No worries – don’t feel silly!

You’re correct in what you say about how the equity works – you are increasing your debt.

The trick is to find the right balance – as you purchase new properties you will be renting them out – that rent is then income which in turn increases your serviceability but you want the capital growth too. As you’ve probably discovered easy to say, a little trickier to do. You just need to make sure you buy right – near the bottom of a rising market and hold. If you’re not confident with flipping then maybe look into developing so the small stuff like granny flats or sub dividing and grow from there. You could also get creative with student accom/boarding house, holiday letting for cash flow but each has their own challenges.

You will hit your serviceability limits eventually but hopefully that will be at or close to the stage where you just want capital growth and rental increases to take care of your portfolio. That’s when you play the waiting game.

For me it’s photography, cooking, 4WD-ing, fishing, kayaking, hiking and just generally getting lost in nature. And sometimes all at the one time! :D

Also, forgot to add – you should turn your loans to IO – do you currently have an offset account against your PPoR that the $80k is sitting in? As much as possible you should use OPM (other people’s money ie the banks) to fund investment purchases for a few reasons, one including maximising your tax deductibility.

I don’t know the Townsville market as well as I know the Cairns market but in general I think north queensland is recovering and people are starting to notice. Will be interesting to watch during the next couple of years.

What I’m really waiting on is to see whether the Aquis development in Cairns will be going ahead or not. And if I were a betting person my money would be on green.

Don’t be embarrassed – we were all there at one stage. You’re doing the right thing by educating yourself and finding the right professionals to help you move forward!

I remember one of my first posts on an investing forum a loooong time ago is what is an Interest Only loan! Glad I’ve a lot since then!

If my understanding is correct, there is no equity as I haven’t paid any principal.

I just wanted to highlight the above that you stated, Appg. Just paying the principal isn’t the only way you can create equity. There is also capital growth which creates equity – either manufactured through renovations or through ‘natural’ CG which is the movement of the property cycle. These 2 are the types of equity creation that you want.

Paying down the principal would be my least favourite way to create equity.

Looks like you’re in a good position there Hot Stuff and you goals seem very achievable. When you say ‘cash in bank’ is that in an offset account or available as redraw? Depending on which would have different tax implications.

One thing to consider is holding costs when you drop down to one income when you start a family so this should factor into the positive vs negative gearing. You’ll need a decent buffer in place and make sure everything is manageable on the one income – even with a vacancy or 2. Especially if you plan to develop one of the blocks.

If it were me I would draw on equity on my PPOR and set up a line of credit to fund deposit/s and purchase costs on IP/s – ensure you don’t mix deductible and with non-detectible debt too.

Hi Kate, sounds like you’re on the right path! I found the greatest education sources to be forums – better than any books I’ve read or (free) seminars I have attended.

When I was working out my financial and property goals I set my end goal and worked backwards from there to give myself some guidance and direction.

As an example – in 10 years have 5 properties at 60% LVR and a portfolio size of $2.5m.

To do that I needed to buy 5 houses in the first 5 years at $300k each that average 5% growth per year and have at least 6% rental return – please note these are only rough figures and haven’t actually done any calculations. But hopefully you get the idea.

To be a developer you need a lot of capital to start with – do you have this? What size projects are you wanting to take on to begin with? Do you have any other property or savings?

How long have you been a contractor for?

One advantage of selling the PPoR that I can think of is it being CGT exempt. But there could be an opportunity cost there if prices continue to rise.

Rent in the area you wish to live in may be a good idea – try before you buy, or just continue to rent and invest in the IP’s as a $2m PPoR wont do any favours for your serviceability if you wish to keep purchasing IPs. Being on a high income (or anyone for that matter) I would assume you would want to give as little to the tax man as possible.

The ATO has some good information regarding what can and cannot be claimed and when.

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Investments,-including-rental-properties/Rental-property-expenses/

Rental property expenses
What you can claim

You can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.

Expenses could include:

advertising for tenants
bank charges
body corporate fees and charges
borrowing expenses
capital works
cleaning
council rates
decline in value of depreciating assets
gardening and lawn mowing
insurance
interest expenses
land tax
legal expenses
pest control
phone
property agent fees and commissions
repairs and maintenance
stationery and postage
travel undertaken to inspect or maintain the property or to collect the rent
water charges.

https://www.ato.gov.au/General/Property/In-detail/Rental-properties/Rental-properties—claiming-legal-expenses/

What are capital expenses?

Expenses you incur when purchasing/acquiring or selling/disposing of your rental property are capital expenses.

Capital expenses include:

conveyancing costs paid to a conveyancer or solicitor
title search fees
valuation fees (when it is a private valuation conducted by your solicitor)
stamp duty on the transfer of the property.

You may be able to include capital expenses when calculating the ‘cost base’ of your property. The cost base of a capital gains tax (CGT) asset is generally the cost of the asset when you bought it. However, it also includes certain other costs associated with purchasing/acquiring, holding and selling/disposing of the asset. This can help you reduce the amount of CGT you pay when you sell your property.

https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/ind00342353n17290613.pdf

• This reply was modified 10 years, 6 months ago by  Kinnon Bell. Reason: Links didn't work