mortgage Choice have recommended we request a finance extension from the vendor until wifey is back to work. Open Corp have suggested this may be an option because the land titles haven’t yet registered—but will be dependent on a conversation with and the goodwill of the vendor.

If this plan works out, maybe enough time will have elapsed for the bank to order a new valuation. Ha!

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

39 – Gazumped

I’ve mentioned a few times on this blog how smoothly everything went with the first investment property. From land and build contracts, to finance, to construction, and tenanting it was one tick in the box after another. When we set about repeating the process with Open Corp, I expected an identical outcome, this time with the benefit of personal experience.

Through no fault of Open Corp’s, we’ve had a rocky start this time. Our finance pre-approval, with me only recently back to work and the wife on maternity leave, was heavily scrutinised by the bank and was finally approved in mid-December—valid for three months, including the Christmas holidays. Dear wife then took her time finally agreeing to the commitment before we gave Open Corp the green light.

More recently, with our pre-approval due to expire within a week, I received a call from Open Corp telling us a larger buyer had come in and offered to purchase all remaining blocks in the development we were to buy in to—including all blocks with non-executed contracts. We’d signed the contract but it hadn’t yet been fully executed (signed) by the vendor. I’m not sure if it applies in the fullest sense to this specific situation, but I think we were gazumped.

Open Corp were helpfully able to secure another, larger block for us in a neighbouring estate (at a higher cost due to the increased land size—with the difference to be rebated back to us). They also had our initial deposit refunded from the original land developer and applied to this new property. The stamp duty will be about a thousand dollars more because of the increased sale price but I’m comfortable with that seeing as how we’ll be getting an extra 48sqm at minimal cost.

Given the timelines for the finance pre-approval, we were able to nominate Open Corp to sign the land and build contracts on our behalf (the property is in Victoria) and the mortgage broker was able to submit our finance application on the last day of our pre-approval… still without an executed land contract.

Land contracts just aren’t working out for us this time around. It’s now been two weeks since the final finance application was submitted and we’re still waiting on the executed land contract. I have no idea what the hold up is this time and apparently neither do Open Corp but it’s all slightly concerning—especially coming from where we’ve been with the first block. Will the same thing happen with the unexecuted contract being sold to a bulk purchaser? Is whoever does the signing at the vendor’s end out of town? In other words, what’s going on?!?

[Update (6 April): the signed land contracts finally came back late last week, which of course starts the clock ticking for the finance approval…]

Meanwhile, the bank seems to be moving the application forward without this seemingly important document and have ordered a valuation on the property and requested a few extra pieces of documentation from us. I have no experience how flexible the major banks are with the deadlines for their pre-approvals and I’d be very curious to know what happens next if this purchase falls over on the land contract.

All of this is unnerving and frustrating but we’ve never had any major issues buying or securing finance for our PPOR or the first IP and I’m hoping this will come good. I know finance is often the biggest hurdle for many buyers and it was certainly a relief to move forward from the point of unconditional finance approval with the first IP.

Compounding matters, the bank (a different lender to the one we used for the first IP—to avoid cross-collateralising) has flagged a possible issue approving a 10% LMI discount for us. Certain professionals are eligible to pay a 10% deposit instead on the typical 20% deposit before LMI kicks in and the wife, being a doctor, falls into that category of professional. The only problem from the bank’s perspective is the fact she’s not working… or more precisely, as I’d describe it: she’s on leave (maternity leave)—and she is therefore still employed. Unfortunately she has no current pay stubs to prove that to the bank and we’re waiting on a letter from her employer in the hope the bank will accept that.

I hope we’ll have a better view of both the land contract and the finance situation this next (short) week but I won’t bet on it.

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

38 - Surprise! Unexpected Changes

I find the vast majority of mainstream real estate reporting in the media is either all or nothing: the market is going gangbusters or it’s the next worst thing since the Great Depression and all hope is lost (I’ve given up paying any attention to the news…). There’s no middle ground. Similarly, the property spruikers only share the positives and conveniently overlook the details when they do cite a one-off example of something gone wrong.

Although many of the posts on this blog have been relatively upbeat—in line with our experience to date, I strongly believe in reality, facts, and the accurate, fair reporting of our experience. On that note, today’s post is a recounting of what is likely to be the largest single “upset” (not to dramatize) so far along our property investing journey.

Earlier this month we had three tenants in the Brisbane property and over six months remaining of a 12-month lease; then, suddenly, we had one tenant plus an “unknown” (or rather, the girlfriend of the remaining original tenant) and a pet request for a middle-aged, large-breed dog. On Friday morning last week, a water leak in the metre box was also reported.

How quickly things change from a seemingly stable position to near chaos. Fortunately, the exemplary property management team at West Property is handling all of this for us but I won’t deny I’ve found it remarkable that tenants can simply walk away from a contractual agreement they’re legally obliged to uphold. If nothing else, this doesn’t make for a good lease reference for them and they may end up have to cover re-letting fees for us.

I’m not sure why two of the three roommates have left but I believe they were together as a couple and I assume they either now aren’t or have decided they needed more privacy. I suspected there may be some instability when we took on the trio (we very much expected to end up with a family—mum, dad, two kids, and a dog) but they were the first application after a few weeks of home opens and they were happy to pay the advertised weekly rent. I thought one of them might leave eventually but wasn’t expecting any changes in the first year. In my mind, you sign a lease for twelve months, go to the hassle of moving, and then you stay put for a few years—call me simple and old fashioned.

We were notified by the property manager the pair have now moved out and requested to be removed from the lease. We had the option of saying no to this request and they would be obliged to continue paying their share of the rent—regardless of whether they’re actually living there. Practically, that option may be difficult to enforce.

In their place, the girlfriend of the remaining tenant had moved in, I’m told, but she had neither applied nor was she approved by us to live at the property. The wording in the lease document is quite specific to this point and clearly notes no one else can live in the house without prior agreement by the landlord.

If this new couple are keen to stay on, can afford the rent, and seem to be acceptable, then we’re all for that. Ideally that means no break in rental income. Plus there’s less wear and tear on the house for them to move out and be replaced with new tenants. But who is this mystery woman? Does she have an income? Does she have any prior rental referrals (or a criminal history)? Does she smoke? If she’s not paying her way, can her partner afford the full rent on his income after paying only a third of the rent to date?

Technically, there are more questions to be answered if the girlfriend checks out. Do we amend the lease to include her or have the tenants sign a new, 12-month lease? Do we increase the rent now as part of the new lease or after six months via some kind of special conditions clause (which may be tricky to do in Queensland—I’m not sure)? If the couple opt for a 50/50 split, the original tenant will need to increase his bond contribution from 1/3rd to 50%—or 100% if he’s covering the lot.

The worst-case scenarios I can imagine are having the remaining tenant vacate (for whatever reason), leaving us with an empty house to re-let and the resulting loss of income, or—if he stays—having a gap in the rent payments from the departing couple while all of this is sorted out. If all else fails, we are still covered by the Open Corp rental guarantee but that does mean having to accept any tenants they pre-screen and put forward to us (which could be good or not so good). Without checking the finer points of our insurance policy, we may also be covered for loss of rent if the rental guarantee were not in place.

Here’s another good fact sheet if you’re interested: http://tenantsqld.org.au/wp-content/uploads/2009/12/You-Want-to-Leave-Nov-09-SD_NEW.pdf

On the dog front, I simply wasn’t mentally prepared to deal with this request so early into the original lease and the property manager has recommended we say no for now (which was a relief). Before today’s revelation, we had considered allowing the pet if the (original) tenants were willing to sign a new 12-month lease effective immediately—using this request as a trigger event to keep the tenants on for a longer period. That’s less of an issue now.

We also hadn’t yet decided whether there would have been a corresponding rent increase; we can’t increase the rent mid-lease in Queensland so even a token increase would likely be the way to go to a) ensure we achieve an increase within the 12-month period, b) condition the tenant that the rent will always increase at renewal time, and c) cover any issues related to the dog (i.e. damage) as we can’t charge a pet bond in Queensland.

Meanwhile, the water leak is still being investigated by the water company. At least it’s outside and I’m told it’s likely on the water company’s side or will otherwise fall to the builder to rectify.

A few weeks on, and after consulting with Open Corp and receiving a tenancy application from the girlfriend, we offered the couple a six-month lease to see how it works out. We also increased the rent by $5/week. The lease was accepted and signed and we shouldn’t have missed any rental payments (the outgoing tenants would have been required to continue paying their share of the original lease until it was terminated). It will be interesting to see if the relationship lasts and what bearing a breakup has on the remaining tenant’s affordability; it’s easy to say a married couple with kids would have been a more stable tenant option but who knows—with the frequency of divorce I’m not convinced marriage equates to tenant longevity.

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

37 – A Few Reasons for Investing in Property

It’s been a hard couple of weeks here. With a bank pre-approval valid for only three months before the reams of documentation would need to be supplied anew, it was go-time for getting agreement from Gemma and setting the wheels in motion with Open Corp for the second investment property purchase. I thought Gemma remembered and understood the reasons for buying the first property—and how that logic extends to a second. As my external voice of reason, however, she was reluctant.

A refresher was in order. I spent a few evenings nagging Gemma to think it over. I drew a few simplistic diagrams on the kid’s chalkboard to reinforce the key points. I asked her to re-read the very readable Property Investing Mini Guide from Open Corp (which I’d helpfully underlined and annotated—because that’s how I roll).

Gemma wasn’t sure about the risks but couldn’t explain to me the basis for her reservations—her default financial strategy is to ‘put it in the bank’ and ignore the negative impact of inflation. Her preference was to take a wait and see approach with the first property, which isn’t a good move if house prices continue to climb and become less affordable. How long do we wait? This first year also won’t tell us much: since the first property is in her name and she’s on maternity leave, we won’t see many tax benefits this financial year.

I argued the experience of the first build went well and the process of buying and tenanting was an exceptionally solid result with Open Corp. We wouldn’t have a long-term view of success or failure for the better part of ten years or more (one property cycle) but doing nothing with our available equity would leave us behind as inflation eats away at out savings at a rate of ~3% a year.

What should be an emotionless decision was quickly becoming a very heated emotional debate between us.

In addition to my points above, I banged on about historical growth rates, leverage, and risk.

Historical Capital Growth

Looking back in time we see Australian house prices growing continuously since the 1970’s (and well beyond). Whatever happened (or started happening) back then—be it government forces, population and other demographic shifts, war, tax incentives, rising incomes, or other market forces—has tended to continue. That’s over forty years of generally positive data.

The past is not a guaranteed predictor of the future but it does provide some guidance. Of course you’ll also find arguments against property investment using similar data—see this article which proposes we’re in a housing price bubble.

Leverage

Buying a property seems expensive but it’s not. We pay the up-front transaction costs (indirectly through a line of credit) and borrow 100% of the cost of the property through a combination of the line of credit and a primary loan. In other words, we put in about $70k to invest $380k. That’s a powerful thing: by my very simple math, if we put in a dollar, the banks put in $5 and the interest costs are largely covered by the rental income, tax deductions, and depreciation. Yes, both the LOC loan and the primary loan are subject to interest rate increases and other legislative changes (e.g. negative gearing) and it’s always wise to take these variables into consideration when doing your sums.

Risk

I’ve written about risk before but the options are simple.

1. Do nothing and inflation calls the shots. Even in a term deposit or a high interest savings account, your position will probably decrease or remain flat (i.e. unproductive). Real estate can be considered as a hedge against inflation given the relationship between GDP growth and demand.

2. Invest in the share market and Ben Graham’s insane Mr. Market calls the shots—in other words, the share markets are unpredictable and crazy; unless you’re investing in the company itself and understand the industry and the internals of the company, you’re betting against the house—so to speak. Plus, you don’t have any control over how your investment is put to work.

3. Invest in real-estate. Land has a long-term history of appreciating in value and putting a house on it will ensure the costs involved in holding the land are manageable. In time, the rental income may cover those costs and provide an income stream. If everything else turns to pot, at least you can live in a house and capital increases are potentially accessible via equity loan.

These aren’t the only arguments to consider but they’re a good starting point and encompass many of the finer details. Here a few more points to consider:

• Real-estate investment is relatively easy to understand
• You have more control over your investment than you would as a stock investor
• You can create value (e.g. by renovating)
• As a long-term investment the impact of any initial mistakes are likely to be lessened over time
• There’s less volatility in the real estate market than there is with the stock market
• Bricks and mortar have a high tangible value (compare to investment in a start-up that may have a product idea but no product and no revenue stream)
• Rental income provides a stable income
• Housing will always be in demand as our population increases
• You have many options for managing your investment (subdividing, doing your own maintenance work, using a property manager or doing it yourself)
• Portfolio diversification
• And so on

In the end, Gemma came around and the IP#2 wheels are turning. We signed the hold agreement with Open Corp, put down the $1k hold deposit and $2k land deposit when returning the land contracts.

Gemma did caveat her approval of this build: this second property would be our last for a little while. I’m fine with that as this purchase will come close to exhausting the small line of credit we took out for the first build, secured against our PPOR, and the banks may not be too willing to extend us a third loan given the fact I’ll be back on stay-at-home dad duties in the next few months. The general tightening of the financial lending market over the last few years doesn’t help much either on this front (I’m not quite sure how the 26 year-olds in the magazines amass 10 properties in such a short timeframe!).

On request, Open Corp came back to us with a 400sqm property in Victoria, an hour’s drive south of Melbourne. I’ll discuss the specifics—and recount the process to acquire and build, as I did with the first IP, in future posts.

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

34 - Getting started, again

As 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