All Topics / Help Needed! / National Rental Affordability Scheme (NRAS)

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  • Profile photo of lamp1111lamp1111
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    @lamp1111
    Join Date: 2011
    Post Count: 17

    Hi all, this is my first time putting a post here. Wondering if anyone heard of the government's National Rental Affordability Scheme? Is it worth investing in it? Thanks in advance!

    Profile photo of TC62TC62
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    @tc62
    Join Date: 2011
    Post Count: 45

    G'day Lamp.

    NRAS is magic!
    It's a government scheme that provides an investor with a financial incentive of more than $91000 over 10 years TAX FREE!. Often, NRAS makes it possible to turn brand new properties into cash flow positive properties, including all the running costs associated with the property whilst receiving $35 – 45000 of tax benefits each year. What's not to like?
    However, there are strict criteria's with regards to the rent you can charge. The government just doesn't give out that kind of coin because they're nice politicians. NRAS was fundamentally developed to allow certain properties to remian affordable to certain demographics so usually the rent you can charge has to be at least 20% under market. Check it out, do the maths, but it is the closest you can get to a rental guarantee without paying through the nose to get it!
    Hope this has helped!

    CHEERS!
    TC

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Profile photo of lamp1111lamp1111
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    @lamp1111
    Join Date: 2011
    Post Count: 17

    Thanks TC and Jamie, greatly appreciated

    Profile photo of christianbchristianb
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    @christianb
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    I understand a company by the name of Onyx is doing a lot of NRAS aligned property at the moment. I can't endorse their offering, but I have dealt with them on other issues and they have been good to deal with. Might be worth checking out.

    Profile photo of Kent CliffeKent Cliffe
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    @kent-cliffe
    Join Date: 2011
    Post Count: 110

    Like any investment decision don’t think in generalisations.

    I can say some NRAS developments will be good and some NRAS developments will be bad. You should never buy an investment for a tax break. Olive farms anyone?

    Excuse the pun but similar to sub prime loans, these properties have been intended for sub prime tenants. NOW, I’m going to get lots of abuse for that statement. But similar to sub prime loans not all of the loans went BAD. A small proportion of them, and this dragged the entire assets security down with it.

    Remember this is going to be a NRAS property for a while and if a few bad tenants wreak havoc on the scheme. Guess whose property (if you want to sell) is going to be tainted with this? “oh that one of those NRAS properties” 


    I also urge you to look at the underlying asset. Areas to look into include:

    If it’s OTP:

    – Developer

    – Contracts

    – Builder

    Individual property:

    – Layout

    – Room size

    – meet market

    – etc

    Area:
    – future growth

    – Future government spending

    – crime rates

    – private developments other then NRAS

    – etc etc etc

    Scheme:

    – who’s managing agent

    – agent’s contract with you

    – etc etc etc

    Profile photo of luke86luke86
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    @luke86
    Join Date: 2010
    Post Count: 470
    Kent Cliffe wrote:


    Excuse the pun but similar to sub prime loans, these properties have been intended for sub prime tenants. NOW, I’m going to get lots of abuse for that statement. But similar to sub prime loans not all of the loans went BAD. A small proportion of them, and this dragged the entire assets security down with it.


    I disagree. Subprime loans were for subprime borrowers- being an NRAS property has nothing to do with the borrowers capability to repay the debt. I dont think this is a valid comparison. The tenants may or may not be bad tenants, but as the landlord you can approve who is or isnt able to live there so with enough luck (actually, investment skill), you can weed out the poor tenants. You may still end up with a dud tenant, but you might get that anyway with a regular investment property.

    Of course you need to do your sums to see whether it is a viable investment. In my opinion, a NRAS property would be fantastic if you were able to be the developer. Unfortunately, some developers are making money off NRAS by getting the NRAS approval for the development, building the property, and then charging you a premium because you can then get the free money from the governnment. If you could be the person to build the units and get the NRAS funding, and then keep them all as cash flow positive properties yourself then you could be on a winner.

    Buying them from a developer would work if you purchase it at market value, but I think most developers are marketing NRAS properties as ways to get free money and so are charging more than market value for them.

    Cheers,

    Luke

    Profile photo of Olauf98Olauf98
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    @olauf98
    Join Date: 2011
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    Hi everyone

    I’m a newbie. Apologies if the question has been asked before. Who are those lenders to borrow from as my understanding the big four are reluctant.

    Profile photo of Kent CliffeKent Cliffe
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    @kent-cliffe
    Join Date: 2011
    Post Count: 110
    luke86 wrote:

    I disagree. Subprime loans were for subprime borrowers- being an NRAS property has nothing to do with the borrowers capability to repay the debt. I dont think this is a valid comparison. The tenants may or may not be bad tenants, but as the landlord you can approve who is or isnt able to live there so with enough luck (actually, investment skill), you can weed out the poor tenants. You may still end up with a dud tenant, but you might get that anyway with a regular investment property.

    Of course you need to do your sums to see whether it is a viable investment. In my opinion, a NRAS property would be fantastic if you were able to be the developer. Unfortunately, some developers are making money off NRAS by getting the NRAS approval for the development, building the property, and then charging you a premium because you can then get the free money from the governnment. If you could be the person to build the units and get the NRAS funding, and then keep them all as cash flow positive properties yourself then you could be on a winner.

    Buying them from a developer would work if you purchase it at market value, but I think most developers are marketing NRAS properties as ways to get free money and so are charging more than market value for them.

    Cheers,

    Luke

    Instead of the investment as an individual asset you manage. I was meaning the markets perception of the asset class. Similar to what we see now with managed short stay accommodation, there can be a stigma attached.

    The analogy with sub prime loans wasn't a direct comparison. Not all loans went bad (similar to not your property being bad), however the prices attached to these securities fell due to the market perception (people are turned off in the future).  Despite all the marketing, these dwellings are intended for a similar socio economic level as sub prime loans.  

    Profile photo of euro73euro73
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    @euro73
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    Post Count: 60
    Kent Cliffe wrote:
    luke86 wrote:

    I disagree. Subprime loans were for subprime borrowers- being an NRAS property has nothing to do with the borrowers capability to repay the debt. I dont think this is a valid comparison. The tenants may or may not be bad tenants, but as the landlord you can approve who is or isnt able to live there so with enough luck (actually, investment skill), you can weed out the poor tenants. You may still end up with a dud tenant, but you might get that anyway with a regular investment property.

    Of course you need to do your sums to see whether it is a viable investment. In my opinion, a NRAS property would be fantastic if you were able to be the developer. Unfortunately, some developers are making money off NRAS by getting the NRAS approval for the development, building the property, and then charging you a premium because you can then get the free money from the governnment. If you could be the person to build the units and get the NRAS funding, and then keep them all as cash flow positive properties yourself then you could be on a winner.

    Buying them from a developer would work if you purchase it at market value, but I think most developers are marketing NRAS properties as ways to get free money and so are charging more than market value for them.

    Cheers,

    Luke

    Instead of the investment as an individual asset you manage. I was meaning the markets perception of the asset class. Similar to what we see now with managed short stay accommodation, there can be a stigma attached.

    The analogy with sub prime loans wasn't a direct comparison. Not all loans went bad (similar to not your property being bad), however the prices attached to these securities fell due to the market perception (people are turned off in the future).  Despite all the marketing, these dwellings are intended for a similar socio economic level as sub prime loans.  

    Respectfully- bollocks!

    These dwellings are intended for essential services employees such as police, nurses etc. particularly those at the early stages of their careers, when their incomes are at the lowest rung.  Of course the scheme is not restricted to those professions but  the income thresholds required for eligibility make over 70% of taxpayers eligible.  This is not social housing. It is affordable housing, designed to deliver some stimulus to the construction industry and discounted rent to essential services employees.

    The scheme is flexible. It allows for an individual eligible tenants income to increase. A tenants income needs to increase by more than 25% for two years consecutively before they lose their eligibility to remain a tenant in an NRAS approved dwelling.  Take a closer look at the income thresholds for eligibility.
    http://www.fahcsia.gov.au/sa/housing/pubs/housing/nras/Pages/factsheet_tenant_profile.aspx
    http://www.fahcsia.gov.au/sa/housing/progserv/affordability/nras/Pages/nras_info.aspx#nras_12

    As far as property valuations being affected by a stigma… NRAS dwellings are located everywhere, with a maximum concentration of 30% in any one development- except for a very small number of medium density unit blocks where 100% concentration has been allowed.  In most cases, concentration is far less than 20%.  There will be 50,000 dwellings across at least 1000 locations.
    Builders such as Metropolitan, Devine and AV Jennings are delivering stock.  Are we really to believe that a typical Australian residential housing development full of AV Jennings built houses will suffer pricing shock as a result of 1 in 5 or 6 securities being rented to police and teachers at 20% below market, as part of this scheme?

    There will be dud properties and there will be rippers. That is a given, of course. There will be great tenants and terrible ones. That is a given also, but that's no different to any investment property  – DHA, non NRAS or NRAS included.

    If a stigma does develop around NRAS -it wont be because the properties are rubbish or because the tenants are on the dole and damage your property – it will be because of irresponsible commentary.   People should be supporting this scheme enthusiastically, as far as the concept goes at least.  It is well conceived and intended to deliver very real, useful and valuable outcomes.

    Profile photo of luke86luke86
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    @luke86
    Join Date: 2010
    Post Count: 470

    Agree Euro, good post.

    Profile photo of lamp1111lamp1111
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    @lamp1111
    Join Date: 2011
    Post Count: 17
    Olauf98 wrote:
    Hi everyone I'm a newbie. Apologies if the question has been asked before. Who are those lenders to borrow from as my understanding the big four are reluctant.

    Hi Olauf98,

    I have asked Westpac and the loan manager told me that they do lend for NRAS property.

    Cheers,

    lamp1111

    Profile photo of euro73euro73
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    @euro73
    Join Date: 2009
    Post Count: 60
    lamp1111 wrote:
    Olauf98 wrote:
    Hi everyone I'm a newbie. Apologies if the question has been asked before. Who are those lenders to borrow from as my understanding the big four are reluctant.

    Hi Olauf98,

    I have asked Westpac and the loan manager told me that they do lend for NRAS property.

    Cheers,

    lamp1111

    Ive posted on the question of NRAS finance quite extensively previously.  This should help answer your questions.

    https://www.propertyinvesting.com/forums/property-investing/general-property/4334862

    In a nutshell.  Westpac , St George and Firstmac and the three serious NRAS lenders. Some other lenders dabble a bit, but these are the three that are fair dinkum.  Best LVR is St George and Westpac at 85% ( firstmac does 80%) . Best borrowing capacity is Firstmac by quite a distance. ( Westpac is ok too.  St George is poor)
    The most important thing in any NRAS purchase is making sure you are buying a property where the NRAS allocation belongs to an NRAS model that one of these three lenders will fund- otherwise you will really struggle to find finance.

    Westpac and St George will lend against these NRAS models

    QAHC
    Brisbane Housing
    Yarran
    Questus
    Affordable Management Corporation
    Aspire Housing

    FirstMac will lend against

    QAHC
    Questus
    Affordable Management Corporation
    Aspire Housing
    Ethan Affordable Housing
    Urban Affordable Housing Association
    Accelerated Wealth Systems/Quantum

    Profile photo of jasonfonsecajasonfonseca
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    @jasonfonseca
    Join Date: 2010
    Post Count: 44

    One of my colleagues actually advised the federal government on NRAS. Generally speaking, it's a good initiative but although the developer / manager benefits from the tax scheme, a lot of these properties are actually not based in good capital growth areas. Fundamentally, NRAS is in the interest of society rather than for investors. You'll invest in NRAS properties for the purpose of net yield + the intangible social benefits. Your total financial returns aren't going to be fantastic if capital gains are low.

    Obviously there are exceptions like anything else.

    Profile photo of RARRAR
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    @rar
    Join Date: 2011
    Post Count: 5

    NRAS – is a good financial initiative if the builder approved to build the NRAS investment property actually builds what was agreed to.  I sighned contracts on the 17th August 2010 and I am still sorting out the mess.

    You really have to consider if its worth the drama if your thinking of building.

    Cheers

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