Nras #2

[slide588]

What about the difference between Firstmac's Easy Livez - Plus and Easy Livez - NRAS Loan?

https://www.firstmac.com.au/Pages/Easy-Livez-Plus.aspx
https://www.firstmac.com.au/Pages/Easy-Livez-NRAS-loan.aspx

the NRAS one is 0.25% higher...

 

[euro73]

True- but still well under a standard variable rate

 

[euro73]

Latest NRAS lending options.( I've factored in the latest 0.25% reduction- takes effect next month)

Westpac - FlexiFirst Investment Loan 6.66% No Offset Account Included. $0 ongoing account fees. $25 Redraw Fee. Up to 15 years Interest Only

Westpac - Rocket Investment (under Premier Advantage package) 6.96% for loans under 250K. 6.66% for loans above 250K. Offset Account Included. $395 Annual Fee. Up to 15 years Interest Only

St George - Basic Home Loan 6.72% Currently running promotional rate of 6.63% for loans under 250K. 6.58% for loans above 250K. No Offset Account Included. $0 ongoing account fees. Up to 15 years Interest Only

St George - SVR Home Loan ( Professional Package Discount) 6.80% for loans to 250K. 6.50% for loans above 250K. Offset Account Included. $395 Annual Fee. Up to 15 years Interest Only

NAB Base Variable 6.72% $0 ongoing account fees. No Offset provided. Redraw is free. Maximum 5 Years Interest Only

NAB Tailored Home Loan ( under NAB Choice package) 6.62% under 250K. 6.52% 250K plus. Offset Account Included. $395 Annual Fee. 5 Years Max Interest Only

Firstmac Easy Livez NRAS - 6.70%. $0 ongoing account fees. Offset Account Included. 10 years Interest Only

** Important to note, the annual fee adds to the comparison rate. For all basic loans and the Firstmac loan, there are no fees. For the discounted loans on offer with an annual fee, the fee can add between .10 - .15% to the annual cost of the loan. For example;
For a loan of 395K, an annual fee of $395 is equal to 0.10%
For a loan of 350K, an annual fee of $395 is equal to just over 0.11%
For a loan of 325K, an annual fee of $395 is equal to just over 0.12%
For a loan of 300K, an annual fee of $395 is equal to just over 0.13%

Because NAB and Firstmac do not lend above 80%, investors requiring loans above 80% should only seriously consider Westpac or St George, but for investors requiring 80% or less, keep the above information in mind.
Most NRAS properties are in the 350-420K price range, so for loans of 80% or less, typical loan sizes will be approximately 280K - 336K.
On a 280K Loan for example, an annual fee of $395 adds just over 0.14% to the real cost of the loan, bringing Westpacs professional package offer to 6.80% and leaving their flexi first offer of 6.66% as a more attractive product.
For St George, the same annual fee brings their Professional Package offer to 6.64%

All things being equal, this means that for the majority of NRAS loans requiring 80% LVR or less, the variation in rates between the four most prominent NRAS lenders is very little indeed. The range is effectively 6.64%-6.72%
Beyond that, the points of difference really come down to NRAS consortiums they lend against, borrowing capacity and features such as offsets and redraw.

As I've suggested previously, above 80%- Westpac and St George are the two lenders to consider, with Westpac offering a significantly better borrowing capacity than St George. If capacity isn't an issue for you, and you have no intention of adding further to your portfolio in coming years ( when it will likely become an issue) St George is a great option as they are a tad cheaper than Westpac.

80% or below- Firstmac should be added to the mix as a preferred choice. They have the best borrowing capacity of all the NRAS lenders by a big distance, so for most mortal investors ( high net worth, cash flow and equity rich investors aside) seeking to add further NRAS (or non NRAS) to a portfolio, that's going to be a valuable tool to have in your arsenal- even though you may not realise it yet. But again, if capacity doesnt matter and you dont intend to buy more than one NRAS property over the next few years, St George is a great option below 80% also- just because they're a little cheaper than Firstmac. Just keep in mind the right finance is an important part of your investment strategy. Right finance rarely means cheapest finance- it means the most suitable to help you with what you want to achieve; now, and in coming years. And what about NAB? Well, there is nothing wrong with the NAB offer at all. It's a good product, and if you dont need any more than 75% LVR it may be fine for you, but they have only approved 4 NRAS consortiums, so the other three lenders offer more consortiums , higher LVR , better borrowing capacity and ultimately, better products.

 

[euro73]

I guess the Westpac rate will be changing by 10 basis points ... which will probably mean St George and others move as well. We'll have to wait and see. Edit - NAB up 9points, CBA up 10. So here are the new Standard Variable Rates from the major banks
NAB 7.31
ANZ 7.36
CBA 7.41
WBC 7.46
This wont be the end of it. Since Europe imploded, they're all paying at least 160-170 bpts plus, above the cash rate to raise new variable rate money and roll over old variable rate money (which they bought pre GFC for 15-20bpts above the cash rate by the way). That means they're paying 5.85% (or more) just to get the money. Factor in costs to establish a loan, salaries for staff, super, broker comms and trail, and consider that they're selling loans at 0.8 and 0.9% discounts off their standard rates- ie 6.3-6.4% , and you can see that they're not really making money on mortgages. The upfront commission to a broker is 0.6% by itself, so that means its costing them 6.45% at least, just to get the money to you, and that's before accounting for any staff costs or broker trail commission in year one ( CBA doesnt pay trail in year 1 though) .
Yeah they make huge profits- we all know that, but they only generate 1% return on equity so for their sizes, their profits are very small percentage wise, and even a basic knowledge of maths tells you that they definitely don't make margin from mortgages - the numbers make that pretty clear. Cross selling other products. Annual fees. Other fees- that's where the money comes from.
You can bet that while Europe stays a mess and funding costs stay where they are, they will want to get back at least another 30-40 more basis points on variable rates over the coming year though, because they wont want to let their new mortgages continue to generate zero or near zero profit, nor will they want to let older mortgages funded a few years back for 20bpts, but needing to be rolled over to much higher funding costs, eat into existing margins. So they'll need to generate more margin buffer. In other words, don't expect much (if any) of the next RBA 25 or 50 point cut to reach your pocket- and that's IF the RBA cuts rates further.

This really shouldnt be surprising. In 2007/8, funding costs had blown out from 20bpts to 180bpts above the RBA cash rate. When that happened, you'll recall the RBA slashed rates aggressively over a few months, but the major banks held back 100 basis points when the RBA cut aggressively, and they've also taken more than the 25point increase when the RBA started raising rates again, more than once.- November 2009 and 2010 to be exact. Then funding costs relaxed back to around 120bpts throughout most of 2010 so the banks were back to about the margins they wanted then, but with the Euro issues, costs are back up 40-50 basis points to 160 plus- so we're all going to have that passed on to us one way or the other. Might come in small increments, or might come in a big whack- but its coming this year at some point.

 

[bigals]

NRAS saturation

I have looked at a block of 14 units and apparently all are NRAS. I was of the impression that a max of 30% was allowed?? Any thoughts welcome.


Secondly, I am currently do research on the comparison of buying an ex display home for @ $350K (24Sq) ( my initial view is that as they need to move out quick it is priced to sell @ 40K below normal price?) but have to rent out myself. And comparing it to a similar price NRAS that is only @ 19Sq in the same estate. Should one lean towards the flasher display home that may be undervalued but no NRAS??

Nearly sounds to good to be true...
Cheers

 

[euro73]

I have looked at a block of 14 units and apparently all are NRAS. I was of the impression that a max of 30% was allowed?? Any thoughts welcome.

Developments with less than 50 dwellings can have 100% NRAS


Secondly, I am currently do research on the comparison of buying an ex display home for @ $350K (24Sq) ( my initial view is that as they need to move out quick it is priced to sell @ 40K below normal price?) but have to rent out myself. And comparing it to a similar price NRAS that is only @ 19Sq in the same estate. Should one lean towards the flasher display home that may be undervalued but no NRAS??

One offers 40K instant equity, plus X amount of potential cap growth. But you'll have holding costs each year because it wont be cash flow positive. The other offers 100K plus of tax free incentives, plus X amount of capital growth, and you wont have any holding costs out of your own pocket because the incentives cover that for you and even leave you with 4-6K surplus in most instances, which can be redistributed to paying down your PPOR. So that's no out of pocket holding costs plus 40-60K extra paid off your PPOR.......your call

Nearly sounds to good to be true...

AS discussed here many times- it's not. If you can buy at a fair price- it's a phenomenal opportunity

 

[CarolInPerth]

What's new with NRAS?

I've been reading all of the excellent discussions on NRS and thank the participants for the great info. I am wondering if anything new has cropped up.

Euro73 has given us lots of food for thought about using the extra cash flow for paying down our non tax deductible mortgage. Thanks for that Euro.

We are looking for recommendations for an NRA in Perth region OR a great opportunity interstate or regional WA (being new to investing we'd be out of our comfort zone if the property is more than 200km from Perth). Preferably, a one stop shop (with good references) that can give us a price on up front costs then ongoing management. Eg give us X up front then Y per month and you'll get Z annually. Obviously nobody has a crystal ball on capital growth over 10 years so we'll take our chances on that part.

 

[Richard Feynman]

I'm still new to all of this, so I'm after some clarification on this scenario. In short, could I theoretically make an NRAS purchase based on the following fictional scenario:

Income: $65,000
Monthly PPOR repayments: $2,100
Equity: $70,000
Savings: $14,000

Say through firstmac, to buy the following:

NRAS property: $350,000
Deposit: $70,000 (20%) - (comprised of 80% PPOR equity + $14k savings)
Loan: $280,000 (80%)

NRAS rental income $280/week. (65% of this is $182/week, $9,464 annually).
Net income is then $74,464. NRAS tax-free incentive takes net income to $84,464.

I did a quick "how much can I borrow" calculation on RAMS and on that, can borrow up to $400,000.

All figures approx.

I feel like I'm missing something major.

 

[CaptKirk]

Hi

I noted the up to 50 units development, you can have 100% of them within NRAS.

My question is, what happens at the end of the 10 year mark. Assuming the Govt discontinues the NRAS incentives, that means in the one development/location, you have 50 units/invetsors seeking new tenants all at once. (and maybe you might have multiple developments with NRAS in a similar location......

Surely this is a recipe for disaster, especially if it is in a rural location (eg Toowoomba, Townsville etc) with less of a rental market.

What do people think will happen (assuming no extension of incentive) to those investments ? I guess you could increase the rent incrementally and after a year or two get to market rental, whilst ensuring you have tenants.

The Captain

 

[HotRod]

Solution? Don't buy NRAS in unit blocks.

There are stand alone H&L products that work w/o NRAS and are even better with NRAS.

 

[CaptKirk]

Yes, that seems to be a wise approach, but doesn't answer the question, or offer any comments on what you think will happen......

 

[HotRod]

Yes, that seems to be a wise approach, but doesn't answer the question, or offer any comments on what you think will happen......

.....that's why I'm not offering any comments.

Too many unknowns.

But after 10 years, investors will possibly all dump their properties as they lose their $12K incentive ($10K with inflation) and try and make a buck. Not going to make as much as everyone else is in the same boat and probably all dumping and depressing values.

Buy a stand along H&L package NRAS and you should be better off. You might end up selling in 10 years and your sale will just be just one of the other many properties for sale every day.

 

[CaptKirk]

Another question, but related to the NRAS Private Ruling.

So if it were to apply, and only (say) 84% of exepnses are tax deductible, would the 14% be added to cost base of the asset? I assume not, but someoine might know.

Also reading some of the previous posts, i was a bit confused as to which expenses were caught under the Private ruling.

My reading is that all expenses, interest, insurance, NRAS compliance fee etc are all caught as per this statement in the ruling:

"Accordingly the rental expenses you will incur in respect of the rental property must be apportioned, limiting your claim for any deduction to the portion of costs relating to the derivation of assessable income."

Captain

 

[CaptKirk]

Re selling NRAS properties after 10 years, my hope (if I were to go into it) woudl be that the investment would be CF+ (See Note) or close to it by then.


Note: CF+ assumption - finance 80% + use equity in other assets = 100% (maybe 110%) borrowings. (I'm sick of people saying CF+ without saying what borrowing assumptions they make - usually assume 80% borrowing, and 20% cash deposit + costs which to me is huge CF- in year 1)

 

[Rolf Latham]

Solution? Don't buy NRAS in unit blocks.

with.

I would expect that to be a given risk management strategy where the NRAS entitlements make up more than say 10% of total

Ta

rolf

 

[euro73]

NRAS Round 5

Applications open to developers to apply for for the remaining 10,000 NRAS incentives, on May 7th. PM me if you'd like to have your development considered

 

[onlyifamppowered]

HI All

I have an NRAS prop in Ipswich area ( going on 18 months now)
My question to the group is based on my experience's.

Am I alone in the quality of service from the "not for profit company looking after my interests"?????

I pay 10% of the gross rent as management fee, + consortium fee.
For this I get the once a year paper trail done and little else.
No inspection of the house the whole time ( I am lucky to have a great tenant), The house was let go past the 6 months check by the builder and not have problems fixed...
I get a once a month or so statement telling me of their cut and how little I get into my account.
Am forced to use their insurance for building and landlords ( even though I can get cheaper ((with same company)) Can you see a kick back for someone here?
No reply to phone calls or email,
Am forced to use their tradies for any repairs etc. AM forced to use their prop management...
I have no input of control or even know the place is going...

I was aware of the fee's going into this but was expecting gold service to go with the gold fee....

Even the purchase was dodgy as the balance sheet was badly stacked (insurance and rate prices were way off the reality).
I the great tenant leaves I am thinking or withdrawing from the whole NRAS scheme..


I am sure if I named the company here they would sue so I won't.
Would I do another NRAS...

NO

AM I alone in this?
Rob

 

[euro73]

Does it begin with a Q and end with AHC?

 

[onlyifamppowered]

So people have heard of them......

 

[euro73]

They require a 25% rental discount rather than 20%, and they have significant start up fees where the majority of other NRAS consortiums don't, and their ongoing insurance requirements, property management fees, NRAS compliance/admin fees and so forth are more expensive than most other models. So you have to expect that all of this equates to an inferior cash flow outcome.

There are 137 other NRAS Approved Participants/models an investor can choose from, which will generally deliver far better cash flow because less is paid in fees and charges.

Having said that, the other NRAS providers may not have stock you like or want, so it's a case of deciding whether the higher fees are worth it for the property you prefer, or whether you want to save on fees and choose different property from a different NRAS provider.

They are the largest NRAS player in the market with the largest number of NRAS properties delivered and therefore the largest number under their model, so obviously most people either must not mind the fees, nor the fact they could be generating significantly better cash flow with alternative NRAS models, or they just haven't understood they could have secured themselves better cash flow elsewhere, or just decided they wanted a particular property and had to deal with the higher fees associated with that property.

There's nothing wrong with their model per se. They are perfectly entitled to charge whatever they feel they can. Each NRAS provider is free to charge as they see fit - the Fed and State Govt gets out of the way with NRAS and is letting the private sector deliver the program. The Govt's only responsibility is only to pay the tax incentive. So like any market, it pays to compare apples with apples before making a decision

Were you aware you could have purchased an NRAS approved property with much lower fees and better cash flow?