Nras #2

To get an idea, I previously used ABS figures, but I found local searching by map would dig up more relevant results. This is mainly because the social housing property is hardly ever evenly distributed across a suburb.

Searching for social housing density in an area used to be a little easier. We used to simply switch the RP or PDS map view to display owner details. You could then see all the properties in that area labelled "The State of Queensland (Rep by the Dept of Housing)" and that gave you a fair idea. For example, if I search in Caboolture (outer Brisbane area), I get 416 results. If I search in Bardon (inner Brisbane area), I get 10 results.

When searching by map, you also become aware of where the clusters exist (example: when you look around Caboolture, there are areas on the northern and eastern sides where you'll hardly encounter a property owned by the Dept of Housing), other categories of social housing, such as community housing, accommodation for the mentally ill, drug rehab, minority groups, etc.

Once upon a time, it was also easier to identify, as it was all labelled 'Dept Housing', but the ownership details have become more confusing over the last decade including JV arrangements between the Dept and other NFP organisations. To find these, you need to find out more about the organisations that own property here and there, which involves ASIC searches, Googling.. etc. Like I said, it used to be much easier.

I've watched with curiosity to see where NRAS approvals would find themselves, especially in light of some of the recent social housing application approvals. They actually seem to be scattered much better than I originally thought they would be (given the development sizes they were seeking to begin with and what's developed since), but there are areas of overlap.
 
OK- here's where I'm about to get a hiding from the eternal CG hawks :)
I think we all have to face the realities of how little or limited Capital Growth might be a reasonable expectation this decade.
Prices have reached a level where the capacity for another doubling of property values in 7-10 years seems highly, highly improbable. Mathematically, its basically impossible, UNLESS salaries grow at far more aggressive levels than now, AND rates fall by at least 3 or 4%. I say this because of the way servicing calculators work, the way assessment rates work, and the extremely unlikely availability of 100% loans and loose credit appearing again this decade.
Now don't get me wrong- I am not suggesting a collapse. I am not suggesting a lack of growth- but I am suggesting there will be nothing remotely similar to the kind of growth enjoyed over the previous decade and a half, because during those years, credit became much much more relaxed, LVR's became much higher, and LMI policies became more and more open and relaxed. The same environment just doesnt exist today.
In the year and a half leading up to the GFC in late 07/early 08, rates were nudging 9.5% and prices had plateaued or come off in many areas. The plateau / decline started when rates got over 8 or 8.5%. That much we know to be true. But remember that was in an environment where credit was still easy to obtain, LVR's were 97-100 for investors, and banks didnt care what you were asking for equity for. Line's of Credit, Lo Doc, No Doc- all easy to obtain. No more the case.
It took a dramatic cut in rates in 2008 and a dramatic boost to the FHOG to kickstart property again, and that happened so succesfuly and so quickly and for a period of 18-24 months, that the hawks seem to have forgotten the 12-18 months of difficulty prior to that artificially stimulated recovery.
So in 2011 we find ourselves with rates heading to 8% and possibly onwards, but this time there is much more restrictive access to high LVR/equity /cash out and just money in general- and we're already seeing data suggesting prices are coming off, so I would make an argument that the money required to create aggressive Cap Growth just isn't there any more. May not be there again for years, if European and US debt isn't addressed dramatically.
Of course, GFC part 2 could mean a dramatic rate cut, once again boosting peoples borrowing capacity. Its possible, but its quite a punt to take.
This is where NRAS can offer really good and smart value, if you view it from a broader perspective than just capital growth. Here's what I mean - The tax free incentives , if redirected to your PPOR, are going to create significant equity without the same amount of gearing required. They buy you 10 years to see out this cycle, and they cost you nothing essentially, due to their cash flow positive nature. That's PPOR debt you wouldnt otherwise be able top pay down that quickly. Of course, NRAS doesnt have to make up anyone's entire portfolio, and nor should it, but I would think any smart investor would want a cash cow or two sitting in their mix, as part of their overall position, helping to pay down their PPOR.
If you have a 300K PPOR P & I debt and can redirect even an extra 5K principle per year towards it, at a rate of 7% that equates to @ $182,500 in saved interest. If you can redirect 10K per year at 7%, that equates to $249,695 in saved interest. Not a bad way to create some tax free equity, and remember your NRAS properties arent costing you anything to run for ten years- so the holding costs normally associated with non NRAS( if you bought one or two of these instead of NRAS) can also be redirected back into your PPOR mortgage. That will make a huge difference to how quickly you pay down your PPOR. Alternatively, that's money that can then be redirected towards the holding costs of additional properties you wouldn't otherwise have been able to add to your portfolio ( if you have the equity to do so).
Either way, you're creating wealth that you are otherwise hoping super capital growth will provide- in an environment where its unlikely to repeat the previous decades performance.
Of course- its only fair to comment that the way cap growth performs over the medium term on an NRAS or any other property is anyones guess when a market is at such high prices... and maybe we will see unbelievable growth in spite of all the mathematical logic, but its quite a punt, and you can guarantee the cash flow from NRAS at least.
I read a lot of comments from people commenting on their CG concerns because of where NRAS properties are located, and its true that no one knows what the future holds so to a degree we are all guessing, but it seems that the power of NRAS is being missed in the way the comparisons are being compartmentalised. At the very least it could help you pay off your own home much quicker , improve your cash flow position and and help you establish equity much quicker. I would imagine those three things would create even greater opportunities than the capital growth provided by a couple of non NRAS properties. ( if you get fantastic capital growth)

Fully agree Euro, just hope that collapse doesn't happen. My problem is that I hope the bank does not value my PPOR too low so I can use the equity I need to buy an NRAS
 
Fully agree Euro, just hope that collapse doesn't happen. My problem is that I hope the bank does not value my PPOR too low so I can use the equity I need to buy an NRAS


I guess the valuation you're concerned about would affect your capacity to access equity for any investment- whether it's NRAS or not.
I suspect values have pretty much peaked for the time being (although some areas and properties will always buck the broader trend) and another rate rise or two will start sending them south a tad (if the patterns of 06 and 07 repeat as standard variable rates reach 8% and over) so if you're considering accessing equity- its probably timely to do so now before valuers start getting ultra conservative ( which is exactly what happened in 06 and 07)
Even if you dont draw the loan down, at least you'll have it in place for when you do make a purchase, whether its NRAS or not. I think this is one of those times where acting decisively and relatively soon will prove to have been a smart move.
 
Thanks for this perspective gents. I had not considered how effective this could be at helping me build equity in my own home. It does seem to add to my existing loan configuration which seeks to acheive the same thing. NRAS might put a "burner" under it for me. I will give it some very deep analysis over the next month, thank you.

As for CG, I don't think I am a hawk. You tell me? My approach is CF+ in bread and butter aiming for an average 5-6% p.a. CG across my portfolio. This certainly seems achievable to me.

How do I find out where these "social housing" hotspots are? Is there an article, website or index somewhere I can refer to? Or should I examine the DA's of the local council on a case by case basis to find them. I do examine DA's in areas I am investing, but hadn't completed a specific "social housing" search before. If I do, what am I looking for specifically?

Sorry Vessel- wasnt implying you're a "hawk" :) Just saying that there are people on the forum who believe property can only ever go up up up up up, based on their experiences of the last decade or two. Thats what theyve become used to and sometimes they cant see how an argument like mine can play out.
Growth of 5-6% per annum? If wages grow at that rate you may achieve that, maybe even a little more, but I would imagine 3-4% is more realistic, for all the reasons I outlined in my earlier post. I'm really only basing that opinion(and it is just an opinion) on the fact peoples borrowing capacity is pretty much tapped out at this stage according to all the data that housing industry bodies, banks and mortgage companies publish.
The picture is the same everywhere, whoever's data you look at. Loan volumes down. Average loan sizes not growing. Its been this way for about 9 months and you can see clearance rates and prices have softened. Cant see that situation improving much if rates climb another 25, 50 or 75 bpts in the coming year.
As Ive said- the easy credit, ever increasing LVR's and the resulting supercharged borrowing capacities of the 90's and noughties, which allowed people to pay more and more and for prices to rise and rise, just arent around this time. That cycle has run its course. There's no elasticity left, nowhere else for lenders to expand, to suddenly open up new access to ever greater amounts of borrowing capacity, which is whats needed to see house prices grow and grow. The RBA would have to make pretty deep cash rate cuts to give it any chance of happening
 
I guess the valuation you're concerned about would affect your capacity to access equity for any investment- whether it's NRAS or not.
I suspect values have pretty much peaked for the time being (although some areas and properties will always buck the broader trend) and another rate rise or two will start sending them south a tad (if the patterns of 06 and 07 repeat as standard variable rates reach 8% and over) so if you're considering accessing equity- its probably timely to do so now before valuers start getting ultra conservative ( which is exactly what happened in 06 and 07)
Even if you dont draw the loan down, at least you'll have it in place for when you do make a purchase, whether its NRAS or not. I think this is one of those times where acting decisively and relatively soon will prove to have been a smart move.

I am a complete novice regarding IP, our situation is we have a $355k mortgage on a house worth at least $460K, with the threat of rising interest rates 2 months ago we fixed ALL of our mortgage at 7.09% will this threaten our ability to buy a NRAS property?
 
I am a complete novice regarding IP, our situation is we have a $355k mortgage on a house worth at least $460K, with the threat of rising interest rates 2 months ago we fixed ALL of our mortgage at 7.09% will this threaten our ability to buy a NRAS property?

Hi

Skinny...........and if you dont have any cash buffer, could be risky, but all of course depends on circumstances

460 k val equity pull to 90 % = 414 - 355 owing leaves 59 k

Purchase NRAS property that fits a 90 % lender and you could do a place to 400 or so ...........subject to many things

ta

rolf
 
Hi

Skinny...........and if you dont have any cash buffer, could be risky, but all of course depends on circumstances

460 k val equity pull to 90 % = 414 - 355 owing leaves 59 k

Purchase NRAS property that fits a 90 % lender and you could do a place to 400 or so ...........subject to many things

ta

rolf

Thanks for that, so having our loan fixed is no problem. I am not sure how it all works reading some others. We had our PPOR on the market for $550 last year but only got a small response. So are there lenders out there who will do 90% and what do you mean by a cash buffer? Sorry simple questions but not to me.
 
Hi

The loan being fixed should not be a problem unless

1. Your valuation comes back low
2 The break cost on your fixed is enormous ( and I assume it isnt if u were looking to sell, assuming that that the loan was fixed at this time). This would only be an issue if u had to move the loan.
3. Your exisiing lenders serviceability model is poor
4. Your lender doesnt allow you to cap the LMI

in theory, all you need to do is ADD another loan to your PPOR security of 59 k.

By cash buffer I mean, how much do u have in savings.

If you lost your primary income, how long could you survive before needing to cash in assets

ta
rolf
 
Appreciate the feedback. I am really keen to get on board with this NRAS. Our situation is that we only recently fixed the loan so am unsure of break costs. We are with St George. Out combined yearly income is around $125k. We don't have a lot of savings as they are used for our mortgage (around 6k). Although we have done a budget and have found that if we pay some costs yearly e.g. rates, car insurance, christmas presents, holidays etc (next year after we get our tax returns back we have a buffer of just over $1k per month) My wife is a Registered Nurse and I am a casual school teacher, her job is secure as you can get and I have regularly earned the same for the last 3 years.

Our plan was to buy in QLD around $350k property borrow as much as we could and use the $10k grant as the main contributor to the holding costs in the first year. I thought we would use the equity in our house as security for our loan but that apparently causes problems, which I am not so sure about. I would hate to have to give up on this idea because I have become so excited about it. Oh yeah we had the house on the market for $550k but did not get much interest and decided to stay anyway so I hope I was being conservative with the val
 
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Appreciate the feedback. I am really keen to get on board with this NRAS. Our situation is that we only recently fixed the loan so am unsure of break costs. We are with St George. Out combined yearly income is around $125k. We don't have a lot of savings as they are used for our mortgage (around 6k). Although we have done a budget and have found that if we pay some costs yearly e.g. rates, car insurance, christmas presents, holidays etc (next year after we get our tax returns back we have a buffer of just over $1k per month) My wife is a Registered Nurse and I am a casual school teacher, her job is secure as you can get and I have regularly earned the same for the last 3 years.

Our plan was to buy in QLD around $350k property borrow as much as we could and use the $10k grant as the main contributor to the holding costs in the first year. I thought we would use the equity in our house as security for our loan but that apparently causes problems, which I am not so sure about. I would hate to have to give up on this idea because I have become so excited about it. Oh yeah we had the house on the market for $550k but did not get much interest and decided to stay anyway so I hope I was being conservative with the val

I suspect if you go about it the right way, AND have the serviceability you should be ok.

Using the equity in your place as a crossed loan doesnt cause problems straight up per se. It may do in the future though, AND if you are looking for a 90 % lend on the PPOR and a 90 % lend on the NRAS ip, xcoll wont serve you anyways.

Sit with your broker or banker and see how to make it work.

I do have some issues with your cashflow though, you have mitigated some of the rate risk by fixing your loan rate for your PPOR so at least there is some coverage there.

ta

rolf
 
I suspect if you go about it the right way, AND have the serviceability you should be ok.

Using the equity in your place as a crossed loan doesnt cause problems straight up per se. It may do in the future though, AND if you are looking for a 90 % lend on the PPOR and a 90 % lend on the NRAS ip, xcoll wont serve you anyways.

Sit with your broker or banker and see how to make it work.

I do have some issues with your cashflow though, you have mitigated some of the rate risk by fixing your loan rate for your PPOR so at least there is some coverage there.

ta

rolf

Sorry what does this mean "AND if you are looking for a 90 % lend on the PPOR and a 90 % lend on the NRAS ip, xcoll wont serve you anyways."

Cash flow should be OK as we have budgeted yearly one off costs into our budget but can easily pay them after our sizeable tax return. With the $10k grant from the QLD Gov't that should not be a prob anyways.
 
Sorry what does this mean "AND if you are looking for a 90 % lend on the PPOR and a 90 % lend on the NRAS ip, xcoll wont serve you anyways."

Cash flow should be OK as we have budgeted yearly one off costs into our budget but can easily pay them after our sizeable tax return. With the $10k grant from the QLD Gov't that should not be a prob anyways.

where do I start..............

Really would be a long post............lets start with

you do need mortgage insurance.

Mortgage insurance premiumsare calculated on the perceived risk

the higher the lvr the higher the premium, AND the higher the loan amount, the higher the premium.

If u do the loans secured to the house to 90 % lvr, then the premium will be based on the sub 500 k aggregate, have a look at the attacement.



If you allow the lender to cross collateralise the loans and securities, then the aggregate will be well over 500 k, and the premium gocup a lot.

Cross collateral is where you allow the lender to use more than ONE property as security for a loan(s), thus providing extra collateral.

Might be time to book some time with your banker or broker to take you trhough how this may apply to you personally.

ta
rolf
 

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Thanks so much for your help. Would like to see a broker wish that first mac allowed brokers. Very confused now.

Firstmac are only doing 80% aren't they? If you want 90% then I suggest that including the gov't rebate for servicing will be a no go. If not needed then 90% is most likely possible.
 
http://www.genworth.com.au/homebuyer-centre/homebuyer-tools/lmi-premium-estimator/

Fairsjk, you will benefit greatly from contacting your mortgage broker again and doing the numbers.

Steve's right, Firstmac only lend 80%. For a 90% NRAS loan you will have to look elsewhere. This is where a broker can help you.

For you own SANF (sleep at night factor) you will definately need some buffer money in the first year.

The NRAS is a good deal, I think, but you have to look at it from every angle to see if it will suit what you want to do.
:)
 
http://www.genworth.com.au/homebuyer-centre/homebuyer-tools/lmi-premium-estimator/

Fairsjk, you will benefit greatly from contacting your mortgage broker again and doing the numbers.

Steve's right, Firstmac only lend 80%. For a 90% NRAS loan you will have to look elsewhere. This is where a broker can help you.

For you own SANF (sleep at night factor) you will definately need some buffer money in the first year.

The NRAS is a good deal, I think, but you have to look at it from every angle to see if it will suit what you want to do.
:)

Yes I can see what you are saying, we were thinking of using the boost money from the QLD government for that but was told that many of the properties up there are over what we could afford. >$320k and that the vals for the properties are well under. We can rearrange out budget to a large degree so that we pay many of our monthly expenses yearly after July so that gives us an extra $800 a month but would like a few hundred more.

Victoria has got some lower entry level prices but Stamp Duty there is so much more. Is it possible to capitalise stamp duty or do you have to take it out of your equity or savings. We only have $8k in savings?
 
Went and got the last val done on our house in Oct 09 before we rendered the house painted the roof redid the floors and added 3.5kw system. It came in at $450k. Hopefully we can at least get to $480k.
 
Risks

If you buy of the plan as I did .... you need to be sure you get what you are paying for. For example I have a duplex nearing completion with a woodframes and I paid for steel. I have a black colourbond roof and no amount of discussion is going to change that. My builder see it as an investment property and that I should not be concerned about shared electricity meter boxes making it impossible to strata title.

If you can find a good builder .... then its all good.
 
http://www.genworth.com.au/homebuyer-centre/homebuyer-tools/lmi-premium-estimator/

Fairsjk, you will benefit greatly from contacting your mortgage broker again and doing the numbers.

Steve's right, Firstmac only lend 80%. For a 90% NRAS loan you will have to look elsewhere. This is where a broker can help you.

For you own SANF (sleep at night factor) you will definately need some buffer money in the first year.

The NRAS is a good deal, I think, but you have to look at it from every angle to see if it will suit what you want to do.
:)

Anyone trying for 90% will need to consider;
1. The Valuation is unlikely to be on the money- Valuers just don't value nicely on brand new development stock sold via marketers. Doesnt matter whether it's NRAS or not - its how they treat all new stock sold by marketers. If you have a valuation shortfall there's zero wiggle room left at 90%, so the deal will fall over unless you have additional equity in your PPOR which you're able ( and willing) to utilise -but if you do, why go above 80% to begin with? Seems crazy to pay LMI when you dont need to.
2. if you do have to go into the high 80's or 90LVR- LMI premium will be pricey- especially if you're also increasing your loan against your PPOR to a high LVR. You'll be hit twice. You may be able to capitalise it, but that only serves to add to the loan size/purchase price.
3. QAHC isnt available at 90%. Westpac and STG and Rams will only do 85% for the Head Lease model.
 
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