NRAS in Broome

Hi,
I'm a long time reader of these forums but first time poster - hoping some of you might have some words of wisdom for me.

I have one IP at present (a 2 bed Apt in Camperdown, Sydney) which is doing quite well. I've been looking to get an NRAS property for quite some time. I've seen friends & colleagues have a good deal of success with them.

I was first looking at getting a 1 bed Apt. (NRAS) in a soon-to-be-released block in the Kawana Waters development in Qld. When I met with a property adviser (who came very highly recommended from a friend of mine), he suggested that whilst Kawana Waters was not a bad investment, if I wanted to get any capital growth in the short term (say 18 months) - in order to build my portfolio, then I needed to be looking in places like Broome, WA.

There are a number of reasons he recommended Broome (limited land being released for new property developments, new LNG and other industrial projects soon to commence and tourism are just a few of the draw cards he mentioned). Does anyone else have a NRAS property in Broome? Or has anyone considered buying one there? Am I right in thinking the risk is significantly higher investing in somewhere like this?

Thanks in advance!
 
the problem with nras in high rent areas is that the 20% discount can quickly add up to the $10k tax free from the government e.g. say a Karratha house renting at $2000/wk, that's a $400 weekly discount = twice the nras rebate
 
If the advisor is recommending Broome due to tourism then he obviously hasn't been there recently. Tourism is very quiet as is the rest of the town.

Major project at JPP is dead but possibility of another project using JPP as a hub. This is only a possibility and might take a while to eventuate.

I wouldn't think 18 months isnt a long enough time frame.
 
If the advisor is recommending Broome due to tourism then he obviously hasn't been there recently. Tourism is very quiet as is the rest of the town.

Major project at JPP is dead but possibility of another project using JPP as a hub. This is only a possibility and might take a while to eventuate.

I wouldn't think 18 months isnt a long enough time frame.

I thought tourism was suppose to be booming now that the dollar has dropped and fuel has gone thru the roof :rolleyes:
 
the problem with nras in high rent areas is that the 20% discount can quickly add up to the $10k tax free from the government e.g. say a Karratha house renting at $2000/wk, that's a $400 weekly discount = twice the nras rebate

Would work out a little bit better up there.

Rents for a 4x2 are $820pw, so, lose about $8500.

Also some dual key stuff up there too I think.
 
He didn't say that tourism would be the main driver - just one of them. I think the LNG project was the main one - and likely to result in a greater need for affordable housing. I'm looking to spend as little as possible (probably around $365k on an apt.), so the 20% rental discount won't eat into the government incentive too much.

I'm keeping an eye on the news with regard to the LNG project and JPP - it doesn't seem that Broome is wanting to embrace the $$ that this project would bring (which is understandable I guess), this only adds to my uncertainty.
 
He didn't say that tourism would be the main driver - just one of them. I think the LNG project was the main one - and likely to result in a greater need for affordable housing. I'm looking to spend as little as possible (probably around $365k on an apt.), so the 20% rental discount won't eat into the government incentive too much.

I'm keeping an eye on the news with regard to the LNG project and JPP - it doesn't seem that Broome is wanting to embrace the $$ that this project would bring (which is understandable I guess), this only adds to my uncertainty.

Broome business is, it's the FIFO protestors and people living the alternate edge of world life up there that don't.
 
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IMHO it's a high risk for investment unless you really know the area.

Spend time reading here for a few weeks . You'll get better advice .

What's his commission on the sale ?

Cliff
 
I'm getting some figures from him later in the week so will have a better idea of whether it's potentially worth the heightened risk. Not sure of his commission either - this is payable directly from the developer. He does seem very knowledgeable on NRAS and everything he has said to date has checked out - much better than other agents that have just flicked me endless emails with links of developments they know absolutely nothing about - and still get paid a commission...
 
Run it buy Euro73 on here - he is our friendly impartial NRAS guru and can tell you which are your better providers.

Personally I wouldn't be relying on Broome for capital gains. Too risky.

I would go NRAS somewhere more metropolitan with a good NRAS provider that has valuations that stack up and decent rental fees.
 
I'm getting some figures from him later in the week so will have a better idea of whether it's potentially worth the heightened risk. Not sure of his commission either - this is payable directly from the developer. He does seem very knowledgeable on NRAS and everything he has said to date has checked out - much better than other agents that have just flicked me endless emails with links of developments they know absolutely nothing about - and still get paid a commission...

Let us know what areas so we can give you some feedback, like all towns there's good and not so good areas
 
From a numbers/ cash flow perspective, NRAS can work up to quite high price points, but it's important to understand that it needs to work from a tenant income level as well...

It all comes down to the number of bedrooms, weighed up against the market rent, and then figuring out the number of different tenant options you have ...

For example, if you were to purchase a 2 bedroom property for 400K-500K in a really high rent location, where market rent was, lets say $700 per week, after applying the 20% NRAS discount the rent would be reduced to $560 per week. That equates to $29,120 per year.

Technically, because it's a 2 bedder, there would be 5 potential combinations of eligible tenants, as follows;

NRAS qualifying income limit for one adult + another single adult =$63,535
NRAS qualifying income limit for sole parent + 1 child = $63,579
NRAS qualifying income limit for sole parent + 2 children = $78,822
NRAS qualifying income limit for couple + 1 child = $78,778
NRAS qualifying income limit for couple + 2 children = $94,021

Great- all sounds straightforward enough. 5 combinations of tenants to choose from, right? Well, not quite that simple when abnormally high market rentals are introduced to the equation...

Because the criteria for NRAS requires that discounted NRAS rent ideally consumes 30% or less of gross taxable income ( this isn't a hard and fast rule- but it is STRONGLY preferred) it becomes pretty clear that even with the 20% discount, an annual rental cost of $29,120 would consume more than 30% of all but the 5th combination - couple + 2 children. So effectively, unless you were willing to reduce rent by 25 or 30% in order to broaden your potential pool of tenants, you'd be limiting yourself to a couple with 2 children in this example. This isnt necessarily a problem - you may still find tenants easily enough- but it's important to understand, as it may well create a situation where finding suitable tenants is much more difficult.

To compare, if the property offered 3 or 4 bedrooms instead of 2, the above average weekly market rent is not going to present as big a concern, because the extra bedrooms would allow you to offer the property to a broader mix of potential tenants and income thresholds, where less than 30% of gross income would be consumed by the reduced NRAS rent.

NRAS qualifying income limit for couple + 2 children = $94,021
NRAS qualifying income limit for couple + 3 children = $109,264
NRAS qualifying income limit for 4 adults = $98,693

So the idea is to consider both sides of the equation....

If you are going to buy NRAS in a very high yielding area, the safest route is to get that 3rd or 4th bedroom so that you dont snooker yourself
 
One of my golden rules is avoiding any " contrived " investment schemes , ie ones which are driven by the structure / special conditions rather than the pros and cons of the underlying investment .

This has kept us out of some investments that have caused serious damage to some forumites .

NRSA , Personally , wouldn't touch it with a 20 foot barge pole , but that's my personal opinion :)

Cliff
 
I agree that the underlying investment is what's important here and unless I'd buy the property without the NRAS entitlement then I wouldn't be buying it with the entitlement (although the NRAS incentive certainly does make some properties a lot more appealing). Take the Kawana Waters property for example: a 1 bed, $325k property with the estimated weekly rent at $320 discounted to $256 (NRAS 20% discount), with all things being equal the NRAS property will bring in an after-tax cashflow of $8,417 p.a. compared to the non-NRAS after-tax cashflow being only $496. Because of the tax incentives as part of the NRAS scheme (which I'm still getting my head around), if you have enough of these properties there is the potential to not only pay zero tax but to have the ATO pay you.

One thing I didn't consider, and thank you for pointing it out Euro73, is the available market under the NRAS scheme being dependant on the size of the unit. I'm only looking at a 1 bed apt (all I can afford), in Kawana Waters this is $325k, in Broome I'm looking at $365k. I imagine I'd therefore either be aiming for a single tenant (earning less than $45,956) or a couple (earning collectively less than $63,535). By my calculations, the discounted rent of $256 p/w would come in just under 29% of the single tenant's income and at nearly 21% of a couple's combined income. Although I was envisaging the market being predominantly workers/employees of the new Sunshine Coast University Hospital (or other new developments up there), I am told that most retirees would also qualify for NRAS and can take advantage of a brand new property at the discounted rent (in the case of Kawana Waters - with a nice view of the water).

So by the sounds of it either Broome is considered too risky by most, or the jury is still out??

See_change - in answer to your question on the commission payable - I'm still not sure what this is for Broome, but for Kawana Waters (for which I received the contracts last night), the commission itself is $3,575, lead generation fees nearly $6k and Marketing fees $8.4k - given that the agent knew very little about the development - and merely forwarded my email of questions to the developer - he's done quite well if I proceed with the purchase.
 
but for Kawana Waters (for which I received the contracts last night), the commission itself is $3,575, lead generation fees nearly $6k and Marketing fees $8.4k - given that the agent knew very little about the development - and merely forwarded my email of questions to the developer - he's done quite well if I proceed with the purchase

High marketing fee's who are you going with ??

http://www.realestate.com.au/property-apartment-qld-kawana+waters-114292923 I am guessing these are the apartments you are talking about

You could try Gail and see what fee's she charges as she is marketing them all here on the coast though looking at her site may be high too
http://islandwatersapartments.com.au/

We recently bought an Nras on the sunny coast but went through real-estate agent so they only received normal fee's from the builder.

Just remember those fee's are added into the cost of buying the unit one way or another
 
Yes JPS25, that's them. The Island Waters apartments are the more exclusive ones which are above my price point unfortunately - all built by the same developer though. I did think that having the Island Waters apts in close proximity to the Broadwater Apts could only be a good thing though.

I don't really want to disclose who's getting what cut of the commission pie and I'm aware that it would ordinarily affect the purchase price. I was told that in this case the price was fixed and any commission payable is calculated quite separately from the purchase price....no, I didn't believe it either...
 
Mmmm

As you're in sydney , which seems to be the starting block for the current boom , why not something like

http://www.realestate.com.au/property-studio-nsw-narrabeen-113992211

Nice area , affordable .

I haven't done any DD on this so please don't take it as a reco , just maybe something to look at which is a lot closer than broome.

You would struggle to find anything on northern beaches close to 300 .

Cliff

Oh it't not mine and in wrong price bracket for what we're looking at .
 
There are also studio, 1 bed and 2 bed options on the Northern Beaches with NRAS... they've just become available in the past 2 weeks or so, but haven't been marketed yet.. the builder is overseas, cashed up, and not in any hurry to sell... so they've just been sitting there finished, and empty for the past 2 weeks... :)
 
I agree that the underlying investment is what's important here and unless I'd buy the property without the NRAS entitlement then I wouldn't be buying it with the entitlement (although the NRAS incentive certainly does make some properties a lot more appealing). Take the Kawana Waters property for example: a 1 bed, $325k property with the estimated weekly rent at $320 discounted to $256 (NRAS 20% discount), with all things being equal the NRAS property will bring in an after-tax cashflow of $8,417 p.a. compared to the non-NRAS after-tax cashflow being only $496. Because of the tax incentives as part of the NRAS scheme (which I'm still getting my head around), if you have enough of these properties there is the potential to not only pay zero tax but to have the ATO pay you.

One thing I didn't consider, and thank you for pointing it out Euro73, is the available market under the NRAS scheme being dependant on the size of the unit. I'm only looking at a 1 bed apt (all I can afford), in Kawana Waters this is $325k, in Broome I'm looking at $365k. I imagine I'd therefore either be aiming for a single tenant (earning less than $45,956) or a couple (earning collectively less than $63,535). By my calculations, the discounted rent of $256 p/w would come in just under 29% of the single tenant's income and at nearly 21% of a couple's combined income. Although I was envisaging the market being predominantly workers/employees of the new Sunshine Coast University Hospital (or other new developments up there), I am told that most retirees would also qualify for NRAS and can take advantage of a brand new property at the discounted rent (in the case of Kawana Waters - with a nice view of the water).

So by the sounds of it either Broome is considered too risky by most, or the jury is still out??

See_change - in answer to your question on the commission payable - I'm still not sure what this is for Broome, but for Kawana Waters (for which I received the contracts last night), the commission itself is $3,575, lead generation fees nearly $6k and Marketing fees $8.4k - given that the agent knew very little about the development - and merely forwarded my email of questions to the developer - he's done quite well if I proceed with the purchase.


Just a little more information worth knowing - I didnt want to burden you with taking on too much information all at once. But it's useful to know, and may give you some additional comfort.

The income figures I quoted on my previous post are the qualifying incomes. But once qualified, tenants are able to exceed the qualifying income thresholds by up to 25% and maintain eligibility, so the income thresholds can effectively be quite a bit more generous than at first glance.

Eligibility is based on a review of the income earned for the previous 12 months, not your current salary, so I'll give you an example of how it can work ...

Police Officer goes to Goulburn Academy where he isnt paid for 8 months. he claims Austudy whilst there, graduates, and gets posted to his new gig at Parramatta Local Area Command. His starting salary in his new job is 55K.
He needs somwhere to live, and someone tells him about NRAS, and luckily enough, he finds a nice spanking new 1 bedder in Parramatta which might normally rent for $450 a week, but now rents for $360 a week under NRAS.

So he applies.... To qualify, he shows what he earned for the previous 12 months, which will be very low, because he's pretty much only earned Austudy. It doesnt matter how low, it only matters that it's less than the qualifying threshold of approx 46K, which it clearly will be. So he qualifies, and in he goes as a tenant in a brand new dwelling, paying $90 less per week than he would have otherwise had to pay to live there.

A year later, his income is reviewed by the NRAS Approved Participant ( consortium) and tenancy manager, and he now shows 55K for that 12 month period. So what happens? Well, go to the FAHCSIA website and you'll see that the income threshold to MAINTAIN eligibility is $57,445 - http://www.fahcsia.gov.au/our-respo...ility-scheme-nras-household-income-indexation

So his 55K salary allows him to STAY eligible, as he is within the 25% range, and he can remain a tenant, and the investor can retain their compliance/eligibility to receive their full NRAS incentive. A year later, his income for the 12 month period is reviewed again, and so it goes, annually...

In order for that police officer to become ineligible to stay in that NRAS dwelling, his income would have to exceed the income threshold by more than 25%, and for 2 years consecutively. Not 2 years in total - two years consecutively.

Another example. Graduate doctor , first year out of University, doing an internship at Westmead Hospital. Starting Salary 60K. They find a nice studio apartment in Westmead, across the road from the Hospital. They were on Austudy last year and working casually during their summer break, so earned less than 30K for the previous 12 months. Voila! - they qualify. 12 months later, their income is reviewed, and they have exceeded the qualifying income by more than 25%. Strike 1.

fast forward 12 months and their income is reviewed again, and because it's increased to 80K, they have now exceeded the qualifying income, twice consecutively, so you need to give them 4 weeks notice, and replace them with an eligible tenant... But they've still enjoyed significantly reduced rental expense whilst your tenant , and you've still received your full tax free incentive for each of the years they were your tenant.

The more you learn about NRAS, the more you come to understand it's a lot more flexible than you may have first realised, and can capture a far greater range of incomes and changes in circumstances than you may imagine.
 
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