NRAS property

here's one if anybody is keen.

* Moore Park Beach, Majestic Palms, Qld
* 2x1 house that has been designed to expand to a 4x2 later on if you want
* is on about 1500sqm block (need to confirm the exact land size)
* rents for $180pw, plus tax deductions and the tax free $9600pa or whatever it is
* comes with tenant in place
* price is $300k
* ready to go now

thanks, Ausprop
 
300K loan at 6% equals 18K Interest Only repayments

Holding Costs - allow for 6K ( 10% property management, rates, insurances, 10% NRAS compliance fee , rates etc)

Total cost to own the property = 24K

rental Income 180 per week ( i assume this is the discounted NRAS rent?) = $9360 per year.

Deductible Loss of $14,640 plus depreciation of lets say approx 8K.

Total deductible Loss of $22,640

At 34% MTR (32.5% plus medicare) I get a refund of $7697.60 plus $9981 NRAS . Thats a total of $17,678.60. My holding costs are $14,640, so this would get me $3038.60 CF +

At 38.5% MTR (37% plus medicare) Id get a refund of $8716.40 plus $9981 for a total of $18697.40. That would leave me $4057.40 CF+

Not a very good example. The rental on a 300K property shouldnt be anything like $180 per week, even if a 25% QAHC discount is applied. If that's accurate, the rental yield is really really weak. NRAS at 300K and an interest rate of 6% should be yielding at least 5.5K CF+ or higher depending on Marginal tax rates.


Here's an example of what a good 300K NRAS deal should look like. 300K property that normally rents at 300 per week. Under NRAS it gets 240 per week. We could use all the same ownership costs, but less expensive NRAS models have 30% lower Property Management fees and NRAS compliance fess, so Im taking 1K off the 6K ownership costs, because Qld consortiums are just too expensive! 10% here. 10% there. So in this example, interest is 18K and costs are 5K. 23K total cost.

Rental Income is 240 per week after NRAS discount, so $12,480 per year.

Out of pocket costs /Deductible loss is $10,520. Depreciation is 8K.

Total deductible loss is 18,520

@ MTR 34% I get $6296.80 refund plus $9981. = $16277.80. Out of pocket costs were $10,520 so I get $5757.80 CF+ instead of the $3038.60 on the property you have proposed.

@ MTR 38.5% I get $7130.20 plus $9981= $17111.20 . That leaves me $6591.20 CF+ instead of $4057.40 on the property you have proposed.

Over 10 years that's alot of difference, especially when you consider the compund effect it has when you use it towards paying down non deductible debt.

I'd rather have $6591 available to pay off my mortgage in a lump sum each year , than $4057. The extra 2.5K per year will save me at least an extra 40K in interest over 10 years, so its really worth about 65K to me. :)
 
yes CG potential is one point. this one is on a significant piece of land in a close to beach location.

Also the depreciation component between the hypothetical investment and the actual investment... we don't know what the hypothetical deprec actually is?

the deduction off of the property management for the hypothetical is a bit harsh because it can't be in Qld to get that, so it's not apples and apples.

the main point is the $60pw diff in rent, (then reduced by property management and tax) - but this is offset by the above factors.

if the sales price of the actual property settled at $280k this would save $1200pa in interest and also less stamp duty. Add back the $1000 pm deduction and you are there.

so I'd contend it fits the mould pretty well. I'd say buy this one and the hypothetical one... they are both CF+ !
 
well you all know that I always do modeling for NRAS on an assumption of limited or no capital growth, because it is hypothetical at best and no one can predict future performance. :)

The cash flow analysis can however be predicted with reasonable accuracy because rental income, purchase price, interest rate , marginal tax rate and depreciation are either known or far more predictable and dont rely on "guessing".

So yes, this Qld beach front property on a large block "may" over 10 years return great growth and end up being a very good buy. But $180 per week rental income is still a poor return, and the only way it mathematically beats the alternative example I posted is through good growth. Given Qld beach side properties performance over the past 2-3 years, and more broadly Australia wide growth of the last 12 months...... can we be confident of that growth as we have in the past?

So Im not saying one is superior to another, because none of us own a crystal ball. For all we know, Australia's mining boom may wind up sooner than expected, leaving the economy vulnerable, and Europe may collapse and Romney may get in in the US and that could be great or disastrous... and property may be worth 20% less in 10 years time. Of course lets hope not, but we are in very very unstable times and that affects sentiment and funding availability. Not suggesting any of that will occur by the way, but we aren't guaranteed of any outcome one way or another are we?

I'm just just doing what I always do.... i.e trying to generate discussion and debate, by pointing out that NRAS can assist with providing more "certainty" because of its superior cash flow, and challenging people to consider whether the notion that capital growth is going to perform as well in the next 10 years as it has in the previous 10 years, is reasonable given the prospect of a slowing China, Europe or US.(or Australia)

Sometimes great cash flow ( a bird in the hand..... )



Anyway - still looks like an interesting property you've posted on the site. Worth a healthy discussion at the very least :)
 
Last edited:
What if the capital gains are better than 2.5k?


It's not about just the 2.5K. Its about the compound benefits of the 2.5K when redeployed onto non deductible debt. An extra 25K paid off your PPOR over 10 years saves you far more than just the 25K.
 
But, hey, the govt is throwing $10K pa at it and people still don't want to touch them.

In this day and age where CG can no longer be guarenteed (for any property NRAS or not, not one person can say how much any property will be worth in a year's time) I would have though that if a property can be CF+ from the beginning and essentially guarenteed by the government for 10 years these things would fly out the door.

I just don't get it. :confused:

If you hold a NRAS property for 10 years, does it not then revert to a "normal" rental after this period?

If you by the right NRAS property you should be in the same position as someone who bought a non NRAS property (in terms of the building and thus the same CG). The BIG difference is that the government has thrown $10K pa at the investor giving them in the range of $30K to $50K cash (after tax, in the investor's pocket) over the same period.

I struggle to find what's not to like with them when you compare "apples with apples".
 
I think they are good investment and I think they do fly out the door? FWIW I have put some great deals up on here over the years but never had a single successful introduction. I remember being put in my place when I put up house and land in karratha for $300k I think it was.... was only 6 years ago, current vals are now $1m, current rent $1800pw. People like to be sold with pretty graphs etc and led in a firm direction - the westpoitn sales model was a killer for this sort of thing. Some are emulating it but those guys really were machines.

As for this specific property, I think the main point is that the $2500 is not $2500 as by dropping the price to $280k (I think they would take that) makes it about $1250, which was derived by comparing management costs in a different state. This number can easily swing either way when you get into the nitty gritty of the depreciation schedule.
 
If you by the right NRAS property you should be in the same position as someone who bought a non NRAS property (in terms of the building and thus the same CG). The BIG difference is that the government has thrown $10K pa at the investor giving them in the range of $30K to $50K cash (after tax, in the investor's pocket) over the same period.

I struggle to find what's not to like with them when you compare "apples with apples".
this is spot on... the property is the same as any other except the governemnt is giving you $10k tax free in exchange for a reduction in your taxable income of 20% of the gross rent

IF you buy an apple property and IF you don't pay more than it's worth then I also struggle to see why you wouldn't load up?
 
The BIG difference is that the government has thrown $10K pa at the investor giving them in the range of $30K to $50K cash (after tax, in the investor's pocket) over the same period.

I struggle to find what's not to like with them when you compare "apples with apples".
although how did you calculate $30k to $50k? The $10k is tax free, so that's $100k, less rent reduction, say $45pw x 52 weeks x 10 yrs less say 35% tax = $15k,

net tax free handout from the govt is circa $80k
 
Won’t these NRAS props have cyclic effect on rentals?

Say current market rent is $100.
=> So NRAS props would be rented at $80.00.
=> Others may drop their rent to $80 to match the NRAS pros
=> $80 becomes the market rent
=> $80*80%= $64.00 becomes the new rent for NRAS now!
 
this is spot on... the property is the same as any other except the governemnt is giving you $10k tax free in exchange for a reduction in your taxable income of 20% of the gross rent

IF you buy an apple property and IF you don't pay more than it's worth then I also struggle to see why you wouldn't load up?
But they aint apples from a lending POV.

If NRAS is all about cashflow, there is a price to be paid in equity fuel.

things may change but the LVRs are still quite restrictive for those that dont have the 15 to 20 % needed to get int

ta

rolf
 
But they aint apples from a lending POV.

If NRAS is all about cashflow, there is a price to be paid in equity fuel.

things may change but the LVRs are still quite restrictive for those that dont have the 15 to 20 % needed to get int

ta

rolf
sure, but IMO investing at higher than 80LVR is extreme risk anyway. Fuelling up on low cashflow properties at 90 or 95LVR sounds like starting a road trip with 5 bucks in the tank... you'd better hope for some tail winds


I would se ethese sorts of things ideal for high income earners that have taken on CF- properties, they have equity, can't service anymore and rather than hocking themselves up further would liek to improve cashflow without impairing their current favourabel tax position.

Effectively you can easily be negatively geared and get great tax refunds and be cashfow neutral or positive.
 
sure, but IMO investing at higher than 80LVR is extreme risk anyway. Fuelling up on low cashflow properties at 90 or 95LVR sounds like starting a road trip with 5 bucks in the tank... you'd better hope for some tail winds
"plenty good" good stuff around that you can get 90 % + lends on that runs 6 to 8 % rtns. Yes, it wont have the depreciation of the newer NRAS stock

Im not anti NRAS, Im just saying, this is not an easy soln to an age old problem for all and sundry.

ta

rolf
 
"plenty good" good stuff around that you can get 90 % + lends on that runs 6 to 8 % rtns. Yes, it wont have the depreciation of the newer NRAS stock

Im not anti NRAS, Im just saying, this is not an easy soln to an age old problem for all and sundry.

ta

rolf
sure, but I still think if you have the equity why accept the lower return?

if you don't have it, you can't do it, so yes you do what you can do
 
Won’t these NRAS props have cyclic effect on rentals?

Say current market rent is $100.
=> So NRAS props would be rented at $80.00.
=> Others may drop their rent to $80 to match the NRAS pros
=> $80 becomes the market rent
=> $80*80%= $64.00 becomes the new rent for NRAS now!
I don't see how. The NRAS owner and non-NRAS owner are not competing for the same renters. Your average joe doesn't qualify for an NRAS property so there would be no point in the owner of a non-NRAS property to drop their rent in order to try to compete with the NRAS property.
 
I don't see how. The NRAS owner and non-NRAS owner are not competing for the same renters. Your average joe doesn't qualify for an NRAS property so there would be no point in the owner of a non-NRAS property to drop their rent in order to try to compete with the NRAS property.
Well... A couple with two kids earning less than 93k can qualify. I wouldn't expect much higher income in areas where most these properties are located.
 
although how did you calculate $30k to $50k? The $10k is tax free, so that's $100k, less rent reduction, say $45pw x 52 weeks x 10 yrs less say 35% tax = $15k,

net tax free handout from the govt is circa $80k
Just based on examples I've seen from NRAS docs.

They show that generally you'll have $3K to $5K positive CF after all taxes and with the $10K from the govt in metro/urban areas.

I've seen some examples that have you $10K to $11K in your pocket, but that's more regional stuff.

So you might be right, all a matter of what you look at.
 
Well... A couple with two kids earning less than 93k can qualify. I wouldn't expect much higher income in areas where most these properties are located.
Still, as the NRAS property has to be rented to people who qualify and there are not nearly enough NRAS properties to serve those who do qualify, I don't see the advantage in the owner of an NRAS property dropping their rent to try to compete for renters who qualify.

Though as I said before, I keep expecting to be shown what it is I'm missing with the whole NRAS thing! :confused:
 
Top