All Topics / Help Needed! / Has anyone got advise on NRAS?

Viewing 12 posts - 1 through 12 (of 12 total)
  • Profile photo of DonnaOgleDonnaOgle
    Join Date: 2013
    Post Count: 10

    I am starting to prepare for getting into the investment property market.  I am wanting to do cash flow positive properties.  Has anyone got an opinion on using NRAS and other grantd like in the SA market

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

    NRAS properties are fantastic. The bigger kicker with NRAS is getting a property that is not over-priced and in turn issues arise with valuations when you are organising finance. 

    Also the max LVR is 90% with most lenders. There is a risk that the government may pull the tax benefits however I personally think this is unlikely. 

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

    Profile photo of investilyinvestily
    Join Date: 2013
    Post Count: 3

    Just keep in mind that you wont be able to resell on the open market for 10 years. If you need to get out before then you will need to sell within the scheme to other investors. If you are happy with that then its definitely worth looking into.

    Profile photo of DonnaOgleDonnaOgle
    Join Date: 2013
    Post Count: 10

    I am hoping to rent it to family who do qualify as a tenant, so the time frame is fine.  I just definately need cash flow poitive.  It is so hard to determine with all the rebates etc a clear ROI

    Profile photo of Jamie MooreJamie Moore
    Join Date: 2010
    Post Count: 5,069

    I'm not a huge fan – often overpriced and valuations come in low too often.



    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of DerekDerek
    Join Date: 2004
    Post Count: 3,544

    Hi Donna,

    Only you can determine whether or not a NRAS property suits you and your portfolio.

    For me make sure the property stacks up without any NRAS benefits. That is, is it priced fairly in comparison to similar properties in the area, does it tick the infrastructure/location boxes required for good property, is there a demand for such property in the area, tenants who fit the NRAS tenant's profile and so on?

    Like Jamie I have seen property that is over-priced for the local area. In one instance we were asked to sell some NRAS property and offered an 8% marketing fee. Somewhere there was significant loading in the property's price if this level of marketing fee was being offered. I might add, in this instance, the type of property being built was totally out of kilter with the suburb profile they stick out like sore thumbs.

    When doing your due diligence make sure you look beyond the 'tax advantages' and really look at the property.

    Profile photo of Queensland touristQueensland tourist
    Join Date: 2011
    Post Count: 6

    Donna, against the advice given by 'Investily', you can sell within the 10 year period to anyone. You have the choice to offer it to an investor to remain within the NRAS scheme or you can sell it to open market and have the property removed from the NRAS pool.

    There is generally a 6 month notification clause if you wish to sell outside of NRAS and you will no longer qualify for any Federal or State government financial incentives. Check your consortium's specific contract conditions and penalties.

    Depending on the consortium managing the property, you may not be able to specify your family as the recipients; they will also have to meet the income criteria and be registered as NRAS tenants.

    I have one NRAS property and 3 open market properties, all seem to be going well.

    Profile photo of euro73euro73
    Join Date: 2009
    Post Count: 60

    Not quite ,  I'm afraid. 

    NRAS is voluntary.  To enter a property into the NRAS, an investor must enter an agreement with the NRAS "approved participant" ( sometimes referred to as a consortium) who is responsible for administering the NRAS allocation on their particular dwelling.  The agreement through which this occurs can take the form of a Head Lease Agreement or a Non Entity Joint Venture, generally speaking.   ( there are a couple of other variations, but these arent approved by lenders or insurers  and are extremely rare so I wont get into it here) In NEITHER case  ( Head Lease or NEJV) are you ( the investor) stuck, locked in or anything else, for 10 years.  In NEITHER case are you ( the investor) unable to cease participating in the NRAS any time you elect to do so.

    There is absolutely NOTHING in the NRAS Scheme 2008 legislation that requires mandatory participation, or 10 year participation.

    The property can be sold to another investor, or to another Owner Occupier at ANY TIME during the time the property is eligible to participate in the NRAS ( 10 years) and there are NO RESTRICTIONS on this, whatsoever.  If it happens to be an investor who buys from you, they can choose to take up the remaining term of the 10 years eligibility if they wish to, but they are NOT obliged to do so if they choose not to.  Obviously if you sell to an Owner Occupier, they cant use the NRAS eligibility.

    Profile photo of euro73euro73
    Join Date: 2009
    Post Count: 60

    Here's a really simple Cash Flow Analysis to help you understand.  In this example I want to use the example of a 400K property, completed, being purchased in SA.

    For this exercise, I also want to assume you are borrowing 90% plus LMI, so your contribution is 10% of the purchase price, which is  40K  ( this is borrowed against equity)

    You will also need to contribute Stamp Duty in SA, which is $16,630  for a 400K purchase ( minus $8500 Revenue SA rebate)  =  $8,150 ( also borrowed against equity )

    I'd also like you to set aside 10K as a "cash flow buffer" – to cover the  out of pocket holding costs for Year 1  ( also borrowed against equity)   You'll see why, below.

    let's also allow 2.5K or so for conveyancing, quantity survey and building/pest inspections.   (also borrowed against equity)

    So let's consider your total contribution is $51,650 – the bank is funding the rest


    You have borrowed $51,650 , plus 90% ( 360K)  plus capitalised LMI  ( Im using 2% in this example- so $7200)   so your total borrowings = $418,850. 

    If you borrow at a 2 or 3 year fixed rate of 4.99%, Interest Only , your repayments = $20,900.62 per annum

    You will also have miscellaneous expenses such as Property Management, Strata, Rates, Water, Insurance – lets call it 5K per annum

    So your total expenses for the year will be $25,900.62.  Lets just call it an even $26K


    The property would normally achieve $400 per week rental income, but under the NRAS, you will receive 80%, so $320 per week, or $16,640 per annum


    Your expenses are $26K for the year ( see above) .   Your income is $16,640 ( see above) .  So you have generated a cash flow shortfall of $9,360  ( if you recall, this is paid for by the 10K you borrowed against equity – see above. In other words, ZERO cash input from your pocket. It's a straight up equity play- nothing else. )   This is a deductible loss for tax purposes

    You will also have a further deductible loss which you can claim for the depreciation.  Let's use a figure of 10K in this example.

    Your total deductible loss is therefore $19,360  ( $9,360 cash loss AND 10K depreciation)


    Depending on your Marginal Tax Rate, you will most likely be entitled to an ATO refund for the $19,360 "loss" you have incurred.  Assuming a MTR of 37%, this "deductible loss" would result in an ATO refund of $7,163.20  PLUS a tax free NRAS incentive totaling $10,350.  ( Total = $17,513.20 received back from ATO and NRAS)

    Remember that your pre -tax "cash flow shortfall" was $9,360,  ( see above) and you've now received an ATO / NRAS refund for $17,513,20 ( tax free)   so your AFTER TAX outcome is to be Cash Flow Positive $8,153.20

    If you recall; you accessed exactly $51,650 of your equity to produce a tax free CF outcome of $8,153.20, which is equal to a 15.79% tax free return on equity.

    Of course, you can change the purchase price , stamp duty ( less for house/land for example) and interest rate to suit whichever scenario you're considering-   and just by way of an example, on 350K  (ish) house/land packages  where Stamp Duty is only payable on the land, you'll generally be contributing 40-45K instead of 50-55K , but still netting 8K or more tax free, so the ROE is closer to 20% tax free.

    Whichever way you do the numbers, the returns are entirely tax free, and entirely superior to any other opportunity in residential property.  But as others have warned-  valuations can be a serious problem. ESPECIALLY when you buy from the online project marketer community. 

    So before all else- rule 1 is very simple – ask for a copy of a recent valuation, completed by a reputable/recognised firm, before agreeing to anything.  Or, have your broker order a valuation upfront before signing anything.

    There are many, many good NRAS opportunities where valuations are rock solid.  Every one of my clients will tell you that every NRAS property I recommend has valued on the contract price or in a rare few examples, very close to the contract price.   Just make sure to ask about valuations first and foremost

    Profile photo of evfredevfred
    Join Date: 2013
    Post Count: 2

    I have an NRAS property in Qld and I wish I had never heard of it. I am having big problems with the consortium. I think that they underpay their property managers and over work them. They don't have a clue about it all. The small amount you get off the government is eaten up in fees and more fees especially when you first start out. It is going to take me 2 to 3 years of NRAS payments just to get the fees back, with out actually making anything out of it.The tenants demand things as if they are paying top dollar. Look into NRAS very carefully before you do it.

    Profile photo of Don NicolussiDon Nicolussi
    Join Date: 2005
    Post Count: 1,086

    If the valuations on NRAS come in low and you have comparable sales to support your investment decision then it is time for a new lender. If they come in low and their is a good reason then time for a new property? Have just switched lenders on a nras deal and what was short came back at purchase price. No probs deal done happy client ready for the next property.

    Don Nicolussi | Mortgage Broker - Home Loan Warehouse
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    "I think of finance as a technology, a way of getting things done." Robert Shiller

    Profile photo of wilko1wilko1
    Join Date: 2010
    Post Count: 510

    I like NRAS but not at the 1 home mum and dad investor level. I think NRAS for a builder or developer,  can be a great tool, (IF you can drag yourself to answer the 17 page application document, Its huge).  I mean imagine your building 4 homes on a single site and if  you were to keep them it would cost you 20k a year over the whole site.. Naturally you would sell a few to pay back the debt and have positive cash flow on the remaining homes. But NRAS increases your cashflow by 40k per annum making it possible to keep all the dwellings for a cashflow of 20k positive per year. You also get increases in rent above the CPI i think last year was 4.5 % built in. You can choose to take the federal governments 7k ish payment as either a tax offset or as a cash payment (State goverment pays roughly 3k as a cash payment) . For people earning high incomes this is a bonus.

    You can have 2 of the homes taking the cash payment and 2 of the homes taking the tax offset. Pretty much earning money without paying any tax at all.

    Plus you've got to keep 4 assets over keeping just 1 or 2

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