Hi Jotham

I am a high income earner like you. Let me explain my investment strategy/methodology. I invest in property because I like to have control of my investment. Both property and shares are mostly the same (both grow in value and both provide you with income (rent from property and dividends from shares) but they both have 3 important differences:

1. Property will never fall bellow 20% (there is a reason why banks will lend you 80% on properties) on average but shares on the other hand sometimes fluctuate by 20% on a daily basis and can go down to $0 in value.

2. As said banks will lend you 80% of a properties value. You will never get any bank to lend you 80% to purchase shares.

3. You have control of your asset when you purchase a property. When you purchase shares you vest this control to the companies management.

Ok so why do I prefer to invest in capital growth properties? This is the strategy I use, which a lot of other investors use too.

Example: Take a property worth $500,000 located in a metro area with low vacancy rates and high demand. I will put $100,000 of my own money in this property and the bank will give me $400,000 (80%). Let's assume this property will leave me with $4000 out of pocket every year (right now the highest loss I have had has been $2000). Lets also assume a modest 4% capital growth (not the 10% average everyone preaches, which maybe happened in the past but most likely wont happen again).

At an average 4% capital growth, this property will grow by $20,000 every year (this amount you wont be taxed on unless you sell the property). Unless you invest in mining areas you won't be getting this type of return from cash flow positive properties and even if you do, don't forget the tax you will be paying.

So the return on my property will be $16,000 (20,000 – 4,000) which equates to a ROE (return on your $100,000 you invested) of 16%. 16% return on modest assumptions from a low risk investment sounds pretty good to me.

My strategy then is to hold on to these properties and never sell them unless I really have too. As they grow in value I will draw on the equity to fund my other investments and aim to borrow 100% when purchasing other properties if I can. This is a high risk strategy if you don't know what you are doing and don't have certain buffers in place to protect yourself.

However if I didn't have a high income to support my properties I wouldn't be using this strategy.

This is my own structure that I use. I do consult with financial advisors and accountants to make sure that I am not missing any of the latest law changes.

If you currently have a high income and are paying a lot of tax then you should buy a property with capital growth (which most likely will be negatively geared).

What this means is that you will pay more interest on your loan than the rental income you will get from your property. The shortfall you will be able to claim back from your tax. This way you are basically using your tax money to own your investment property instead of giving it to the government.

The gain from this strategy will come from the capital growth of the property (which wont be taxed unlike a cash flow positive property where you will be taxed on top of your salary).

Theoretically you can use this strategy until you lower your tax to 0. However your cashflow will suffer from this.

This would then be a good time to buy positive cash flow properties. However positive cash flow properties are hard to find. So to increase your cashflow I would rather focus on getting a higher paid position or investing/setting up a business.

This is just my opinion and the strategies I use personally and may not necessarily apply to your situation.