Property Investment

22 – Progress Update: Enclosed Stage Complete

We recently hit the 50% mark with construction of our first investment property and are now at the “enclosed” (aka “lockup”) stage. This milestone also brought with it the largest invoice of nearly $80,000 so it’s definitely starting to feel real now.

Without a doubt it will be a great sense of accomplishment to have a tenant installed (hopefully) within the next few months. It will also be a relief knowing the rental income will cover the majority of the holding costs—especially while we’re negatively geared in the early years.

As “enclosed”, the roof is on, the windows and doors have been installed, and the external cladding is on—so the outer shell is in place. During the next phase (“fixing”), the internal plaster will go up, the internal doors will be hung, the kitchen, laundry, and bathroom fixtures will be installed, and the wet areas will be tiled. I outlined the various stage milestones in my previous progress update, if you need some context.

Open Wealth supplied us with these exterior photos. I’d love to see more of the rough interior to get a better sense of the space but those pictures will come in due course.

When we built our family home I snapped hundreds of photos in my excitement and to document the process for family overseas. I also snapped what I thought might be important areas of the construction that would eventually be covered over by brickwork and plaster, etc (for example the bulkhead in our lounge room covers the edge of a drain from the shower upstairs—it’s an extensive bulkhead that’s largely empty, which may have come in handy for an air conditioning unit if it had been 10mm deeper).

Now I need to follow up that bank error from the last milestone…

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

21 – Tax Time

I’ve spent the last few days (on and off) gathering together everything needed by our accountant to complete our tax returns. This year’s tax return is more involved than normal because we have the purchase of our first investment property to consider and my wife’s life insurance—part of which may be tax deductible.

We’ve had an accountant prepare our tax returns for many years now—initially because it all seemed a little complicated and now because it is a little complicated.

Back then we had income from one or two employers, bank interest, HECS debts, and deductions like professional memberships and insurances, training, mobile phones, internet, stationary, uniforms, and depreciation of office equipment and furniture. I wasn’t sure how my income and tax returns related to my wife’s and vice versa.

These days, we’ve got more of the same plus private health insurance, life insurance, the investment property establishment costs (any IP is an interesting mess in its own right when it comes to taxation), dependent children, and the occasional minor offset to me as a non-earning stay-at-home parent. And of course the tax laws are always changing in many of these areas, making it hard to keep on top of what we can and cannot do, legally. Next year we’ll have the IP income or loss, interest and running costs to deduct, building and fittings depreciation, and so on.

The first accountant we worked with claimed he would be able to to cover his costs and we always found that to be the case… in other words, he was able to include valid deductions that we probably wouldn’t have considered (plus he didn’t charge us much).

That first year our intention was to use his return as a template for subsequent years but it seemed just as easy to go back to him and so we did.

Although I wouldn’t recommend using your accountant as your financial adviser, our first accountant was the only financial professional we relied on at that point in time and he was able to offer some useful tips. For example, he highlighted the benefits of having private health insurance instead of paying roughly the same amount for the Medicare Levy (of course our insurance premiums increased as we started planning a family and it seems like the Medicare Levy doubled at some point along the way too…).

Now days our accountant is a key member of our broader financial team and we’ve “upgraded” to an accounting firm that deals regularly with clients who own investment properties (WSC Group—I’ve written about them before in the context of financial advice and insurance). WSC were recommended to us by Open Wealth and they’ve offered an outstanding service thus far—note they’re not directly affiliated with Open Wealth.

We pay for the expertise of an accountant but did you know accounting costs can be deducted the following year? Our first accountant also claimed he’d never had the ATO question a return he submitted (I assume tax return audits are fairly random but having a professional submit your return can’t hurt). While I probably could do our taxes, I’d prefer to know the return is correct and, more importantly, that I’ve claimed all of the deductions I can to reduce our taxable income.

If you’re considering the purchase of an investment property, or hold an investment property today, do you know how your quantity surveyor’s report relates to the depreciation of your building and fittings—and therefore you tax return? I’m estimating those two deductions alone will be worth nearly $10,000 in the first year. Don’t know what a quantity surveyor’s report is? Ask your accountant!

I forwarded 7MBs of PDFs to our accountant this morning so that’s my job done for now, hopefully.

Enjoy,

Michael

20 - The saga of a sliding door, seven years later

This post doesn’t really belong on this blog but I wanted to share my experience dealing with a builder’s defect more than seven years out from practical completion, particularly as we’ll soon have our first investment property build complete and under warranty. I’ve written in the past about pushing your lenders and insurers; this post is about pushing your builder and their suppliers.

As regular readers of this blog will know, we built our family home through 2006-2008. The house was constructed by one of the project builders here in WA, Don Russell Homes. The house is a two-storey double brick and tile construction, typical of many homes built in Western Australia to modern standards. The block on which we built was originally sloping so we retained and filled with sand prior to the builder compacting and commencing construction. We took up residence in mid-2008.

One notable feature—and the subject of this post—is the double sliding door at the rear of the house which opens on to our back garden. The door opening is 3500mm wide and is filled by two fixed panes at either end and the two doors in the middle which slide open over each fixed pane. A galvanised steel lintel spans the window opening and the door frame is powder-coated aluminium. The windows throughout our house were manufactured by Jason Windows.

During our practical completion inspection near the end of the build, I flagged to our site manager a problem with the sliding action of one of the doors. This was noted on the PCI report and I subsequently listed it in my communications with the builder. Essentially one of the doors would catch and stick as it travelled along the track.

The builder’s initial solution to this problem was to lubricate the door track. This worked as a temporary solution (long enough for the fix-it man to make his get away!) but was not a lasting solution for an unsheltered external door which catches the weather coming from the Western coast. The external garden was also still a sandpit at this stage and of course sand and lube don’t mix very well. It was apparent to me there was either a problem with the door wheels, the frame, or the track and it was the responsibility of the builder to address.

In addition to our PCI report we listed a large number of issues (forty, actually) on our 16-week “liability issues” report, which we submitted a few months after move-in day. A number of these were major issues which required the builder’s attention and watered down some of the lesser issues like a sticky door. Other than lube, there was also no quick fix for this problem by the builder’s trusty fix-it man and it should have been referred back to the window company. It eventually fell off the radar as Don Russell’s maintenance division became less and less communicative and as time wore on.

Over the next few years the problem got worse and I assumed the door wheels were clogged with or damaged by the sand and needed to be replaced. After I tried to change the wheels myself in 2010 without success (the doors, including the fixed panels, need to be completely removed to change the wheels, my wife arranged for a window maintenance firm to come out. Jason Windows do not offer a maintenance service.

The maintenance firm suggested, to our surprise, the wheels were fine but the door would need to be cut down to better fit the opening. The gap was so minimal, the metal of door frame itself was riding directly on the track. We never received a quote for the work and the issue once again slipped off the radar as life marched forward for us. I telephoned a sliding door repair company from the Yellow Pages at one point and it was suggested this is a common problem with the lintel having sagged but, again, the fellow was reluctant to come out to inspect and quote.

In retrospect, I should have flagged this as a warranty issue to Jason Windows while the door was still under warranty but the path for resolution under warranty of a supplier’s product when you’ve previously dealt exclusively with the builder is not well defined. It’s also not terribly obvious (to me) if windows form part of the structure and are therefore covered by structural warranties—it’s likely they do not.

In recent years the door became virtually unusable. Both doors now stuck as they “slid” open or closed and on a hot day would take a proper shove to move.

I finally contacted the Sliding Door Doctor and a window manufacturing company. The Sliding Door Doctor quoted $600 to repair the door whereas the window company quoted around $6,000 to replace the doors. Both groups reiterated the “sagged lintel” idea, based on the measurements from top to bottom across the door opening (see the opening image above). The Door Doctor also pointed out the top locking plate was missing—likely removed when the door was installed as the door wouldn’t have fit with it in place!

As there are no other signs of a sagged lintel (cracks to the brickwork) I concluded the lintel was likely bent when it was installed or the door opening measurements were incorrectly supplied to the window company/the door was built too large by the manufacturer.

At this point, after picking my jaw up off the floor (I expected a replacement door set to cost around $2,000-3,000) I decided enough was enough and attempted afresh to contact the service department at Don Russell. My emails and calls were ignored for weeks if not months and I finally went in to the builder’s office in person to ask to see the Service Manager. He wasn’t in and I asked to see his superior… who also “wasn’t in”.

The receptionist must have sensed my frustration and as I noted down contact details for the Service Manager’s manager (the Construction Manager), I was offered details for the Operations Manager. Only by writing to this individual did I finally receive a response from Don Russell.

In my letter to the Operations Manager I complained about the lack of response I’d received from the Service department and included the log of my failed contact attempts. I included my measurements (illustrated above) and photographs showing the sagged lintel. I made a video of me opening the door to demonstrate the severity of the problem—which I posted on YouTube (as a semi-private video). I included a copy of the original PCI report and the 16-week liability issues report.

And I demanded the issue be addressed at the builder’s expense.

After another brief delay, the Operations Manager replied to tell me the Service Manager would be in touch, which I took as a good sign. The Don Russell Service Manager and the Jason Windows Service Manager eventually came out to the house together to inspect the problem. During this appointment the builder’s Service Manager vehemently declared the lintel not to be sagged. The Jason Windows representative was simply aghast at the idea we’d lived with this problem for such a long time. The issue of cost did come up before I suggested it would be dealt with between the two companies and it was not mentioned again.

After another few months of manufacturing delays, the original door stiles were replaced to lock to each other (instead of using a lock rod system), the track was properly secured to the lintel, the door frames were filed down slightly, and the wheels were replaced. The doors now slide much better than they ever have before and, while not perfect, are functional.

Yes it was embarrassing and annoying to have to chase the builder on this matter after such a lengthy time period. This is time lost I could have spent on other more prosperous activities if the builder had done their job properly in the first place. Thankfully both Don Russell and Jason Windows were sympathetic to the situation and did the right thing by their mutual customer.

As a last resort I could have raised this problem with our house insurance company but we have a high excess and I’d prefer not to have that black mark on our insurance file for something that wasn’t, originally, our fault.

At the end of the day, I felt I had a case to be heard and was finally able to get my point across to someone with the authority to see the problem resolved. I’m thankful to both companies for addressing this problem and, more than anything, glad to see the end of it!

Enjoy,

Michael

About Me

Hi, I'm Michael. I'm a first-time property investor living in Western Australia. I'm also a stay-at-home dad and husband. Follow along with me as I recount the day-to-day activities of buying a block of land in Brisbane and building a new house for investment purposes. If you're thinking of doing the same, I hope you'll learn something from my mistakes--which I'll share openly. If we're successful this time around, I hope one will become two and two will become four and so on... as interest rates no doubt increase and the Australian economic landscape shifts and slides and evolves. Should be interesting! Thanks for reading.