NRAS property

[JennD]

Hi Somersofters,

Love the forum. Recently jumped across to Property Observer. Don't want to spam with links (or I'll get accused of trying to beef up our SEO haha), but I've had a couple of opinion pieces up on the site over the past week about NRAS/Ba's saying how bad it is/etc.

Wanted to know if there are any success stories with NRAS out there and what the general consensus is? Doing a follow up piece tomorrow and wanted to get a few people on record. There's a lot of conversation around it on here so thought I'd be outright and say what I want.

Feel free to respond here, inbox me or email [email protected] - also, if you email me and do not want to be quoted then please say so.

Jennie

 

[mrmonopoly]

Congratulations

Hi Jen,

Firstly huge congratulations on the big move. Great to have someone clearly passionate about property in the hot seat.

With regards to your question. As a BA myself I certainly don't disregard NRAS, I just feel it is more suited to those with a debt reduction strategy and belief that the market as a whole will be subdued over the next decade or so due to limited credit growth, as the guaranteed returns therefore become an attractive option.

Whilst this is not an argument I subscribe to, I understand the logic behind the thought process.

Lastly I think its important to note that not all NRAS properties are a like, and unfortunately for every one good NRAS company which pre vets the opportunity on its own merits and conducts upfront vals, there are countless others who don't, and simply seek to generate the biggest profit margin, regardless of the inferior quality product they are offering. Ultimately this majority creates a generally negative viewpoint on the subject as a whole, at least that is my perception of the matter.

Thanks again and keep up the good work.

 

[OKFFW]

I have purchased 2 NRAS properties.

Property 1:

Located in Townsville
Dual occupancy
Valuation came in $9k short on a price of $531k which for new stock seemed close enough for me and I could afford the extra $9k.
Tenants were ready to move in the day I settled. 1 is tenanted by a young couple working and going to uni part time, the other tenanted by a working single mother with school aged daughter. Both sets of tenants have proven to be great so far.
Expected to be cash flow positive to the tune of $15k pa.

Property 2

Located in Toowoomba
Single occupancy
Valuation came back on the money.
Tenant moved in a week before settlement. Tenant is an elderly employed single woman who seems to be a good tenant so far.
Expected to be cash flow positive to tune of $6.5k pa

In the process of buying a 3rd property that will be dual occupancy as well and expected to be cash flow positive by around $18-20k pa.

Process of buying, tenanting, managing etc has been easy and I am very happy so far. Idea is to build equity through a combination of paying down debt and probable capital gains. Will be in the market for another property in 8-12 months(assuming no CG at all) and that will be NRAS as well.

ETA: Frankly most of what I've read from BA's seems blatantly wrong and doesn't really do their credibility any good to be honest.

 

[truong]

Hi Jennie

There are investment strategies that are aggressive, risky and potentially super profitable while other strategies are safer, less stressful but also less profitable.

I think NRAS belongs to this second kind. It suits perfectly the type of investor that is hands-off rather than hands-on, steady rather than impatient, looking for safety rather than outrageous returns.

Having been in the game for many years I've tried my hands on a lot of things, from renovating, flipping, subdividing to buy and hold, but when the GFC hit I decided that I didn't want the hassles any more. I cut down my portfolio to just a few IPs so I could retire completely and bought several NRAS's with the leftover.

A lot of bad things have been said about NRAS but I think they can be trimmed down to 3 types of concerns:

1. Buying an overpriced property. This has happened to some people but could have been easily avoided with just a little bit of diligence. There are plenty of NRAS properties out there priced exactly the same as non-NRAS ones so it's not hard to find them.

2. Limited scope for CG due to location. This is IMO more of a perception than anything else as history has shown that areas developed from scratch on the periphery could still see very good CG. The same selection criterias should work for NRAS as for any other buys. Look for niche developments, developments in or next to established suburbs, areas with large infrastructure outlay, population increase or gentrification. One of my NRAS's has had excellent CG due to a train station being built just half a mile away. Another one sits in a suburb going through renewal so I expect some CG too.

3. Problems usually associated with OTP. I have avoided these by buying house & land packages rather than apartments. Townhouses can be OK if completed or near completion.

Once the above risks have been mitigated you're left with all the benefits of NRAS and they are huge:
- CF+ in most cases
- almost nil vacancy
- longer term tenants with a strong incentive to behave
- automatic rent increases
- generally little maintenance and no headaches.

Return is not bad too. Say you invest 80K to buy a 400K NRAS property. You may be CF+ by say 4K (5% of your investment). Even assuming that the price on average does no better than inflation (3%) and taking gearing (x5) into account you get an annual return of

5% + 3% x 5 = 20%

Not bad for an investment that's among the safest that one could find.

Compare this with a NG'ed property that's losing 5%/year. Assuming you get a better CG than the NRAS one (2% better therefore 5% just for this example) your return would be about the same: -5% + 5% x 5 = 20%, but your risk here would be much greater because of all the repair costs, problems with tenants, etc... and you may be forced to sell in a bad market!

I know, there are more profitable ways to invest out there than NRAS but for people who haven't got the time, energy or the risk tolerance to do so, NRAS is not a bad option at all.

People can criticize NRAS as much as they want because it doesn't fit their idea about investing, but they need to accept that for the right type of person and the right property it is generally a very worthwhile strategy.

 

[Colin Rice]

Great post Truong. I have done quiet a few NRAS finance for clients and so far so good. Some came in on the money for valuations and some under. All was disclosed to client and all but one proceeded. Sound scheme in my opinion but like most things in life if something good is in the hands of the wrong people it gets tainted. I reckon for all the NRAS "horror stories" there are just as many non NRAS "horror stories". Like all investments there will be inherent risks, especially for the unwary. As Truong pointed out its not for everyone but suits many.

 

[euro73]

Hi Somersofters,

Love the forum. Recently jumped across to Property Observer. Don't want to spam with links (or I'll get accused of trying to beef up our SEO haha), but I've had a couple of opinion pieces up on the site over the past week about NRAS/Ba's saying how bad it is/etc.

Wanted to know if there are any success stories with NRAS out there and what the general consensus is? Doing a follow up piece tomorrow and wanted to get a few people on record. There's a lot of conversation around it on here so thought I'd be outright and say what I want.

Feel free to respond here, inbox me or email [email protected] - also, if you email me and do not want to be quoted then please say so.

Jennie

Jennie - the opinion pieces published in recent weeks were riddled with errors. Every criticism was based on fundamentally incorrect information.

 

[Colin Rice]

No doubt Euro73 observations will be correct.

 

[Noodle]

I agree with MrMonopoly on this, it really comes down to the quality of the company selling the NRAS properties and how carefully they scrutinise each development.

I also think it depends on your goal as an investor as whilst the cash flow is very good, there is very little opportunity to manufacture growth and pull out equity for reinvesting if you are trying to build a portfolio. In fact I have yet to hear of anyone buying NRAS BMV.

With all strategies, it will work for some, it wont for others. Work out your final destination and plan accordingly would be my suggestion.

 

[JennD]

Hi everyone,

Thank you so much for the responses. I'm working through an in-depth analysis at the moment that will likely take me all week to put together, so I really appreciate all the time you've put into responding and I have collated all your thoughts together.

If you ever want to contact me about things you've noticed etc then my direct email: [email protected]

Sebastian - thank you! I absolutely adore property, and it's great to be able to do another reporting role in this field. I've moved to Melbourne to take on the task, and I'm already missing Sydney something chronic (as much as it's a gorgeous city here). A hugely enthusiastic team and so much more that can be done in the online space and with a very progressive company. Very happy to be here and to get to chat with investors on a daily basis - and there's always the benefit of the pretty property pictures we get to publish .

OKFFW - Would you be able to private message me the addresses off the record? I need some properties to delve into/look at purchasing costs of and the results etc. Hoping to run an RP Data val check on it and see what that coughs up, and basically see if these properties are growing. Considering Townsville and Toowoomba have been pretty heavily talked up hotspots, not sure what to expect. Your call - if not I will dig out another .

Truong - thank you for these points, a very balanced outlook (which I value highly!). I suppose part of the issues for BAs is that they get quite stuck in their one-way-to-invest mindset. It's a problem across the board. Many new investors don't realise that BAs all have their own very distinct style of investing.

Thanks for the insight/input everyone, seriously very helpful. If you ever need anything from me, you know where to find me!

 

[Alex P Keaton]

Hi, I'll be researching NRAS in the new year.

I earn around $60 k pa and this time ive decided i dont want to get something that is too negatively geared. The government incentives and depreciation benefits could be worthwhile if I can get it right and buy the right propery/right price/right location etc etc.

There doesnt seem to be much interest in nras with ss investors. I just wonder why it hasnt become a popular scheme. ?

 

[D.T.]

There doesnt seem to be much interest in nras with ss investors. I just wonder why it hasnt become a popular scheme. ?

#1 NRAS properties are marked up just for being NRAS and so are alot of fees that are associated with them. Ask just about any mortgage broker on this forum about whether their client''s valuationss have stacked up.
#2 They're often in a large unit/villa developments, so wouldnt buy in them whether it was NRAS or not NRAS, as this affects the future growth available.
#3 During the year its massively negatively geared, its only when the gov handouts come that you get at the end of the year that you go into positive territory.
#4 When you buy subsequent IP's later on, the banks will use the actual rent you're getting on the NRAS property towards your serviceability, not the market rent.
#5 Being that its gov, it adds an extra layer of risk on what rules they might change during the asset's lifetime.

 

[devank]

Good points DT.

Also, generally, locations of theses properties aren't that flashy.

 

[euro73]

#1 NRAS properties are marked up just for being NRAS and so are alot of fees that are associated with them. Ask just about any mortgage broker on this forum about whether their client''s valuationss have stacked up.
#2 They're often in a large unit/villa developments, so wouldnt buy in them whether it was NRAS or not NRAS, as this affects the future growth available.
#3 During the year its massively negatively geared, its only when the gov handouts come that you get at the end of the year that you go into positive territory.
#4 When you buy subsequent IP's later on, the banks will use the actual rent you're getting on the NRAS property towards your serviceability, not the market rent.
#5 Being that its gov, it adds an extra layer of risk on what rules they might change during the asset's lifetime.

1. This is true of almost anything you buy from project /internet marketers, and it was happening well before NRAs and will happen long after NRAS. However, if you purchase from reputable companies , you will not have these issues. Plenty of NRAS buyers on here will tell you they have had no val issues across multiple purchases, when they have sourced the stock more intelligently.
2. This is an unfair comment. There are a very large proportion of NRAS approved properties in boutique unit, townhouse or villa developments, as well as house/land. If you're getting your information from the internet - you are seeing only a proportion of the available NRAS stock.
3. This is why I always recommend an additional 10K of equity be utilised for the first year, as that is the ONLY year when you will incur these issues. After the first year, the combined ATO refund and NRAS tax credit will not only pay for the following years cash flow shortfall, it will also provide enough funds so that you will have a tax free surplus amount to redeploy.
4. Correct, but there are also lenders who will accept the NRAS tax credit as tax free income, so if you utilise the correct strategy with the correct lenders your borrowing capacity is amplified, not reduced. And you're also ignoring the fact that the surplus cash flow from each NRAS property, if redeployed towards non deductible debt reduction, will also amplify your borrowing capacity, as any half reasonable broker will tell you that non deductible debt is the biggest drag on your borrowing capacity, and the surplus NRAS cashflow generated annually and redeployed towards debt reduction , gets rid of that debt faster .
5. Same risk with neg gearing, CGT, super or any other law that exists in Australia.

 

[bez23]

Still awaiting your pm euro....

 

[JenJen]

I suppose part of the issues for BAs is that they get quite stuck in their one-way-to-invest mindset. It's a problem across the board. Many new investors don't realise that BAs all have their own very distinct style of investing.

Hi Jennie

This is probably a bit off topic, but I'm not sure I agree with your generalisations about BAs. Just the other week I was reading comments made about NRAS properties by a BA, and was surprised at their 'one size fits all' approach. And this is not the first time I have noted it in BAs. So yes, some are unashamedly biased.

However, unless BAs have the relevant finance qualifications, it is not legal to promote a particular investment strategy over another. And it's definitely not something that all BAs do. If you have a look at a number of Buyers Briefs, you will see that there are a great many that ask the client what their preferred strategy is and their future plans for the property.

All investment strategies have their pros and cons, risks and benefits, and I would think that a balanced view of investing in NRAS properties would identify these. As others have pointed out, it's a matter of what suits the buyer's risk profile, preferences and intentions.

Also, you seem to imply that their is a clear distinction between investors and BAs. I am both. Like you, passionate about property, and an avid investor.

As for my own particular style of investing, I prefer not to be put into a box just yet. People change, circumstances change. I would like to think I am a bit more balanced than what you suggest.

Cheers

Jen

 

[vaughan]

I'm waiting for a NRAS+DOH+SMSF combination.

I'm kidding. Really.

 

[Alex P Keaton]

Anyone bought nras through niche living in Perth ?

 

[perthguy]

I am looking at purchasing a NRAS property through my SMSF. In selecting the property I would use the same selectional criteria I use for any property - proximity to shops, parks, public transport etc. I'm not set on a NRAS property yet but I am currently investigating.

 

[Alex P Keaton]

I am looking at purchasing a NRAS property through my SMSF. In selecting the property I would use the same selectional criteria I use for any property - proximity to shops, parks, public transport etc. I'm not set on a NRAS property yet but I am currently investigating.

what city?

 

[D.T.]

Stay away from it Alex