Information and Guidance about the NRAS

[skater]

In theory, the NRAS homes should be a good investment, however I have looked at several of them and they all seem to be vastly overpriced compared to other properties in the area. They market them as a good positive cashflow investement due to the Government incentives, however they fail to mention that CG would not be the same as a similar property due to the inflated price.

Just my opinion, but I have not found one that I would happily purchase.

 

[Nth Brisbanite]

In theory, the NRAS homes should be a good investment, however I have looked at several of them and they all seem to be vastly overpriced compared to other properties in the area. They market them as a good positive cashflow investement due to the Government incentives, however they fail to mention that CG would not be the same as a similar property due to the inflated price.

The ones I've read about on the northside seem to be reasonably priced, maybe a little more than what I'd like to pay. Even if they are a little over priced they still could be a good buy if you keep it long term and factor in the government incentives.

Any Brisbanites know about Aztec, Awesome1 and Surat Basin Homes?

 

[euro73]

Banks are going to value them before approving finance, so the valuation report ordered by the lender will provide a pretty good idea whether there are comparable sales that support the price... if they're overpriced by 20,30 or 40K as some are suggesting, the valuation will reflect this and the LVR on the loan will have to change. Given the ever tightening credit restrictions and reduction to investment LVR's happening across lenders, you'll soon know whether they're overpriced. I think its safe to assume that if a bank and its valuer OK's the deal, you're not paying too much.

 

[truong]

I own an NRAS property since August 2009 in Adelaide. Must be one of the first ones here. Pretty happy with it so much so my son has decided to buy one as well.

Property: 2-story townhouse with garage, 3 beds upstairs, 2 baths+wc. Total area 175 sqm.
Built new OTP, total cost 315K, LVR 80%
Valuation done this month as part of overall refinancing: 368K
Market rent: 300/w
Actual rent (20% off): 240/w
NRAS: 167/w
Net income (after PM and all other costs): 347/w therefore CF positive from day one.

- Nothing like housing commission as tenants are medium/low income (ours is a nurse). You choose your tenant and deal with PM as normal.

- No risk for a ghetto as only a limited number of properties are NRAS approved in each area.

- I believe there was no price gouging as latest valuation shows.

- I heard government is working with ATO to insure NRAS grant is tax free. Waiting for news on that.

So far so good. However a word of caution: although NRAS is the same in all state, each property/developer/area is different. You need to do DD.

Truong

 

[truong]

I believe NRAS is a win for everybody. Tenant gets cheaper rent, landlord gets higher income and government doesn't have to spend huge capital upfront to build social housing.

There are teething problems though... But we're looking long term, aren't we?

Truong

 

[handyandy]

I own an NRAS property since August 2009 in Adelaide. Must be one of the first ones here. Pretty happy with it so much so my son has decided to buy one as well.

Property: 2-story townhouse with garage, 3 beds upstairs, 2 baths+wc. Total area 175 sqm.
Built new OTP, total cost 315K, LVR 80%
Valuation done this month as part of overall refinancing: 368K
Market rent: 300/w
Actual rent (20% off): 240/w
NRAS: 167/w
Net income (after PM and all other costs): 347/w therefore CF positive from day one.

Truong

Just on face value 347 pw (18044 pa) is a return of 5.7% on $315k, likely interest charge at 6.8% is $21,420.


Could you please supply more figures such as all the outgoings - RE commission, rates, taxes depreciation etc to give a fuller understanding.

Also how does the rebate/tax deduction work as I believe that there is a Federal and a state component.

Cheers

 

[truong]

Just on face value 347 pw (18044 pa) is a return of 5.7% on $315k, likely interest charge at 6.8% is $21,420.


Could you please supply more figures such as all the outgoings - RE commission, rates, taxes depreciation etc to give a fuller understanding.

Also how does the rebate/tax deduction work as I believe that there is a Federal and a state component.

Cheers

Interest 6.2% x 80% x 315K = $15,624

Sorry, don't have a detailed breakdown ot outgoings with me as I'm travelling. $347/w net income is what sticks in my mind from the last time I looked at it.

Tax free status for NRAS is up in the air now. Will be a bonus if it happens.

Truong

 

[mystery]

I get confused when people say their property is positive from day one (not picking on you truong, .. just a general comment)..... Do your figures include insurance, water/council rates, BC fee's, land tax etc. These costs add up, but a lot of forumites don't include them when stating that their property is +cf. They only do rent v loan repayment.

We include every single expense/holding costs in order to get a true indication on whether we are cash flow negative or positive. I have found that we need approx 10% rent return which covers all expenses to turn our IP's into true cash flow positive investments.

I suppose my question is .... after a total breakdown of all costs associated with your NRAS townhouse ..... is it still positive cash flow from day one?

Thanks

Martin

 

[skater]

Interest 6.2% x 80% x 315K = $15,624

Just on face value 347 pw (18044 pa) is a return of 5.7% on $315k, likely interest charge at 6.8% is $21,420.

I suppose my question is .... after a total breakdown of all costs associated with your NRAS townhouse ..... is it still positive cash flow from day one?

No, it's not cf+ at all. He is only getting a positive outcome due to the 20% deposit he has injected. You can turn ANY property into a cf+ property by upping the deposit if you use that scenario.

Like Mystery mentioned, you usually need a return of around 10% to make a property cf+, although with rates so low, you could probably squeeze it in at around 9% at the moment. Of course, this depends on how much you are getting charged for the management too. I pay between 5.5-7.7% management on mine.

 

[truong]

You're absolutely right. Some people including myself use the term "CF+" too loosely. As soon as rent minus PM is higher than interest charge, we call it CF+. Mea culpa. I guess this is so because it's a quick way to picture a property as other charges usually can be offset by depreciation (in excess of $7000 pa with this one).

I just realised I gave you the wrong valuation yesterday. Working on memory I was confused with another IP as I have quite a few in the 300-400K mark. It's actually a bit better, 375K not 368K.

I'm not saying NRAS is the panacea, but in my case this one compares favorably with my other IPs on day one.

The PM did an inspection last week. Everything's fine and dandy. I guess it's in the tenant's interest to keep the property in good condition as they realise they may not be able to have their rent subsidised in another property.

Truong

 

[grossreal]

From the people I have spoken to there is no limit to the number of units on a development that is just going thru
there are 115 town houses and 57 are thru nras
not sure about being positive but the sale price is thesame across the board
from a funding point of view it's the same and no negative effect at all
just my view

 

[Smuel]

Truong NRAS in Adelaide

Hello Truong

I am also from Adelaide looking into NRAS. The company I have found charges quite a lot of fees to become NRAS ($2000 initially plus 10% of the $8600 every year).

From your return calculations it seem you are getting the full $8600 back. Would you mind telling me what company you found in SA that did the NRAS for you?

The only SA company I could find so far is Ironfish. The NRAS sounds really good but it seems the fees differ greatly from company to company.

Regards,
Smuel.

 

[truong]

Yes Smuel, I believe there's only one company in SA, Ironfish.

My calculation includes 12.5% fee on NRAS grant and 11% on rent for PM -which is much higher than normal property. However I still come out about $5000/year better than normal property. If NRAS grant is declared tax free (likely) then I get a bonus.

One thing you have to be careful about is bank valuation as I assume your finance is tight. I'm now buying my third NRAS IP, two valuations came out under and one just a bit higher than purchased price. Valuations have been quite volatile for no apparent reason.

I had no problem getting loans at 80% LVR. Not knowing situation in QLD, I don't understand why people there are having problems.

NRAS properties suit me well as I prefer new properties because of good depreciation, nil maintenance, quality tenants and almost no hassle. Maybe I'm too lazy. NRAS properties are also very close to being CF neutral, which IMO is a must in the current environment.

I'm holding 10 years+ with little cost and no sweat, so I'm not concerned about exit fee nor about rent only rising as per CPI. By then my NRAS IPs will sell as normal ones.

 

[Smuel]

I own an NRAS property since August 2009 in Adelaide.

Property: 2-story townhouse with garage, 3 beds upstairs, 2 baths+wc. Total area 175 sqm.
Built new OTP, total cost 315K, LVR 80%
Valuation done this month as part of overall refinancing: 368K
Market rent: 300/w
Actual rent (20% off): 240/w
NRAS: 167/w
Net income (after PM and all other costs): 347/w therefore CF positive from day one.

Truong

So if you went though Ironfish as I am considering, a couple points don't make sense to me.
-Firstly you have NRAS at $167/w which is $8684/yr. But you are paying 12.5% of that to the developer plus (in the first year) a $2200 sign-up fee to them also. So this should be $5398 which is $103 a week.
-Secondly you say this is all from day one but I was told you must be in the scheme for a year before you get any of the incentives. So the first year you be renting at $60/w less than market which is $3120 less for the year before you would get the $5398?

- Have you received any developer payments yet?

Also Ironfish said they will charge 10% to the developer but you said you are paying 12.5%? Have they lowered the charge?

Thanks for the warning about the bank valuation, I saw them today and they said they don't do bank evaluations on home and land packages as if someone is willing to pay that then that is what it is worth (Bendigo Bank)

After all this do you still think it is a good investment, I am looking at the Andrews Farm area. It still seems good to me just the fees seem a bit over the top. Especially if the developer goes broke after everyone has paid them $2200 and then won't get any NRAS benefits.

Thanks for help with this decision.

 

[truong]

You do your own sums and make up your own mind.

By paying 12.5% instead of 10% I don’t pay the $2000 upfront.

True, NRAS is only paid at the end of the financial year, but if this is a major issue for you maybe your finances are too tight.

I’m well aware of the criticisms by some investors about NRAS. Generally they are valid ones. In pre-GFC conditions, I would have thought twice before joining the scheme as there were better CG opportunities elsewhere. But in the current unsettled conditions NRAS is great for reducing holding cost and risk. IMO now isn’t the time for aggressiveness but defence, so I’m buying defensively though still actively.

I also feel NRAS is a strong incentive for tenants to behave and stay long term. Still early days but I’m hoping for nil vacancy in the years ahead.

It’s quite understandable that many investors resent the “unfair” rental competition by NRAS properties. I myself have a number of non-NRAS properties, but I try to make the most out of set market conditions rather than fight against it.

 

[Smuel]

You do your own sums and make up your own mind.

By paying 12.5% instead of 10% I don’t pay the $2000 upfront.

True, NRAS is only paid at the end of the financial year, but if this is a major issue for you maybe your finances are too tight.

My finances aren't tight at all, just getting confused with the figures you supplied, seemed a bit off from what I have been getting told.

How were you able to get them to allow you to pay the joining fee as an added %. I haven't been offered this and am also going through Ironfish. On the contract they got me to look over there is no option for this. It seems like a good deal though. Is there someone at Ironfish who could make this happen?

I did note that on the last page though it says if the government decides to make it a tax free benefit then they will charge 12.5% instead of 10%.

Thanks.

 

[pully]

would it be wise for you to get some independent advice before committing to
anything?

with all due respect, a lot of those who speak glowing about NRAS are those who are getting a direct financial benefit from promoting the scheme.

have a really good search and you will see.

it is a complex matter and potentially expensive if you get it wrong.

just my opinion but i like to really understand what i am doing with my money and investments. it is your money after all. what suits one person may not be right for you.

please seek independent advice and if after that you want to proceed, by then you maybe in a position to separate fact from fiction etc?

it is possible to be a property investor without NRAS, as many on here i feel sure can agree.

good luck.

 

[Smuel]

Yeah, I have a couple properties already without NRAS. Just thought who better to ask than someone who is actually doing it.

 

[truong]

a lot of those who speak glowing about NRAS are those who are getting a direct financial benefit from promoting the scheme.

Truong, The NRAS Spruiker, I like that.

Is there someone at Ironfish who could make this happen?

Give'm a call. I was offered that by the salesperson.

Just thought who better to ask than someone who is actually doing it.

Thanks for asking.

 

[Smuel]

Truong,

Thanks, I called them and yeah that said that is an option. Not sure why they didn't tell me about first??

It sounds like a better way to go, spreading the $2200 out over the ten years. I guess the only downside is it may work out a bit higher than $2200 because it's a percentage, but I figure it's better to save the extra $$ early while the loan is still high.

Looks like I'm going ahead with it!