Nras #2

NRAS in SMSF

Further to Euro's and CP's list of NRAS lenders heres a new one but only within an SMSF.

Liberty Financial - All schemes acceptable with max LVR 80%. They use 80% of Gross Rental Income for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.
 
Hi all,

These NRAS listings are interesting. My agent in Bendigo just became an agent for a big NRAS guy with a couple of hundred allocations but they cant put them on RE.com for some reason - anyone know why?

Either way if people are after NRAS properties let me know and i will pass on his details.

Cheers

Ben
 
Euro you're information is very helpful and always spot on.
Belu, they may not be advertising them on realestate.com as they may not have official word on their allocations and they may still be in the application stage. There has been a delay with approvals in Qld but I am not sure if it is Australia wide
 
Hi,

Sorry about the delayed reply. I was in Toowoomba over the weekend - which I was surprised to see in the latest edition of the Australian Property Investor... interesting - but for another thread eh?

I have too just re-read the entire thread. EURO73 is definitely on the money and I am sorry if this is a repeat of anything you have said Euro. Despite some of the vitriolic posts you have received back you have obviously done this before also.

I have found that if I supply this below list to a broker, they can make it work. Can I also not take the credit for this. This was a list supplied to me by my brother who is a developer in Central Queensland.;

Accelerated Wealth Systems ( Quantum) Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far. for NRAS.

QAHC - Head Lease Agreement Westpac, St G and Rams, 70% LVR without LMI, 85% with LML They use 65% of Gross Rental Income for servicing, They do NOT use the NRAS incentive for servicing, Firstmac, 80% LVR without LML They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for serviCing. They have the best borrowing capacity by far, for NRAS.

Affordable Management Corporation Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far. for NRAS.

Bendigo Adelaide - 80% LVR without LMI. They use 65% Gross Rental for servicing and they do NOT use the NRAS incentive for servicing.

Questus - Non Entity Joint Venture via Managed Investment Scheme. Westpac, St G and Rams, 70% LVR without LMI, 85% with LML They use 65% of Gross Rental Income for servicing, They do NOT use the NRAS incentive for servicing,

Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive
as tax free income for servicing. They have the best borrowing capacity by far. for NRAS.

Aspire - Non Entity Joint Venture Westpac. St G and Rams. 70% LVR without LMI. 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing. Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far. for NRAS

Yarran Group - Non Entity Joint Venture. Westpac.StGandRams. 70% LVR without LMI. 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.

UAHA - Non Entity Joint Venture Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.

Ethan Affordable Housing - Non Entity Joint Venture Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.

Happy Hunting,
CP

P.S. - do I need a signature? - they just seem to get in the way of the post. Perhaps if I had something insightful or witty to say...?



I believe someone owes me a writers fee lol... your brother has been cutting and pasting one of my posts :)
 
Hi all,

These NRAS listings are interesting. My agent in Bendigo just became an agent for a big NRAS guy with a couple of hundred allocations but they cant put them on RE.com for some reason - anyone know why?

Either way if people are after NRAS properties let me know and i will pass on his details.

Cheers

Ben



Because your agent wont be the only one selling them- they'll be primarily sold through property marketers- and those guys don't use RE.com or Domain, etc...the use seminars and webinars and dont get paid standard agent commissions. ( They get quite a bit more) The world of property marketing/wealth creation is an entirely different beast to the world of "brand name" real estate agents :) But rather than repeat myself, I'll refer you back through earlier posts on this forum where I've written more extensively on how property marketers work.
 
Hello everyone,

This is a first post and quite possibly going to get a standard response of "read the previous posts", which I have, so sorry about that in advance.

My question is about the government risk associated with NRAS, and whether people believe that the incentives are at risk of reduction or removal with the possible introduction of an alternative federal government?

I know that Abbot recently said he supports the legislation, but I can’t find if there is any guarantee’s in place. Have people signed contracts upon purchase that clear up any doubt?

Thanks, and sorry again if this is a repeat.

McGee.

I guess you could also ask... what if the Govt abandoned Negative Gearing? All Investment is a risk. In all seriousness, the probability of a Govt Scheme which effectively costs the Govt 9/10ths of nothing to deliver when considered on an annual basis, and gets them 50,000 new dwellings and all kinds of other positives, is remote. It creates construction jobs. It creates new dwellings. It provides rental relief to 50,000 individuals or families.... it's got a lot of upsides and it does it all for not a lot of money. It's just not an expensive enough scheme that anyone would need to muck around with it, I would imagine.

Look at the maths;
You get an NRAS incentive for 10 years. Starting THIS financial year, with a base of $9524, let's assume (conservatively) that the NRAS incentives will grow at 4% per annum because it is indexed to the rental component of CPI -(it has actually increased by more than this for the first 3 years of the scheme, so 4% is possibly conservative) This is how it would look ;
2011/12 9524
2012/13 9905
2013/14 10301
2014/15 10713
2015/16 11141
2016/17 11587
2017/18 12051
2018/19 12533
2019/20 13034
2020/21 13556


Total NRAS Incentive $114,345 So over ten years it costs the Govt $571,725,500. Just over half a billion over 10 years, for 50,000 dwellings...
What would it cost the Govt to build 50,000 dwelling itself? At an average of 400K, $2 billion?
 
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Firstmac one is better for completed properties. if it is construction you cannot use the incentive for servicing. Others to look at with varying degress of success is NAB, BoQ and Bankwest. Not every lender will suit every person but like most things there are good points and not so good points with each lender. Just make sure you disclose that it is NRAS and you should be fine.

and for Off The Plan .. a bit of a no brainer, really :)
 
If you buy an off the plan NRAS approved IP. Are you entitled to the NRAS payments from the day the land settles? Or only once a tenant moves in?

No. In order to receive the NRAS entitlement (75% comes from the fed Govt in the form of a (non assessable) refundable Tax offset and 25% from the State Govt in the form of on assessable cash-ie a cheque) the property has to be entered into the scheme via a third party agreement with one of the NRAS consortiums and be compliant That could be a Head Lease Agreement, Managed Investment Scheme or Non Entity Joint venture- Ive written posts on this earlier in the thread if you want more detail.
Once the property is entered into the scheme, it must demonstrate compliance before you receive payment- ie must be rented at 20% below market rental, or 25% in the case of the QAHC Head Lease model, and must also be tenanted by tenants who qualify via the relevant income thresholds applicable to the scheme, for the rest of the financial year, before the consortium receives payment, and passes it on to you, the investor.
I believe (I'm told by some accountants, anyway, so it would definitely be sensible to check with yours or the ATO as I don't pretend to be a tax law expert) that the Federal component of the scheme- ie the 75%, can be claimed via a monthly tax variation, though.

Hope this helps.
 
Thanks Euro.

As everyone else has said before me Euro, you should be charging for this stuff! But as your not (yet) I will just say thanks for the great info.
 
No. In order to receive the NRAS entitlement (75% comes from the fed Govt in the form of a (non assessable) refundable Tax offset and 25% from the State Govt in the form of on assessable cash-ie a cheque) the property has to be entered into the scheme via a third party agreement with one of the NRAS consortiums and be compliant That could be a Head Lease Agreement, Managed Investment Scheme or Non Entity Joint venture- Ive written posts on this earlier in the thread if you want more detail.
Once the property is entered into the scheme, it must demonstrate compliance before you receive payment- ie must be rented at 20% below market rental, or 25% in the case of the QAHC Head Lease model, and must also be tenanted by tenants who qualify via the relevant income thresholds applicable to the scheme, for the rest of the financial year, before the consortium receives payment, and passes it on to you, the investor.
I believe (I'm told by some accountants, anyway, so it would definitely be sensible to check with yours or the ATO as I don't pretend to be a tax law expert) that the Federal component of the scheme- ie the 75%, can be claimed via a monthly tax variation, though.

Hope this helps.

I had a look at an accountancy firms presentation on NRAS and they said NO. You can apply for a variation in relation to the normal deductible expenses you would with any IP but not for the incentive. They could be wrong but I would like to see proof otherwise.
 
I had a look at an accountancy firms presentation on NRAS and they said NO. You can apply for a variation in relation to the normal deductible expenses you would with any IP but not for the incentive. They could be wrong but I would like to see proof otherwise.

Yeah- definitely wise to ask your accountant or the ATO about this. s I said, I dont pretend to be a tax law expert :) I have my own doubts about it, simply because the incentive is reliant on the property being compliant year round. If you were to make a monthly variation and for any unforseen reason the property wasn't compliant, it may mean owing the ATO some money. Having said that, I have been told by accountants that it's possible...
 
As everyone else has said before me Euro, you should be charging for this stuff! But as your not (yet) I will just say thanks for the great info.

I guess I just see this as a forum where people share information and ideas. Happy to oblige where I can.
 
you could most likely do the variation, but if not compliant you will have a tax bill at the end of the year, so would be in a net position.
 
Has anyone got a view on how NRAS are being valued after a period of holding?

I have read about one investor that has had their NRAS revalued to find it well under the market price for a similar non-NRAS property in the same area. Apparently the valuer saw the NRAS as having a smaller buyer pool than non-NRAS. I do find this odd as it is widely known that these properties can be taken out of the NRAS scheme at any time. The obvious cost being the loss of tax benefits specifically related to NRAS qualification.

Apology if you have seen me ask this question before. I just haven't seen a qualified response yet. Or at least an independent verification / rebuttal by another NRAS investor.
 
Has anyone got a view on how NRAS are being valued after a period of holding?

I have read about one investor that has had their NRAS revalued to find it well under the market price for a similar non-NRAS property in the same area. Apparently the valuer saw the NRAS as having a smaller buyer pool than non-NRAS. I do find this odd as it is widely known that these properties can be taken out of the NRAS scheme at any time. The obvious cost being the loss of tax benefits specifically related to NRAS qualification.

Apology if you have seen me ask this question before. I just haven't seen a qualified response yet. Or at least an independent verification / rebuttal by another NRAS investor.



I think this is difficult to answer. Only a couple of thousand NRAS properties have actually been built and tenanted at this point, and they're all brand new stock, generally located in greenfield locations. You would need to give it at least another 18-24 months before being able to answer this reasonably, as those locations need time to establish re-sale values on their own.
On your point about valuers- I think that reflects more on some valuers bias and ignorance about the scheme, than the scheme itself.
As you have said, properties can generally be removed from the scheme if the investor prefers. Why a valuer would consider NRAS to be value reducing, is beyond me.
The good news is, there a small number of new lenders starting to enter the NRAS space, so maybe valuers will start to get a broader understanding soon.
 
Thanks for the response

Thanks Euro. As always, time will tell.

Obviously my underlying bias is to determine whether purchasing an NRAS or two in the near term will significantly hobble my CG in the medium-term and thus my ability to leverage the equity and keep growing.

I think I need to keep a close eye on it for now.
 
Thanks Euro. As always, time will tell.

Obviously my underlying bias is to determine whether purchasing an NRAS or two in the near term will significantly hobble my CG in the medium-term and thus my ability to leverage the equity and keep growing.

I think I need to keep a close eye on it for now.


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)
 
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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.

Most of these "CG hawks" (nice name for them) seem to have gone underground for now, but I'm sure we'll see them again in 10 or so years. At the moment, it's difficult to maintain your credibility while promoting strong CG predictions for the short - medium term.

With NRAS properties, I guess the trick is to pick the best of the greenfield sites and predict which will be the best area when the area's fully developed and CG does kick in. Good news is that they probably won't be greenfield by the time CG does start to move again.

There are a couple of suburbs NRAS properties are being built (in South East Queensland at least) alongside densely populated social housing areas (where they've exceeded the govt policy threshold) and these are the only ones I'd avoid. I submitted about 60 social housing scheme applications on behalf of developers and I was surprised at what they were approving. Having said that, most of the NRAS stuff is being constructed in reasonable locations. Just do a little research on the area first. As always, "caveat emptor".
 
Great info and great way of looking at it guys

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?
 
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