NRAS property

"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
But hold on a everyone- there are at least 7 lenders where you can get 90% plus LMI for NRAS.
Westpac, STG, rams, BankSA , BOQ, Members Equity and Adelaide Bank. So if LVR is perceived to be a problem...I just solved it for you :)
 
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.
Hmmm.. Once again, a misconception about areas where these properties are located. There's this continuing underlying inference across many threads that NRAS is all in low income areas and will be tenanted by pensioners and druggies. Just not true. While most of the stock is in middle ring suburbs , there are also NRAS properties in Homebush bay, Randwick, Manly, Bondi, The Ponds, just for some Sydney examples.... These arent uber rich areas necessarily, but they arent below median price areas either.
 
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?[/QUOTE]

Spot on. And this is the core of the debate. If you can buy at a market price and generate 5-6K CF+ and use that to get compound returns by paying down a 6% PPOR mortgage and saving a couple of hundred grand in interest (CGT free) plus getting to own and hold a property for 10 years with no out of pocket costs, even if the NRAS property doesnt achieve much growth surely you're going to be able to see that mathematically that sort of strategy is 1. lower risk 2. lower out of pocket cost 3. higher probability of greater return. Especially when compared to the 90's and noughties strategy of a running a property at a loss and hoping for growth. It's just bad maths! The loss/growth strategy worked well for 15 years because the global explosion in credit growth allowed it to. But the era of credit growth has ended. And if a loss making/growth strategy relies on a buoyant and expanding credit environment to produce returns significantly above inflation, do the maths. People are in for disappointment. The last 5 years data is already proving beyond doubt that growth has slowed to a trickle. RP Data's latest capital growth index shows that in all capital cities except Perth, Darwin and Adelaide, Cap growth between 2007-2012 has barely even matched inflation of 2.8%. Yet people still think prices will double every 7-10 years???? Sorry- without more and more credit being available easier and easier and cheaper and cheaper, it is not going to happen.

This is a simple mathematical equation. A person buying a 350K property and who contributes a 20% deposit plus 15K stamps/costs plus 10K holding costs for the first year ( after year 1 the property generates CF+ so it pays for itself) will put up about 95K. If that generates a 6.5K CF+ result after tax ( and it will) that's a return of 6.84% tax free on their 95K investment. That's before they redeploy that 6.5K onto their PPOR mortgage, and before any growth is accounted for.

So after 10 years you'll have paid off more than 65K in principle reductions on your PPOR, saving you between 10-15 years in time and about 150-200K in interest, depending on the size of your PPOR mortgage. That "profit" is CGT free. And assuming just snail like capital growth of 3% per year, your 350K NRAS property will also have appreciated to just over 470K.

Lets say you sell after 10 years. Your position is this; CGT becomes payable on 50% of your 120K NRAS profit. So you pay 34-45% tax on 60K depending on your marginal tax rate. The rest is yours to keep. AND, you've knocked 10-15 years off your mortgage, which has created sufficient equity to have invested in 2 or 3 other properties along the way. They may or may not be NRAS. if they are, you'll have well and truly paid off your PPOR mortgage within 10 years, leaving you with several hundred thousand in equity, all CGT free ( your PPOR is CGT free if you sell it, remember)


If you really believe that non NRAS property that costs you 2K or more out of your pocket, will offer better returns than that over the next decade- fair play to you. But you'd need to produce unbelievable capital growth to get within a bulls roar.

I continue to be amazed that people are still fussing and debating over the merits of having at least one of these unbelievable tax minimising, cash flow producing weapons in their portfolio. It really defies logic.
 
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.
This is why I love the 2 bedders around the 320-350K mark. They offer 6-7K CF+ and allow you to stay in metro areas. Some exceptions of course, like dual occupancies where you can get 15-16K CF+, but they're kinda rare. 6-7K CF+ should be more than enough to create some fantastic debt reduction over the next decade and create some "free" extra equity for a couple of extra investment properties.
 
But hold on a everyone- there are at least 7 lenders where you can get 90% plus LMI for NRAS.
Westpac, STG, rams, BankSA , BOQ, Members Equity and Adelaide Bank. So if LVR is perceived to be a problem...I just solved it for you :)
xcpt that the first 4 share the same bank backed LMI provider :) and so are really one "lender "............another APRA casualty.

there are other second tier lenders that will do> 80 % lvr as well.

When the bulk of volume lenders (eg NAB, CBA and ANZ) knowingly do NRAS at LVRs > than 80 %, we can then assume that there is general lender acceptance, and the restricted security caveat can be lifted.

The savings grace for NRAS is that the Tattoo isnt forever, as it is with other restricted securities eg Student Accom and studios for eg,

When St George bank accept NRAS as an SMSF security at 80 % lvr, I will be happy : )


ta
rolf
 
I am too. Keep thinking I'm missing something.
You're really not. I guess it's just very hard for most people to think laterally or differently. And I can understand why, to be fair.

After 20 years of people seeing a negative gearing/cap growth strategy make them or other generations wealthy through property, and after 20 years of peoples attitude to taking on more and more debt to make money getting looser and looser, its proving very difficult for those people to accept that such a successful strategy wont keep producing the same results in a post GFC world. For mine, I believe that's simply because they never consider the role that the explosion in credit growth played in facilitating the capital growth outcome.

Unfortunately property investors have for the most been convinced that undersupply and location are the biggest drivers of growth, but they have forgotten that without lending being available, none of that matters.

With the era of rapid credit growth being over - by that I mean LVR's cant go higher, lending policies wont get looser, banks funding costs will remain under stress, and availability of money will remain tighter - the era of rapid capital growth is most likely also over.

If equity from growth has slowed and is to remain slow, the only other way to create equity is by accelerated repayment of debt, and that means accepting that cash flow is now king. Some investors realise it and understand that NRAS represents the mother of all cash cows. Others unfortunately continue to not understand it because they dont understand the role finance plays in facilitating growth, so they believe that growth is almost an entitlement and property cant ever lose. So no matter what you say to them , they will always believe that the only way to invest in property is to pursue loss making investments in the hope of achieving a big pot of gold down the road.

As Ive said previously. It was a phenomenal success for a generation of investors who were fortunate enough to ride the wave from 1987-2002. Unbelievable wealth was created as investors, encouraged by the re-introduction of neg gearing and the halving of CGT, were able to get almost any amount of money they wanted from eager banks, who offered more and more products and expanded LVR's from 80 to 85, then 90, then 95, then 97 then 100%LVR, and introduced lo doc and no doc and neg gearing calculators and non gen savings and so on and so forth.

The result was tens of thousands of new buyers and investors and speculators coming into property over that decade and a half, loaded up with ever cheaper, ever easier money but competing for the basically the same amount of stock, because local and state governments demonstrated absolute incompetence in releasing land and developing 20 and 30 year plans and getting anywhere near keeping up with the need for new stock...

Easy money. cheaper money. Lower deposits required. Tax laws that encouraged speculation. ( neg gearing and CGT discounts) Pathetic state and local Govts. Is it any wonder prices surged???

But that's over now. It has run its cycle. It's over. There are no miracle ideas of new loan solutions or magical credit policies to save the day and help the banks fond innovative new ways to allow you to borrow more and more money. There are also fundamental mathematical limits bwyond which things just arent sustainable. And the GFC has found them and put an end to the false economy that had grown out of control. At the very least, the GFC means Australian banks will not be able to pursue any fancy product innovation and LVR's just arent going to get higher any time soon. No doc is dead and will basically remain so, and lo doc is now a much more regulated product. The free ride is over.

So for me, that all points to the need to de-leverage to create equity. And as Ive said, NRAS is the mother of de-leveraging tools.
 
xcpt that the first 4 share the same bank backed LMI provider :) and so are really one "lender "............another APRA casualty.

there are other second tier lenders that will do> 80 % lvr as well.

When the bulk of volume lenders (eg NAB, CBA and ANZ) knowingly do NRAS at LVRs > than 80 %, we can then assume that there is general lender acceptance, and the restricted security caveat can be lifted.

The savings grace for NRAS is that the Tattoo isnt forever, as it is with other restricted securities eg Student Accom and studios for eg,

When St George bank accept NRAS as an SMSF security at 80 % lvr, I will be happy : )


ta
rolf
I think we've come a long way in 12 months, so i would expect to see more lenders opening up to NRAS in coming months. There were only 2 or 3 lenders a year go. Now there are a dozen. Genworth is OK with NRAS. QBE are taking a look as we speak.

SMSF with NRAS is a more difficult beast. The problem is that no lender has yet packaged an SMSF loan in a bond issue to the market, so the ratings agencies haven't had to put a rating on an SMSF limited recourse loan yet. Standard and Poors are looking at rating some for NAB at the moment , I believe. But until they get their ratings sorted, combining it with another "new" product such as NRAS makes it a case of "too hard" for most lenders I guess. They have to write it on balance sheet because they cant securitise it. I understand there are a few options now though...At least you can use Liberty to 80, NAB to 80 and The Rock to 75. I hear BOQ is also doing NRAS/SMSF. Do you know whether thats true Rolf?
 
This is why I love the 2 bedders around the 320-350K mark. They offer 6-7K CF+ and allow you to stay in metro areas. Some exceptions of course, like dual occupancies where you can get 15-16K CF+, but they're kinda rare. 6-7K CF+ should be more than enough to create some fantastic debt reduction over the next decade and create some "free" extra equity for a couple of extra investment properties.
Euro,

You seem to be very experienced with this NRAS caper.

Can you please point me towards some NRAS examples like this in the Southeast Queensland or Northern NSW area?

The ones I find seem to be loaded with $30-$50k more expense from the marketer!

Thanks
 
Euro,

You seem to be very experienced with this NRAS caper.

Can you please point me towards some NRAS examples like this in the Southeast Queensland or Northern NSW area?

The ones I find seem to be loaded with $30-$50k more expense from the marketer!

Thanks
not easy, but they are out there


ta

rolf
 
Euro,

You seem to be very experienced with this NRAS caper.

Can you please point me towards some NRAS examples like this in the Southeast Queensland or Northern NSW area?

The ones I find seem to be loaded with $30-$50k more expense from the marketer!

Thanks
that's the point of this thread... I have access to one if you are interested?? there is no marketeer involved and it will stack up to val
 
ok a bit more info on this one,

it's under the Braal / Ecogroup consortium and their annual fee is $550.
the rent is actually $200pw. It is tenanted for 2 years. Each year you must do your own rental valuation which costs approx $280pw.

on a comparison this one stand out head and shoulders above other NRAS opportunities?? if not please feel free to point out the warts!

oh, apparently major gas fracking discovery 50kms away and a huge coal discovery - but that's all in the wind and would be upside

NB: Price is set at $285,000
 
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The problem there is the consortium - not approved by any lender or Genworth LMI.

To get a loan, an investor would need to commit fraud by not disclosing NRAS to the lender.

These smaller consortiums need to form JV's with the big guys who are approved by the lenders, or they'll just continue to face these problems.

But if they were approved- the cash flow looks much better than your initial post ( if you use the right loan product)

300K (P/Price 285K, stamps and costs) @ STG 5.59% I/O = $16770 plus $395 annual fee = $17165
Costs - lets allow for 4K (rates, Property Management, NRAS fee, insurance)
Ownership Costs $21,165

Income $200 per week = $10,400

Loss $10765
Depreciation 7K

Total Deductible Loss $17765

Refund @ MTR 34% = $6040.10 + $9981 NRAS = $16021.10 CF + $5256.10
Refund @ MTR 38.5% = $6839.52 +$9981 NRAS = $16,820.52 CF+ $6055.52

Pretty good result. But this result relies on getting 100% of the debt funded at 5.59%. if you cant get a rate that low, the returns will be a little weaker.
 
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The problem there is the consortium - not approved by any lender or Genworth LMI.

To get a loan, an investor would need to commit fraud by not disclosing NRAS to the lender.

These smaller consortiums need to form JV's with the big guys who are approved by the lenders, or they'll just continue to face these problems.
Done some follow up on this, ...the large consortiums often have lock in contracts which require specific approvals. The general criteria by the banks, where there is no formal credit policy is that the agreement can be cancelled by the landowner or mortgagee within 90 days and for a cost of no more than $1,000. The BRAL agreement meets this criteria and is therefore acceptable with full disclosure.

The agreement was actually specifically designed to meet the requirements of ANZ.
 
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If it isnt on Genworth LMI's approved list, and if the lender (ANZ or any other NRAS lender) cant clearly outline that the consortium is on its particular approved list, I don't see how it gets past the credit department?

The BDM, or the call centre person may tell you it will, but when deals get down to being deals, credit says yes or no. In my experience it is extremely unlikely that any lender that allows NRAS will write a deal for an unapproved consortium.

That being said, if the model is as straightforward as you've suggested, with what appears to be very low NRAS compliance fees of 5% plus GST , and if it's a simple NEJV, it should be easy enough for them to submit their model to Genworth and obtain approval within a week or so. Then they can take the model to the various lenders for approval. Just have them send their NEJV document to the guys at Genworth LMI and they'll have an answer by middle of next week.

This is the process every other approved consortium has been required to undertake, so that they can have their model listed on each banks approved list.
 
wow, 100% @ 5.59%. Add in debt deflation and property really is a rock solid investment
Solid yes- especially at those rates. Cant get those rates from ANZ though, and this model is most definitely NOT on the STG approved list Im afraid.

By the way the STG rate is now 5.49%- even sharper!
 
Hi Euro,

How do the potential tenant get to be legally "qualified" to rent a NRAS place ? Or it is only up to the landlor to make sure the IPs are rented to those that meet all criteria ?
Who decide what is the right rent for a NRAS ? (and landlors then take 20% off from this amount) ? the consortium ?
Any Brisbane NRAS IPs that have your tick on the cash flow figures ??

Thanks very much,
soy
 
Hi Euro,

How do the potential tenant get to be legally "qualified" to rent a NRAS place ? Or it is only up to the landlor to make sure the IPs are rented to those that meet all criteria ?
Who decide what is the right rent for a NRAS ? (and landlors then take 20% off from this amount) ? the consortium ?
Any Brisbane NRAS IPs that have your tick on the cash flow figures ??

Thanks very much,
soy

Hi. There's nothing "legal" thats required. It's just a matter of demonstrating that you qualify to be a tenant based on income.

In Queensland, the State Govt maintains a list of people who apply for NRAS eligibility. It's purely income driven. Tenants wishing to become eligible just need to demonstrate that their incomes fit the relevant criteria.

In other states, the State Govt's dont maintain a list. Instead, tenants wishing to access an NRAS property need to demonstrate their income eligibility to the NRAS consortium that holds the allocation on the approved dwelling. Again- evidenced by income.

rent is determined two ways;
1. In years 1 ,4 and 7 an independent valuer must do a valuation on the NRAS property and comment on appropriate market rental rates. Then a 20% discount is applied to that ( or 25% if your NRAS approved property sits under the QAHC model)
2. For all other years (2,3,5,6,8,9 and 10) the rental income is simply increased in line with rental CPI. Rental CPI is assessed and published by the Australian Bureau of Statistics each year, and is based on the average rental increases across Australia's capital cities for that year. It has averaged 5.69% for the past 5 years. Roughly 2 x inflation, which has averaged 2.8% for the past 5 years.

Hope this assists... :)
 
one thing for sure is you will never be short of tenants... the guys running these ones in moore park report a huge waiting list and multiple applications every day. Makes sense, a 20% reduction in rent on a brand new property would be quite appealling!
 
NRAS property conversion fee

Hi all,

i was wondering if anyone could provide me with some help. I have nearly finished building my investment property (get keys next week) and my builder has told me that I have the option of now making it an NRAS property.

I have read the forums and understand the advantages that come with an NRAS property. however they have told me that in order for it to be classified as an NRAS property I will need to pay over $8000 to make it into an NRAS property.

is anyone else aware of this before and is this correct? Perhaps in house/land packages it is accounted for in the price but for me because I have been offered this after the build it is included on top.

Any ideas anyone?
 
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