How do you keep purchasing properties?
- Thread starter Alex1
- Start date
Would there be an extra benefit if lets say I could afford (saved enough) an 80% LVR rather than a 90% LVR, that would increase my earnings each month wouldn't it? Or you would recommend to buy more NRSA properties instead? Not too which would be better, to reduced the loan or buy more?
In terms of NRSA property management, it would be your responsibility for the maintenance of the property right? Hence the property manager?
In terms of NRSA property management, it would be your responsibility for the maintenance of the property right? Hence the property manager?
If you have a 20% deposit, you also have 2 x 10% deposits, provided you have the necessary borrowing capacity to buy two properties. ie. 2 x NRAS properties at 90% + LMI.
This obviously means adding the LMI to the loans, which makes the cost of the purchase a little dearer, but it also means you'll be producing 2 x @20K deductible losses and receiving 2 x 7-9K CF+ outcomes, rather than one. In other words, you'll get the LMI back within a couple of years and over 10 years you'll be in a superior position.
These are decisions only you can make. My view is that because the properties are CF+ it is safe to gear to higher LVR's - but don't forget to factor in a cash flow buffer to carry you through the first year, until tax time. You can also use a monthly tax variation but it's not my preferred method.
This obviously means adding the LMI to the loans, which makes the cost of the purchase a little dearer, but it also means you'll be producing 2 x @20K deductible losses and receiving 2 x 7-9K CF+ outcomes, rather than one. In other words, you'll get the LMI back within a couple of years and over 10 years you'll be in a superior position.
These are decisions only you can make. My view is that because the properties are CF+ it is safe to gear to higher LVR's - but don't forget to factor in a cash flow buffer to carry you through the first year, until tax time. You can also use a monthly tax variation but it's not my preferred method.
Round 5 was scrapped in the budget. That effects the final 10,000 incentives only. But the original 40,000 from Round 1,2,3 and 4 were not scrapped. Almost 18,000 incentives from Round 4 are still to be delivered, between now and June 30,2016.
Hi Euro,
Thanks for the post, very interesting. Just wondering why you don't favour ITWV's?
Cheers,
SupaRex
Almost. Need to also factor the other purchase costs. Also remember a 12% deposit plus cap LMI works out a cheaper LMI formula.
For any 12% deposit purchase, the deposit is about 66% of the purchasing costs. The other 33% is stamp duty, fees, solicitor, due diligence etc.
So it's more like for any 2 properties you can buy with 20% deposits, you could buy 3 with 10% or 12% deposits.
Still worth it in my opinion, but the money doesn't go as far as one would expect.
Im with you on that. There are no two ways about it.
You often hear the debate of capital growth vs cash flow. IMHO its nonsense.
Most (if not all) people have goals/dreams /big plans that will require CG to fund it. Period.
Cash flow is important in the sense that it should be used as an aid to help sustain and build that capital growth through good buys and time. (leaving development out of it for a sec becasue thats where i believe the MAJOR big money is in but i know its not practical for a lot of people)
CG. Thats the reality. If most ppl are honest with themselves, they know their dreams is going to take a good size equity to fund it.
You can approach me offline /via PM and I can show you NRAS properties.
Happy to provide you with some examples of NRAS properties where valuations have been at contract price, and in good quality locations.
Nundah QLD
Alderley QLD
Windsor QLD
Zillmere QLD
Brunswick VIC
Ringwood VIC
Castle Hill NSW
Elanora Heights NSW
Gregory Hills NSW
Baulkham Hills NSW
Wentworthville NSW
Rosehill NSW
Because you can only claim the federal component of NRAS (75% of the total) using this method, which of itself isnt problematic I guess. It's more the fact that it introduces temptation. Easy to spend the $600-700 monthly refund and not notice it. At the end of the year you wonder...where did the money go? When you structure the loan so that you only need to claim a lump sum annually at tax time, because it is self funded , you only have to make one decision per year. i.e one lump sum transfer onto your non deductible mortgage.
Just makes things simpler and reduces the temptation to waste the surplus income the NRAS property generates.
There's nothing wrong with a monthly variation though - it just isn't my preferred method.
NRAS does have a financing effect on serviceability, but one that can be managed. I've posted on the financing side of things a couple times in detail on the forums.
http://somersoft.com/forums/showpost.php?p=1189733&postcount=4
http://somersoft.com/forums/showpost.php?p=1189753&postcount=7
I think I've spoken to 20+ operators in the NRAS market in every state (except NT) across the country. I'm reasonably sure 90% of those operators where selling fluff and I have spent lots of time doing very thorough DD on these properties only to have some issue associated with them that made me walk away.
NRAS is murky and difficult to wade through all the misinformation, propaganda, advertising, myths, etc. What I would say is connect up with a good seller, get upfront vals, and do your research on NRAS thoroughly. If you want to get more comfortable, try and talk to people independent from the sale (e.g. people who've previously bought) while your connecting up with a good operator.
Cheers,
Redom
Agree with your LeoT about capital gain being the king.
Some NRAS haters automatically assume that NRAS cannot have capital gain or has weaker capital gain potential (a quick google search will throw this argument in the readers face). I agree that it definitely reduces your scope and 'market size' for good quality stock, but it doesn't mean you cant achieve solid capital gains with NRAS too.
I don't think NRAS automatically means no capital gain.
I personally have valued a couple of the above properties. I know that Gregory Hills valued from 365 to 460 in <12 months. Elanora Heights had something similar.
Note that it can be difficult to cash out >80%, so this should be considered if your going for a capital gain/cash flow NRAS dream team play.
Thanks for some excellent posts (as usual) on NRAS, Euro.
However, it appears that you have gotten a little confused with the below calculation outlined in your post.
The additional tax free income already allows for the income from claimed tax deductions; so, in your example, the after tax income will not be around 126.5K but it will be closer to the original before tax income (i.e. 100K)
However, it appears that you have gotten a little confused with the below calculation outlined in your post.
The additional tax free income already allows for the income from claimed tax deductions; so, in your example, the after tax income will not be around 126.5K but it will be closer to the original before tax income (i.e. 100K)
If a person earns 100K, and were to purchase 4 X NRAS Properties, and each property were to produce a pre tax cash loss of 10K plus an additional 10K deduction for depreciation , this is a simple overview of how it would work. Please note that I have not accounted for variables such as private health insurance rebates, medicare surcharges , other investment income or losses, other deductions for work, uniforms, cars, salary packaging arrangements etc, etc..... this is just a simple, no frills example to demonstrate the numbers.
Property 1 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced from 100K to 80K
ATO refund on the 20K deduction would be $7400 (based on 37% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $18,061
Property 2 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced a further 20K from 80K to 60K
ATO refund on the 20K deduction would be $6500 (based on 32.5% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $17,161
Property 3 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced a further 20K from 60K to 40K
ATO refund on the 20K deduction would be $6500 (based on 32.5% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $17,161
Property 4 would create a 20K deduction ( 10K cash loss, 10K depreciation)
Assessable income would be reduced a further 20K from 40K to 20K
ATO refund on 20K would be $4205 ( based on 3 K being refunded at 32.5% MTR and 17K being refunded at 19% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $14,866
Gross Income from Salary = $100,000
Tax Payable on 100K = $24,947 - refer to http://calculators.ato.gov.au/scripts/axos/AXOS.asp
Combined ATO and NRAS refund = $67,249 (18,061 + 17,161 + 17,161 + 14,866)
Net after tax income = $142,302
Property 1 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced from 100K to 80K
ATO refund on the 20K deduction would be $7400 (based on 37% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $18,061
Property 2 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced a further 20K from 80K to 60K
ATO refund on the 20K deduction would be $6500 (based on 32.5% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $17,161
Property 3 would create a 20K deduction (10K cash loss, 10K depreciation)
Assessable taxable income would be reduced a further 20K from 60K to 40K
ATO refund on the 20K deduction would be $6500 (based on 32.5% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $17,161
Property 4 would create a 20K deduction ( 10K cash loss, 10K depreciation)
Assessable income would be reduced a further 20K from 40K to 20K
ATO refund on 20K would be $4205 ( based on 3 K being refunded at 32.5% MTR and 17K being refunded at 19% MTR)
NRAS credit is an additional $10,661.
Total combined amount received is $14,866
Gross Income from Salary = $100,000
Tax Payable on 100K = $24,947 - refer to http://calculators.ato.gov.au/scripts/axos/AXOS.asp
Combined ATO and NRAS refund = $67,249 (18,061 + 17,161 + 17,161 + 14,866)
Net after tax income = $142,302
Hi Euro, so deduct $40k cash loss to get to $102,302 therefore net after tax cash flow is $102,302 - $75053( $100,000 - $24947) = $27,249 p.a ?
Yes, this sound about right James.
