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That’s not a very fair comment …. I own 10 NRAS properties, have sold many many more and have just had a number of mine and other clients, re-valued.
Some examples
2 bed Townhouse in Gregory Hills, Sydney – purchased 8 months ago for $370K. Re-valued at 460K. 100% of the 6 townhouses are NRAS
2 bed Unit in Elanora Heights, Sydney – purchased 12 months ago for 595K. Re-valued at 650K . 15 of the 22 Units are NRAS.
2 bed Unit in Enfield , Sydney. – purchased 8 months ago for 535K. Re-valued at 610K . 10 of the 24 Units are NRAS.
2 Bed Unit in Alderley, Brisbane – purchased 14 months ago for 350K. Re Valued at 390K 16 of the 30 Units are NRAS
2 Bed Unit in Windsor, Brisbane – purchased 14 months ago for 345K. Re Valued at 390K 8 of the 14 Units are NRAS
To be fair and balanced, there are others in SA for example that haven’t shown much appreciation over the past 12-18 months , but the clients are 7-9K CF+ on those, so they aren’t reliant on growth to keep their heads above water. Point being – if you choose well, a property with an NRAS credit can make you good growth as well as great cash flow. NRAS of itself does not equate to growth potential being handicapped.
To the OP; I wouldnt be buying anything ( NRAS or non NRAS) in a project with 100 + Units though. Strata Costs can get atmospheric. Try to focus on low rise or boutique sized projects.
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This reply was modified 9 years, 7 months ago by
loan ranger.
1. Is there anyway we could use property to reduce our CGT once we sell our shares? I suppose the only way to reduce the CGT is to drip feed them out slowly over a few FY’s?
2. So lets assume I pay cash 100% for PPOR of say 1M. I sell half the shares and use that 500k for IP’s and keep the remaining 500k in the market to collect divs etc. Would that be a wise strategy?
3. I had a little read up on NRAS (only 40,000 avail I believe) and TBH they seem like they may be difficult getting our hands on some. Forgetting NRAS – if we were to purchase standard rentals around the 400k mark as you suggest, what sort of figures would that present?
4. With all of the tax deductions, how would this all work out should we be able to retire @ 45 and have no income to offset the tax against?
1. You should seek an accountants advice on this. I can tell you all the ins and outs of NRAS, but I dont want to advise you on CGT :)
2. No such thing as a right or wrong strategy. There is certainly merit in owning the PPOR outright, then using a Line Of Credit to draw out equity for INV purposes
3. Plenty of good NRAS deals around with no valuation issues and strong yields – you just wont find many using Google. The online marketers flog anything and everything and dont give much thought to valuations. Im not allowed to advertise my services, but……
4. One of the beauties of NRAS is that the tax credit is paid in 2 parts – 75% comes from the Federal Govt via a Refundable Tax offset, and 25% comes from the State via a Non Assessable, Non Exempt cash payment. Neither payment is linked to losses. Theyv are pure tax free refunds. In other words, you receive the money whether you are paying tax or not. “Losses” only affect the negative gearing side of the equation, and if are concerned about losses not being offset against income- bear this in mind. You are 30 now, and looking to retire at 45. That’s 15 years away, so the deductions associated with high levels of gearing will still be of value to you for 15 years. By the time you are 45, the properties wont be running losses anyway, so you need not be concerned about having no taxable income to offset losses against, as there wont be any losses.
Let me give you an example. using a 350K property that currently gets 350 per week rent. The 20% discount under NRAS only stays in place for 10 years. After that, your property returns to normal market rent and you stop receiving the NRAS tax credit. So if the normal market rent for a 350K property is $350 today and increases by a very conservative 3% per annum, compounding… by year 15 ( when you turn 45) your property will be receiving @ 545per week , which is $28,355 , which equates to a yield of 8.1% PRE TAX If the same property achieved 4% compounding rental increases, by the age of 45 you’d be receiving $630 per week, or $32760 per annum, or 9.4% pre tax yield. 5% would yield 10.8% pre tax
Based on your existing combined 160K income, I’d be taking a closer look at something along these lines;
1. 6 NRAS properties. Broadly speaking, each will generate @ 20K of losses ( 1o K Cash loss, 10K depreciation) , and 7-8K CF+ after tax. So 6 of these would reduce your household income from 160K to 40K ( @ 20K each- so pretty close to tax free) And it would add @ 42-48K of additional Tax Free income. End Result… you’d go from 160K taxable household income to a combined tax free ( or very close to tax free) household income of @ 202-208K
2. If you used 90% LVR finance, you’d only have used 6 x 60K to achieve this outcome. 360K of your equity would have been used.
So if you do decide to pay $1Mil cash for a PPOR, you could draw out just 360K to get the 6 properties and effectively set yourself up with a 200K+ tax free income for your household for the next 10 years. that’s $2 Million in Tax free income in the next 10 years- more than enough to quickly pay off the 360K Line Of Credit on your PPOR and return it to debt free within 2 or 3 years. This would also leave you with an enormous amount of equity to invest elsewhere if you wanted diversification.
The secret is to maximise your tax free cash flow so that you can then maximise your $1Mil equity. NRAS is simply the best tool for that job. End of story. It’s not the be all and end all and it’s not the only good investment available, and it’s certainly not where your investing journey needs to end, but it most definitely IS the most potent and powerful place to start, because of all the multiplier effects it creates for you while you are still working and can still avail yourself of the Australian tax system and it’s very investor friendly laws ;)
Consider this; 360K of equity invested in 6 x NRAS properties basically makes you over $2 million tax free cash by the time you are 40 – before $1 of growth is accounted for. You’d have to work for @ 18 years to make $2 million after tax, based on your current taxable household income. And keep in mind, the $2 Million doesn’t account for all the incremental increases built in to NRAS. If I included those, the $2Million would be closer to $2.4 Million. You’d have to work for @21 years to achive that , based on your current taxable household income. However, I cant predict those Rental CPI increases so Ive used an assumption of zero increases to NRAS over the 10 years, to be ultra conservative.
That sort of cash flow ( $200K pr annum tax free) would allow you to pay down the 360K LOC you used to fund the 6 x NRAS deposits, within 3 years easily. So your end result would effectively be – $1 Mil unencumbered PPOR within 3 years + $200K Tax Free income + 6 Investment properties costing you Nil, Nada, Zero, Zilch. Beyond that, with all of that equity and all of that cash flow at your disposal, you can venture off to buy multiple other INV properties (non NRAS , as they aren’t available after June 30,2016) , or commercial properties, shares, magic potions or anything else that tickles your fancy :) The point is, NRAS creates the multipleir effect that you wont get from anything else. It’s the First Stage. The Cash Cow.
And don’t forget – you don’t have to be worried about “losses” holding no value or appeal for you beyond the age of 45, if you are fortunate enough to stop working then – because the 6 NRAS properties will well and truly be past their loss making days by then, as I demonstrated earlier.
NRAS is like an accelerant. It takes equity, and using high LVR lending, low interest rates and the tax system, turns the equity into d supercharged tax free yields, which get reinvested, making everything happen far quicker, creating compounding multiplier effects. You literally get the best of both worlds – great tax losses (negative gearing) AND Tax Free Cash Flow Positive after tax (NRAS Tax Credit) in one asset – at the same time. You get to reduce your assessable income by 20K AND make 7-8K tax free. 60K in. 8K tax free out = 15% tax free. But when reinvested, you get a multiplier on that. There’s nothing like it, and I dont know of any other asset class where you can get a better return on 60K (or 6 x 60K) Where else can you reduce your tax bill to ZERO, increase your after tax income significantly, get a compounding return from reinvesting that yield and get capital growth, in one asset?
Then you can go off an invest in all the other diversified opportunities and retire early on a passive income- whatever that may be . But to get there you have to put that equity to work. Squeeze all the juice out of the lemon while you have the opportunity and the taxable income and the NRAS at your disposal.
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This reply was modified 9 years, 9 months ago by loan ranger.
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This reply was modified 9 years, 9 months ago by loan ranger.
May I ask your combined household taxable income? Ballpark ?
I ask because if you were to set aside 500K to put towards a principle home, and then 500K towards INV purchases, you could break it up into 5 x 100K “chunks”. Use 5 x 100K deposits to purchase 5 x NRAS properties at @ 350- 400K each. Each 100K deposit would cover 20% deposit (70-80K) + Stamp Duty (12-16K depending on which state you purchase in) + a 10K cash buffer ( to cover the first years pre tax cash flow loss. Typically, that should generate @ 100K in deductions ( based on approx 20K per property, which consists of @8-10K in pre tax cash flow loss and 10-12K in depreciation – per property)
Typically, you’d also generate anywhere between 8-9K CF+ , because you’d receive an ATO refund on your per tax cash loss and depreciation , PLUS the NRAS tax free credit of $10,661.( and it goes up , indexed to rental CPI, annually )
So you’re 500K could buy you @ 1.75-2 million of property, and earn you @ 40-45K tax free after ALL EXPENSES ARE ACCOUNTED FOR.
Looked at another way, thats an 8% Tax Free Return.
If you were to be a little more aggressive and gear to 90% LVR + LMI you could in theory, purchase 8 x NRAS with your 500K ( subject to borrowing capacity of course) Again, using a 350-400K price range for the purpose of this example, 10% deposit = 35-40K S/Duty 12-16K . Cash Buffer 10K . So approx 60-65K invested in each property. You’d generate 160K of deductions ( 8 x 20K) and depending on your assessable income and Marginal Tax Rate, you may also generate as much as 70-80K additional after tax from the NRAS Credit.
So if your combined household income is 200K for example, 8 NRAS properties would typically allow your assessable taxable income to be reduced to @ 40K ( say 20K for you and 20K for your partner) which is effectively putting you both on an almost tax free income, as the tax free threshold is 18,200. You’d also be receiving @ 70-80K in additional refundable tax offsets – ie cash in your hand or bank account, from the NRAS credits.
So in that situation, your 500K invested in 8 x NRAS would be effectively convert 200K of taxable income into 270K tax free income for the next 10 years, and you’d have a property portfolio of 3.5 – 4 Million. Even with conservatiove growth of 3% per annum, your portfolio would appreciate 1.5-2 Million over 10 years.
Or looked at another way, without a dollar of capital growth (which I’m not , for a moment, suggesting will occur) your 500K has been turned into 2.7 Million tax free in 10 years.
With growth of just 3% compounding , your 500K has been turned into 2.7 Million in tax free cash and 1.5-2 million in additional equity
Or looked at another way , 60-65K of your cash invested using a 90% + LMI loan will generate 8-9K Tax Free, which is a 13-15% Tax Free Return.
If you then take that 270K per annum and re-invest in other, non NRAS properties, or maximise your Superannuation contributions, or pay off other non deductible debt, the yield will ultimately be significantly higher than 13-15%, as it’s all about the compounding multiplier effect that all that tax free money can create for you.
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This reply was modified 9 years, 9 months ago by loan ranger.
Unfortunately that's not quite correct I'm afraid.
The NRAS tax incentive does not have any connection to ordinary offsets that can be applied against your assessable taxable income. None whatsoever. .
It is paid via two components, called a Refundable Tax Offset ( not the same as a tax offset- see below) and a Non Assessable Non Exempt Cash Gift. 75% is paid via the RTO ( federal Govt pays this, and is ADDED to your tax return cheque/EFT from the ATO. Under ALL circumstances it is completely free of tax) , and 25% via the NANE ( state Govt pays this into your bank account and it is also completely tax free) Both are paid in FULL, TAX FREE, whether you have an assessable taxable income or not.
You may be confusing a Tax Offset with a Refundable Tax Offset. It's a common mistake, and many people who have read the misconceptions and myths perpetuated by some ill informed commentators who like to publish erroneous information about NRAS have been taken by this falsehood, but rest assured- you ( and they) are wrong and they are in fact two very different things – more information available here. Google is your friend
3 seconds of “extreme due diligence” may have been time well spent prior to posting incorrect information. http://www.ato.gov.au/nonprofit/content.aspx?doc=/content/00179876.htm&page=4&H4
As you will see, the NRAS Tax Incentive is completely different to and independent of traditional Tax Offsets you are referring to. The distinction is clear, as the ATO plainly states on this link. A Refundable Tax Offset is paid to you in full, tax free, whether you have an assessable taxable income or not. It is paid to you in full, tax free, whether you have excessive tax offsets or not. This means it also works for non residents with no assessable income from employment in Australia ( just rental income for which they submit a tax return)
So NRAS cash flow never runs out of steam Dave . The "steam" in fact increases each and every year for 10 years, in line with Rental CPI. FYI, Rental CPI has averaged 5.69% since 2008/9 when NRAS was introduced. It started at $8000 is currently sitting at $9981. So an NRAS property will most definitely generate the NRAS tax incentive in full, tax free, every year and well beyond the 4-5 years you have indicated. Better still, with just 4% compounding rental growth for each of the 10 years , your property would roll out of NRAS after 10 years and be achieving over 8% yield ( before deductions, depreciation etc) after reverting to full market rental rates. In other workds, CF+ for life , unless interest rates hit double digits. Dont mean to be too mean, but too many people who know too little about NRAS continue to make thinly veiled criticisms of it without actually knowing what they are talking about. Building a portfolio using NRAS is much easier than building a portfolio with neg gearing. Superior deductions. Superior Cash flow. No out of pocket costs, meaning significantly higher borrowing capacity, and guaranteed equity from reducing debt on your PPOR and paying it off within 10-15 years using the ever increasing NRAS CF+ tax free surplus money generated every year for 10 years. Short of massive Capital Growth and massive pay increases, you will never get close to this with the old rusted on “buy and hold at a loss and hope for growth” that so many credit boom beneficiaries of the 90’s seem to be unable to let go of.
Take 60K of equity- buy a 400K NRAS property. It will produce at least 6K CF+ tax free in year 1. Thats a 10% Tax Free ROI. Each year the figure will increase, so you’ll not only AVOID 2K of losses each year using the traditional neg gearing model, you’ll also ADD 6K tax free each year. That’s 8K of extra funds you can use to pay down non deductible debt . That will knock 10-15 years and 150K + interest off a 300-500K PPOR 30 year term. That’s a whole lotta accelerated equity, and it happens free of charge, without a single dollar being spent on losses/holding costs. It also means your non deductible debt is reducing fast, so your borrowing capacity continues to increase, rather than decrease, as you add a 2nd, 3trd or 4th NRAS property. Now you’re talking about paying down your PPOR in well under 10 years, meaning even more equity is available sooner, with less and less non deductible debt. Again, your borrowing capacity keeps growing this way. l
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This reply was modified 9 years, 7 months ago by
3 seconds of “extreme due diligence” may have been time well spent prior to posting incorrect information. 
