All Topics / General Property / NRAS national rental affordabiliy scheme

Viewing 18 posts - 1 through 18 (of 18 total)
  • Profile photo of BandDBandD
    Participant
    @bandd
    Join Date: 2010
    Post Count: 3

    G'day,

    Is anyone familiar with or had any dealing with NRAS 

    (Thoughts, pros, cons )

    thanks

    Brendan

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Brenden

    Welcome aboard.

    Theres been heaps of posts on NRAS – if you do a quick search you'll find loads of info.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of BandDBandD
    Participant
    @bandd
    Join Date: 2010
    Post Count: 3

    Thanks Jamie will search

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    NRAS is great but good stock is extremely hard to find. The last thing you want to do is to work with negative equity.

    Pros:

    1. Up to 10 Years Tax Free entitlements of approx $10,000 per year

    2. Good Depreciation

    Cons:

    1. Due to the above benefits – many of the NRAS stock is notoriously overpriced which means you are working with negative equity day one. 

    2. There is a risk that the government may pull the incentives above however I personally think that this is unlikely. 

    3. Finance is available up to 90% rather than the traditional 95%

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of cmur7cmur7
    Participant
    @cmur7
    Join Date: 2013
    Post Count: 8

    http://www.wealthadviser.com.au/images/downloads/The_11_Greatest_NRAS_Mistakes.pdf

    This is a great read on what to watch out for in a NRAS property investment.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Away from that the biggest caution should be valuation.

    Seen so many deals where the valuation and purchase price are more than a few dollars apart.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of AlwaysWaryAlwaysWary
    Participant
    @alwayswary
    Join Date: 2013
    Post Count: 1

    Hi Brendan,

    I'm a financial planner that was exposed to NRAS last year.  We have done extensive due diligence and found that providing the property purchase would makes sense without NRAS and you have a good NRAS consortium it is a very good proposition.

    The difficulty is that most NRAS properties are sold off the plan and can be difficult to ensure values stack up.

    We recently came across already built and tenanted NRAS properties 6km from Melbourne CBD that start at $315k.  These make perfect sense as NRAS generates more cashflow on cheaper properties and with a fully built, already tenanted and professionally managed property there is minimal risk.

    Happy to explain further.

    Profile photo of Nigel KibelNigel Kibel
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    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    Because of the nature of this type of property they are often located in outer areas such as first home buyers areas. Secondly they are often overpriced so if you find one in a good area make sure that you pay for your own bank valuation to make sure that the price is at market value.

    Nigel Kibel | Property Know How
    http://propertyknowhow.com.au
    Email Me | Phone Me

    We have just launched a new website join our membership today

    Profile photo of BandDBandD
    Participant
    @bandd
    Join Date: 2010
    Post Count: 3

    Thanks all for replies from what I can see the person who referred me to NRAS is getting a commission from any purchase

    which would inflate the purchase price 

    The same person referred me to a financial advisor which he also gets a commission from 

    (There is a lesson right there)

    From what I can gather about NRAS is its a good program with some not so good promoters 

    As with any investment due diligence

    research location,prices,schools,services etc. 

    I'm sure there are some good NRAS opportunities out there

    Brendan

    Profile photo of DGHayesDGHayes
    Participant
    @dghayes
    Join Date: 2009
    Post Count: 19

    Hi Brendan,

    Remember to do extreme due diligence so you can make an informed decision as to the value of the property and if the numbers stack up both with NRAS and without. Your due diligence should also include suburb research to evaluate potential capital growth, and ABS statistics for employment, net migration etc.

    Also to note that the $10K is off set against your tax, so you have to be paying tax to offset the amount to, something people forget when trying to build a portfolio out of NRAS properties, they run out of steam around 3-4 on average.

    Dave

    Profile photo of loan rangerloan ranger
    Participant
    @loan-ranger
    Join Date: 2008
    Post Count: 13

    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

    Profile photo of BennyteeBennytee
    Participant
    @ten_burner
    Join Date: 2006
    Post Count: 243

    I am not  fan of NRAS, its just another property investment fad, which will end up on the scrap heap. I have attached a link to an article written by Todd Hunter about NRAS http://www.wheregroup.com.au/blog/nras-are-you-kidding/

    Profile photo of loan rangerloan ranger
    Participant
    @loan-ranger
    Join Date: 2008
    Post Count: 13

    NRAS is a tax incentive, not an investment property fad.  You are looking at it all wrong.  Where else can you get a 10% Tax Free Return on your investment?   I bet your negatively geared property doesn't do that for you….

    Anyway, I digress…. regarding the article you have submitted to defend your position; it is literally dripping with incorrect information. It continues to amaze me how ordinarily intelligent people just cant comprehend basic maths.

    So rather than debating emotionally, let's look at this using facts.  Not myths.  Not opinions.  Just facts… freely published on Govt and ATO websites for all to see.

    What Todd says-  rental increases are indexed to CPI ( 2.8%)  and are therefore too weak. I agree that 2.8% is weak, but NRAS rental increases are not linked to CPI.

    What is actually true –   NRAS incentives are increased annually in line with RENTAL CPI, which is a whole different kettle of fish to CPI.   How, you ask?

    Increase was 8.4% in 2009/10

    Increase was 5.4% 2010/11

    Increase was 4.2% 2011/12

    Increase was 4.8% 2012/13

    Increase is on target to be 5.4% 2013/14

    http://www.fahcsia.gov.au/our-responsibilities/housing-support/programs-services/national-rental-affordability-scheme/national-rental-affordability-scheme-nras-incentive-indexation

    What Todd says –  There is a 10 year lock in – Todd's got that wrong too.  It's true that the very first version of NRAS was a Head lease Agreement operated by Queensland Affordable Housing Consortium, and it was quite cumbersome and restrictive. But it's loooooong since disappeared.  All the NRAS consortiums operate a Non Entity Joint Venture now, and have since 2009/10.  I could publish links to all 138 NRAS consortiums agreements, but that seems a little silly.  If you really want to verify whether I actually know what I'm talking about, call Questus, Affordable Management Corporation, Aspire Housing, Ethan Affordable Housing, Providence Housing, Coast 2 Bay Housing or any of the other NRAS consortiums, ask for a copy of their NEJV, and see where you can find any restrictions that compel you to be locked in to any agreement for 10 years.

    What is actually true-  nowhere in the NRAS Scheme Act 2008 is there anywhere that gives anyone any form of authority to lock anyone in to the scheme for 10 years.   None of the consortium agreements lock you in for 10 years.

    http://www.comlaw.gov.au/Details/C2008A00121   If you enjoy dry reading- knock yourself out, but believe me, what Todd claims is simply not true

    What Todd says – There are restrictions on selling to an Owner Occupier or another investor – wrong again.  Try and find any mention of that on the FAHCSIA website or inside the legislation.

    What is actually true.  You can cease to participate your property in the NRAS at any time.  Or if you sell to another investor, they are allowed to take up the remaining term of the 10 year incentive, if they wish . However, they are not obliged to do so.

    I can go on and on and pick apart every one of his arguments, but the simple truth is that he ( like many other critics who THINK they know NRAS because they heard someone talk about it or read a few lines somewhere one time)  doesnt know what he's talking about on the subject of NRAS. 

    He is a smart guy, runs a great business and is honest. So I dont think he's trying to mislead anyone.  I just think he doesnt understand NRAS properly.

    His motivation?  Hard to say, but he runs a business where he charges you 10K or so to act as a buyers advocate , sourcing old 2nd hand stock, buying it "under value" and flipping the equity into more properties. It has its place in a portfolio, but NRAS represents competition.   So I guess he may feel like attacking the competition makes sense. What is not in dispute is his right to criticise if he feels compelled to do so.  That is is absolutely fine , but it's tough to take his arguments on this issue seriously when they are so factually incorrect on every single level.

    The one thing he does say where I agree, is price gouging.  But this isnt linked to NRAS- this is endemic amongst all the white shoe brigade marketers in the Sunshine state, where he directs most his attacks. That is to say,  whether the property is approved for NRAS or not, these "merchants" try and add 30-40K to every deal. So it's absolutely unfair of him to level the criticism for price gouging at the feet of NRAS.  It was going on long before NRAS, and will go on ling after NRAS.  

    Sorry folks-  there isnt a single argument on his blog that holds water .

    Profile photo of BennyteeBennytee
    Participant
    @ten_burner
    Join Date: 2006
    Post Count: 243
    Profile photo of carllarzcarllarz
    Participant
    @carllarz
    Join Date: 2014
    Post Count: 10
    BandD wrote:
    G'day,

    Is anyone familiar with or had any dealing with NRAS 

    (Thoughts, pros, cons )

    thanks

    Brendan

    Biggest issue is valuation and purchasing the property at the right price.

    However I believe in most cases the $10,000k tax free benefits, and great gearing benefits offset the overvalued prices.

    Good luck getting your hands on one! try and find a well connected BA that can get you the hook up!

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    You have to think about NRAS in numbers if you want to gain the real benefits. Not as a individual purchasing a PRODUCT.
    Heres a situation. Most if not all states have a affordable housing community. Organisations set up to help people get into housing.
    Now the minimum that NRAS like to see in a application for the grants is 20 homes and more points for over 100 homes.
    most of these affordable housing organizations do not build themselves. Developers might be building a group of 8 homes another guy might be building 4 townhouses someone else 6 units etc etc in different Areas. They could each independently approached the affordable homes company. Who applies for incentives on behalf of the 4-5, 10 however many people
    Now if you can build a development say of 5-6 homes off a single block of land that is cashflow neutral or even slightly cashflow negative. Can you imagine now what happens if you could get 3,4,5, incentives for those houses. Suddenly your positive net cashflow per year tax free is 20k,30k40k,50k.
    You don’t need to a millionaire to have a passive portfolio of 50k easily.

    It’s all made for the major home builders, developers, private overseas owners all of australia

    Think Bigger. In saying that I have a friend in adelaide who has purchased a overpriced house on NRAS 3 bed 3 bath 2 carport. And it will still net him 7-8k a year. The bank valuation came in on price. So it’s not all bad and there are certainly people that will abuse it as well.

    Profile photo of BennyteeBennytee
    Participant
    @ten_burner
    Join Date: 2006
    Post Count: 243

    @Loan ranger, How is the NRAS stuff doing?? With the uncertainty around it at the moment (government reviewing it) you probably cant give it away.

    I stand by what I said "it is a fad"

    Profile photo of loan rangerloan ranger
    Participant
    @loan-ranger
    Join Date: 2008
    Post Count: 13

    NRAS Round 5 funding has been cancelled in the Federal Budget, but existing incentives from Round 4 remain fully funded…

    Round 5 would have provided funding for 10,000 NRAS incentives, but the incentives hadn’t been awarded yet so its not like anything has been clawed back or withdrawn. They just aren’t proceeding with the last tranche.

    Where does that leave NRAS? The bottom line is that instead of NRAS being a 50,000 dwelling initiative, it is now effectively a 40,000 dwelling initiative. The 10 years of funding for the existing 40,000 is locked into the forward estimates, and is not affected in any way by the budget decision not to proceed with Round 5. Of those 40,000, approximately 18,000 were yet to be “activated” at the time of the Budget. Keeping in mind that the majority of the remaining 18,000 do not require activation until as late as June 30,2016… this means that there is still almost 2 years to accumulate NRAS approved dwellings.

    You’re free to view it as a fad, and there’s no doubt that a segment within the NRAS market has sought to bastardise it and profiteer from it by using the incredible cash flow it generates to try and price gouge. So they certainly deserve to be criticised because they’ve taken what is a great investment and turned it ugly. But when you are able to purchase at fair market value rather than grossly inflated prices, it’s difficult not to concede that the numbers are impressive. 8-9K CF+ Tax Free isn’t to be sneezed at, especially when combined with good stock in sound locations.

    Let me use my own situation as an example; I have 10 NRAS properties now. With each property generating an average of 10 K pre – tax loss per annum and 10-12K depreciation per annum, they generate a combined 200-220K of deductions for me annually. Each property also produces 8-9K CF+ after tax, and that will increase annually because of the NRAS indexing. So with a salary of 250K, my assessable income will be reduced to @ 20 or 30K. With 18,200 being the tax free threshold , this means I’m going to pay little or no tax on my taxable income for the next 10 years. But I will also receive an additional 80-90K tax free from NRAS after tax cash flow ( 10 x 8-9K CF+)

    I’ve invested @ 50K of equity for each purchase ( 10% + stamp duty) plus a 10K equity buffer to cover the first years pre tax loss, which gets replenished by the combined ATO refund and NRAS tax credit, meaning I dont ever put a cent of my own cash in. So a total of @ 60K per property has been invested from equity, ( this includes the 10K buffer to cover me for Year 1) Across 10 properties, this equates to 600K of equity invested (which again, I dont contrbute ANYTHING to because of the CF+ nature of the investment) and conservatively speaking, it means I will pay little or no tax on 250K, PLUS receive 80-90K extra tax free dollars… so Im effectively going to earn 330-340K tax free for the next 10 years. In other words, 600K makes me 3.2-3.3 Million in Tax Free dollars over 10 years – and that’s before any growth is accounted for. How much growth do you otherwise need to make, after accounting for losses and CGT, to match 3.3 Million Tax Free?

    Whats my worst case scenario? If my 10 properties don’t increase $1 in value, I’ve made over $3 Million Tax Free anyway, just from cash flow. And I havent impacted my existing household budget one iota. If I suffer a reduction in income, the properties still make me a lot of tax free cash flow- it will just be less because I’ll lose some negative gearing as a result of having more losses than income. But I’ll still be earning the maximum amount of tax free income my situation allows for. The NRAS is a refundable tax offset, payable whether I have an assessable income or not, so I will still be CF+ on all 10 properties no matter what! And if the property market crashes, or rates increase, or we have a recession? The NRAS cash flow keeps me CF+ up to rates of 14-15%

    Investing doesn’t have to be exclusively about growth. The certainty of Cash Flow can be equally as appealing, and in any balanced portfolio, within any asset class – that is the investment norm. After all, you wouldn’t invest in loss making shares or term deposits or bank accounts, and hope for growth. Yet we seem happy to invest in loss making property with the exclusive goal of growth.

    I guess my argument is this…. if you could invest your money in any other asset and earn 14-15% Tax Free, would you? because 60K of your equity or cash invested into 1 x NRAS property that makes you 8-9K CF+, is precisely that… a 14-15% Tax Free Return. And that’s without any growth whatsoever.

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