Information and Guidance about the NRAS

[adamtk]

Hi

I have just been looking into NRAS properties but cant find much about selling these properties.

Does anyone know what happens if you buy one and need to sell it after a few years?
Some company's that are selling NRAS properties state they can be sold at any time to another investor and pass on the NRAS benefits or can be sold to an owner occupier but I was unable to confirm this in the legislation.

Thanks

Adam

 

[Rolf Latham]

How did u gow with finance ?

ta
rolf

 

[brendio]

There are a few things to understand with NRAS approved properties; there are some great advantages as well as some minor disadvantages.
[...]
The housing estate/ghetto effect- NRAS properties are built in the same estates as any other new stock, and cannot exceed more than 10% ratio in any development. This means that you can have ten identical houses on a street, and only one of them will be NRAS approved. This ensures there is no ghetto effect.

Euro, I know I'm dragging up an old thread here, but do you have a reference for this ghetto effect rule for NRAS funding, because I can't find it on the NRAS website and mentioned it to agent whose son is involved in NRAS who said it's okay to have a block of 30 NRAS units together.

Cheers.

 

[MikeF]

Banks Don't Get NRAS

Thought those considering NRAS might be interested in the following.

St George have just advised that they have amended their NRAS policy.

Basically NO NRAS in SMSF's but will do as normal investment property purchase but only for QLD subject to the following;

"After further review it has been found that the scheme has evolved and as a result, the Bank’s policy has been amended and applications
for residential mortgage lending can now be taken from the following NRAS consortium:

The Queensland Affordable Housing Consortium (QAHC)

Applications from other consortiums are not permitted.

The following policy applies to QAHC applications:
• Construction loans are permitted for house & land packages where the Contract of Sale for the land purchase & Fixed Price Building
Contract for construction are provided at the time of loan approval; Vacant land purchase or refinances are excluded;
• Rental income to be considered based on the actual (reduced) market rent to be received for the property under the NRAS agreement
(being a reduction of 25% on normal market rent for the property), with standard further discounting of that rental amount for what
is used in servicing.
• Tax free incentive payment to be excluded from servicing;
• All borrowers are to obtain independent legal and financial advice on the proposed purchase;
• Maximum LVR 70% (non LMI) or 85% plus capitalisation (LMI);
• Low Doc proposals and proposals under Super Fund Home Loan product are not acceptable.”

 

[tvc889]

Just wonder if the 12.5% or the 10% annual fee is tax deductible?

Thanks.

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.

 

[BPB]

What is the fee you are talking about 10% and 12.5% ??

 

[tvc889]

"The company I have found charges quite a lot of fees to become NRAS ($2000 initially plus 10% of the $8600 every year)." If you have read the posts from Smuel, you should be able to understand what I mean.

Do you know if the 10% mentioned in Smuel's posts is tax deductible?

Thanks.

What is the fee you are talking about 10% and 12.5% ??

 

[brendio]

It's a cost incurred in and related to producing assessable income. Why wouldn't it be deductible?

 

[tvc889]

Thanks for the reply - it is what I am thinking.

BTW, how about the upfront $2000 - I think it should be counted as purchasing cost, right?

It's a cost incurred in and related to producing assessable income. Why wouldn't it be deductible?

 

[BPB]

Hi,
I have been reading on the nes papers and the articles that government is giving much incentive to the NRAS (National Rental Affordability Scheme). Did anyone bought on this scheme? If yes can you share your experiences.
Also, Any idea where i can locate such properties (As i am told and read that not all properties are eligible on this scheme). I am planning my next IP in QLd as i have already 3 in NSW.

Regards
Velli

Hi Velli - Have been involved with NRAS for 18 months.
These NRAS properties are brand new and are the same as Non NRAS. There is no over pricing that Im aware and if so the Banks valuation will pick that up. Projects are all over Queensland from built to under construction, Gold Coast to Townsville.

Euro73 is right these are standard products, House and land 3 and 4 bedroom and you would not tell the difference between NRAS and non NRAS houses.

It is nothing like Defence Housing.

It is a wonderful opportunity to own property with a boost of $91,400 over 10 years from the Government into your pocket. Structure your loans correctly with the Tax variation form your pay and it will cost you nothing to own these properties after all deductions. (Post Tax plus the Tax Offset)

 

[BPB]

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.

Search around - not all consortiums charge the $2,000 at all.

 

[BPB]

"The company I have found charges quite a lot of fees to become NRAS ($2000 initially plus 10% of the $8600 every year)." If you have read the posts from Smuel, you should be able to understand what I mean.

Do you know if the 10% mentioned in Smuel's posts is tax deductible?

Thanks.

There are agencies or Consortiums who charge $2,000 but you dont have to pay that if you look around and you will still get the stock.

As a legitimate expense in procuring the property it should be tax deductible.

Please do look around.

 

[tvc889]

As a legitimate expense in procuring the property it should be tax deductible.

This is not a borrowing cost so I am not so sure if you are correct.

Anyway, thanks.

 

[BPB]

This is not a borrowing cost so I am not so sure if you are correct.

Anyway, thanks.

Best speak to your accountant.

Thanks.

 

[tvc889]

Just confirmed with my accountant, the annual % charge should be tax deductible.

 

[sy1114]

rental percental

Just starting out with NRAS.
Why do some sites talk about 20% rent reduction and others 25%?

 

[euro73]

First and foremost, to understand the answer to your question, you need to first understand that YOU the investor is not paid the NRAS incentive. The NRAS incentive is paid to an NRAS Approved Participant, and the Approved Participant (some people on here call them consortiums- but the correct term is Approved Participant) passes it on to you.

This is why you are required to enter into a separate third party agreement with an NRAS Approved Participant, when you buy a property with an NRAS allocation attached. This agreement is separate the Contract Of Sale.

So what is an Approved Participant? In a nutshell- an Approved Particpant is an organisation which is appointed by the Govt and is responsible for administering the scheme and ensuring the property remains compliant, and therefore ensuring the NRAS incentive is payable. The are several areeas where they must "comply"- but the main things to be ticked off are that 1. the property is rented at the appropriate discount and 2. the property is tenanted by eligible tenants- ie income thresholds are observed.

Some of the Approved Particpants have the infrastructure and expertise to do these things themselves, some of them outsource it to other oragnisations- ie property managers etc...but what remains fact is this - the Approved Participant is responsible for ensuring the property is compliant, and that the NRAS incentive is payable. Once the Govt ( state and Fed) pays the incentive to them, then pass the incentive through to the investor- YOU. - for a fee of course

Without having to re-type my previous posts explaining the different NRAS Approved particpants models in detail, there are three different kinds of models that have evolved;
Head Lease Agreement-
Non Entity Joint Venture-
Non Entity Joint Venture via a Managed Investment Scheme-

Now back to your question- In a nutshell, the models operating under a Head Lease are "not for profit" organisations- (remember this is an affordable housing initiative) and the ATO ruled that their not for profit status would be at risk if they received more than 74.9% of the NRAS incentive.. so thats why their model requires that you discount your rent by 25%, whereas everyone else ( the NEJV models and MIS model) only require a 20% rental discount.

 

[Indifference]

Just starting out with NRAS.
Why do some sites talk about 20% rent reduction and others 25%?

My understanding is that it revolves around taxation implications and therefore, how/to whom the properties being marketed.

75% is the threshold for GST-free, where a GST credit can be claimed.
80% is the mandated limit/ceiling for NRAS properties and at this level are subject to input taxation.

Additionally, NRAS was intended by government to be taken up by large companies, superfunds etc. Such entities would likely prefer the ability to claim a GST credit, hence would have a rent ceiling of 75%

By round 2, it was evident that personal investors were going to be the mainstay, hence the maximum limit allowable under NRAS (80%) seems to be more common in subsequent allocations.

This is my understanding, any other comments SSer's???

 

[euro73]

quick update... saw NRAS being discussed on Your Money Your Call a few days back- where the NRAS proponent spoke in very broad (and inaccurate) terms about NRAS. Amazing. She said that loan applications are presented to banks just like any normal investment property application, so loans were easy to find for NRAS.
I wont name her, because she deserves the benefit of the doubt and rather than proposing that people commit fraud by failing to disclose NRAS, she may have meant that the paperwork required was the same, but I do think she should have been clear about the finance limitations, the LVR limitations and the fact that rental income from NRAS properties is assessed much differently by lenders.
If you apply for 90% finance and present an NRAS property as a standard investment property- you are committing fraud. The rental income that a bank is using to assess your borrowing capacity is false, and you are signing a declaration saying it is accurate and correct. If its a broker deal, they are also being fraudulent, and the responsible lending guidelines that non banks have been observing since July 2010 and which banks are now required to observe from Jan 1, make that so.
Also, if the loan ever goes into default/delinquency- a lenders right to repossess and dispose of the security is hindered by some of the NRAS third party agreement models - so if you havent disclosed its an NRAS deal, and the lender isnt aware of the restrictions - they'll come after you.
Until an NRAS deal (which hasnt been disclosed as NRAS) goes into default and a bank hits this problem, it wont come up- but someone will default at some point, and it will be revealed. Then the banks will audit every deal in that development- if there are other NRAS deals in there and they haven't been disclosed- watch out. Then theres the Mortgage Insurers- you'll be black listed for years. You'll be banned from being able to get LMI on a deal for years.
Dont be fooled by a broker or a property spruiker that NRAS is simple- just because a COS for an NRAS property doesnt mention NRAS. To proceed that way is to proceed on a fraudulent basis because you are falsely declaring the rental income. NRAS lending is specialised and its limited. See my earlier posts, and stay within those parameters. Do it with full disclosure and dont risk it.

 

[Paul Thewlis]

Further to euro73's comments about finance. It is true to say that the banks have been slow on the uptake with NRAS. Their primary concern on any loan is related to risk - ie will they loose money on the loan.

So their initial reaction to NRAS was its new and we haven't heard of it so it must be risky. As a consequence some credit policy restrictions have been established.

But this attitude is changing rapidly. Loans or up to 95% on NRAS properties are now available. See "New 95% Loan for NRAS Properties"