First investment venture query

I live in the New South Wales coastal area known as the Shoalhaven. This area has seen incredible growth in the last 5 years, due to the high level of cashed up investers from Sydney.

The market has cooled here recently and I am looking at a prospective purchase of a 3 bedroom brick home which is listed on the market for $299,000.

My partner and I had an evening with a Morgage Broker last week, who in fact gave us a copy of 0 to 130 Properties in 3.5 years.

Our discussion with the Morgage Broker went something like this:

Since we currently own our house, and block of land in the area, we would need to borrow money for the new purchase using our equity. The rental market is very weak here, so we could only expect a rental return of about $190 – $210.00 per week. This would leave a substancial short fall between interest repayments, based on borrowing 90% of the purchase price. Our inital thoughts were to negatively gear the property, however, after doing the sums, for the tax break my partner would receive, seeing as he earns over %50,000.00, the cashflow out on our part would be greater than the tax break. Our suppliment to the interest payment would cost us around $5000.00 per year.

Our thoughts have now turned to buying the property to live in ourselves, whilst we renovate, and our intentions were to put the house we are currently living in, on the market, to fund the building of a new house on our block of land.

However, I am now detirmined to purchase a property that is positively geared, after becoming after reading 0 – 130 Properties.

My question with positively gearing is this – what type of loan to finance the venture is recommended? (i.e interest only, or principal and interest). The way I understand it, is that if our cash out is less than the cash in, on a positively geared property, you pocket the difference. But, to pay off the loan, with say, $50.00 net positive cash flow per week (see page 165 of book) that is reinvested 3 ways as per this example, you would really struggle I would think, to pay the loan off in a hurry – also a lot of the property figures that are discussed in the book are not realistic in this area (i.e houses for $48,000).

I am certainly prepared to invest in other areas of Australia to find a cash positive investment. My other question is, that as this will become a suppliment to my annual income, then I assume I will be taxed on this positive cashflow also?

So, with 130 properties, if you were to implement the buy and hold mentality, would you have this many home loans?

And as you were earning more buy owning more positively geared property, you would be taxed more on the earnings as they grew?

Is Steve’s intention to sell his properties when he reaches retirement age, to fund his retirement, or hang onto all the various investments, owing various amounts?

Thanks and regards,

Jem

jem crestani