17 – The New Addition and a Change in Circumstances

I’ve been a little quiet on the blog front as of late—for good reason: our second child arrived on Sunday morning, a little boy! If it were a previous age, I’d have extra reason to be excited, now having a male heir to who I can leave my vast riches and estates*… in our time, we’ll divide our assets in two between the kids but I’ll write more about wills another time. In brief, having a second child has highlighted the need to buttress our finances and ensure their well-being. 

Benjamin’s arrival also means his mother is now on maternity for the next twelve months, which, not coincidentally, means we’re now a zero-income family. In other words, time for me to hang up my apron and get back to work.

My original plan on this front was to return to the world of IT contracting but the current market situation in Perth isn’t as hot as it was a few years ago, on the back of the resources sector, and there aren’t as many options as I’d hoped for. In truth, I’ve always been pretty lousy at timing these things!

I could continue at home and enjoy this period with my wife and children. I’m sure we’d scrape by. I could also leave it for a while and revisit in three to six months. But the idea of having no income between the two of us, the fact we’ll be needing to support our first investment property financially—at least in part—from around August/September/October, and our plans for an overseas trip which will cost thousands in flights alone, leaves me wanting for some pocket money. What a pain, this working stuff!

I’m also considering whether I want to take on a job with less responsibility and a correspondingly low rate of pay or do something a little more stressful but that will generate a higher return on my time invested. It’s tricky this one: do I make it home for dinner every night or just push hard and maximise the limited time I’ll have back in the workforce?

On a related note, I spoke with our mortgage broker about the possibilities of a taking on a second IP sooner rather than later—presumably once I’m working full time again but while the wife’s still on maternity leave. We still have plenty of equity in our PPOR and the sooner we get one or more investment properties built, the sooner we can leverage the equity in those properties to duplicate.

Nathan at Mortgage Choice noted many lenders are wary of considering potential future income from a woman on maternity leave because—in percentages—many women do not return to work. He noted a letter from the wife’s employer would be required at a minimum. We left it there for now but decided to reconvene on the subject in August once I’ve hopefully been back at work for a little while.

In the meantime, I’ve lined up a second call with Michael Beresford at Open Wealth to discuss our options for IP #2. No reason not to at least have a chat!

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

16 – Base Stage Invoice

In my last post I mentioned the slab for our first investment property had been poured and we were now at the ‘base stage complete’ milestone. I also wrote that it was time to pay the base stage invoice of $22k to the builder. Our mortgage broker forwarded a copy of the invoice for signing to authorise payment by the bank (from our main loan).

That would have been great as I’d prefer not to pay anything more than I have to from our line of credit due to its higher interest.

Naturally, things didn’t work out as intended. The bank asked that we pay this first invoice in full as part of our contribution so we had to pay the full amount from the LOC.

Again, not a biggie as it’s there for a reason but it’s amazing how random this process seems—would it not be sensible to expect the bank to provide some sort of payment plan or schedule so we can know what we’ll need to pay and when? Cash flow isn’t a problem thanks to the LOC but I can only imagine it would be for some customers. We had seven days to pay this invoice and I got the invoice paid across two payments with a day to spare, thanks to the bank stuffing around.

Open Wealth mentioned late payments are taken into account should they need to pay the build guarantee or rental guarantee and that’s apart from the fact I do not like being late with payments.

Hopefully the next one will go more smoothly.

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

15 – Progress Update: Base Stage Complete

Well that happened quickly! We have a slab (and a corresponding invoice for the base stage of around $22k). It suddenly feels like progress is moving quickly—at long last. Looking back, I see the approvals came through around mid-April so it’s not that speedy but I’m happy given the weather.

I should note I’ve been very impressed with our Mortgage Broker this time around. As I’ve no doubt mentioned previously, we used Mortgage Choice when we bought our PPOR (land and build). They were involved then to the finance approval stage but I don’t recall interacting with them beyond that point for progress payments on the build.

This time, we received a copy of the builder’s invoice for the base stage from Open Wealth and that very same day, Mortgage Choice sent me the same invoice to approve for payment by the bank. It’s only a little thing but it’s nice knowing the broker is still involved to grease the wheels between us, the bank—and Open Wealth too for that matter. In theory, this means this invoice and future invoices should get paid on time and help us avoid any penalties for late payment.

As we’ve not yet seen the block and live on the other side of the country from Brisbane, it occurred to me it might be time to enquire to Open Wealth about how I go about approving payment for $20k of works when I haven’t seen the slab and have received no other reports as to quality, correctness, etc. Admittedly I should have asked this question before committing to the build with Open Wealth but I wasn’t thinking along those lines at that point.

I was happy with the answer from our Open Wealth Client Liaison Manager, however, and it turns out there are several inspections which occur throughout and after the build. She emailed me this helpful response:

“The builder employs a Certifier who conducts multiple inspections. The Certifier is governed by the council and legislation.

Here is a list of the certifier and other inspections:

1. Prior to the slab being poured the plumbing, and then the slab form, is inspected by the Certifier. In particular the drainage and sub-drainage; the piers and slab are inspected for form.
2. Once the frame is up, the inspector checks the carpentry is to code, Australian standard.
3. After the frame, the inspector also inspects: the plumbing pipe work, this is referred to as the rough-in inspection. There is also a plumbing inspection by the certifier at the final stage.
4. At completion stage of the build the Certifier produces the Form 21, which is to assure that the build is complete and meets Australian standards. This form is sent to the bank to release the final payment.
5. After Form 21 is received by the bank, the bank sends out a valuer with a copy of the plans and specifications to make sure that the builder has constructed your property to plan and included all specifications.
6. Open Wealth then organises two independent inspections; we employ a company in Queensland to go out and check the quality of the work. This is mainly for finishes to paint, craftsmanship and visible defects – it is very thorough. 
7. During the property manager’s first inspection any additional visible faults are identified.
8. At the property manager’s six-month inspection, any outstanding faults identified are to be fixed under the builder’s warranty. Because your house is made from natural materials and as your house settles, there are always a few adjustments to doors, towel rails that need to be tightened, etc and is at no cost to you.”

When we built in Perth in 2007 through a “project builder” we had only the word of the site manager to go on (at practical completion) and we commissioned an independent inspection at a cost of $500. I’m sure the bank had a look in some shape or form but this was never made evident to us. Despite living in this house for nearly eight years, we’re still dealing with issues from the build (long story for another day…). Perhaps it’s all smoke and mirrors but from what I’ve seen so far the level of rigour in Queensland in 2015 seems greater than that in WA in 2007/08.

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