Nras

[euro73]

ok, ill bite

does NRAS work for someone earning $25k part time? with heaps of deductions from existing IPs?

given that they will only be paying like 17% on 13k income above the tax free threshold

Not sure I quite understand the numbers you have posted TMNT

If someone is earning 25K, they are only paying tax on only $6,800 of income, as the first 18,200 is tax free.... and the Marginal Tax Rate is 19% not 17% .

And if there are already significant deductions from other IP's as you have mentioned, isn't the 25K income already being reduced to well below the tax free threshold of 18.2K ??? ....... So where does the 17% and 13K of taxable income come into it? Or am I missing something ?

That aside- If you wanted to purchase an NRAS approved property at say, 70% LVR, and used cash for the 30% deposit + stamp duty - the property would run approx CF neutral pre tax. There would be no need for a cash buffer and no pre tax loss to claim as a deduction - which works nicely because it sounds like there's no assessable income to offset a cash loss against So with an assessable taxable income below the tax free threshold, and no deductions to claim from pre tax loss on the NRAS ( cos its running neutral , pre tax) all you'd be foregoing are the losses from depreciation, which arent losses you are paying for with cash anyway. More importantly, you'd still get the $10,661 NRAS credit paid to you... as its a Refundable Tax Offset and NANE payment , and assessable taxable income doesnt have anything to do with the NRAS side of things. And finally, a clever accountant could carry forward your depreciation deductions to offset them against future CGT.... That's about the best way to make it work with that level of income.

So I guess the answer is yes, if you do it right ... but your numbers still don't quite make sense.

 

[AtomicP]

Hi Guys,

I have an NRAS question so thought I might hijack this thread to save starting a new one. I've just started my investment portfolio with a new 3 bdr townhouse in Labrador, QLD (NRAS). It took about 6 weeks to get tenants in but other than that hasn't been too bad and I got in at a pretty good price point compared to most others in the development.

More to the point, I've recently received a letter from QAHC stating that during rental reviews they now no longer compare the rent to market rent at years 4 and 7 but rather they use CPI and that the new rent must not exceed the rental component of the capital city CPI in which the property is located (i.e. Brisbane, which is 2.1 %). The exact quote from the letter was
"In other words, your NRAS property's rent is always subject to CPI and is not re-benchmarked against market rent"

My initial concern is that this may leave me a bit out of pocket if the Gold Coast experienced some solid rental growth in the short term (i.e. next 7 years) and that is the reason I purchased there because I think it will. Obviously this wasn't in the contract that I signed and they did mention at the end of the letter that they understand any policy changes may impact on the members willingness to participate but I was just wondering if any other NRAS participators got a similar letter or have any thoughts on this issue?

Thanks,

 

[Redom]

Hi Guys,

I have an NRAS question so thought I might hijack this thread to save starting a new one. I've just started my investment portfolio with a new 3 bdr townhouse in Labrador, QLD (NRAS). It took about 6 weeks to get tenants in but other than that hasn't been too bad and I got in at a pretty good price point compared to most others in the development.

More to the point, I've recently received a letter from QAHC stating that during rental reviews they now no longer compare the rent to market rent at years 4 and 7 but rather they use CPI and that the new rent must not exceed the rental component of the capital city CPI in which the property is located (i.e. Brisbane, which is 2.1 %). The exact quote from the letter was
"In other words, your NRAS property's rent is always subject to CPI and is not re-benchmarked against market rent"

My initial concern is that this may leave me a bit out of pocket if the Gold Coast experienced some solid rental growth in the short term (i.e. next 7 years) and that is the reason I purchased there because I think it will. Obviously this wasn't in the contract that I signed and they did mention at the end of the letter that they understand any policy changes may impact on the members willingness to participate but I was just wondering if any other NRAS participators got a similar letter or have any thoughts on this issue?

Thanks,

Hmm my concern would be that its not complying with the NRAS regulations...

Pretty sure the regs say that market rental valuations need to be done in year 1, 4 and 7.

I haven't seen anything like this with my NRAS purchases.

In terms of your concern, if the market experienced solid rental gains, then its likely to reflect in CPI numbers.

 

[euro73]

That particular consortium are - how shall I say this politely - ummm.... the last I'd deal with.

I'll do some homework and report back, but I am not aware of any change to the NRAS Scheme Act 2008. I have not received any such communication from any of the consortiums responsible for NRAS compliance on any of my multiple NRAS properties, and Redom hasnt either - nor have any of my clients , who own more than 120 of these.

It's a mountain/molehill argument though. Even if it were to occur and you were 1 or 2% behind, never forget you have $$$$$$ in tax free money that non NRAS investors dont have.

 

[Redom]

That particular consortium are - how shall I say this politely - ummm.... the last I'd deal with.

I'll do some homework and report back, but I am not aware of any change to the NRAS Scheme Act 2008. I have not received any such communication from any of the consortiums responsible for NRAS compliance on any of my multiple NRAS properties, and Redom hasnt either - nor have any of my clients , who own more than 120 of these.

It's a mountain/molehill argument though. Even if it were to occur and you were 1 or 2% behind, never forget you have $$$$$$ in tax free money that non NRAS investors dont have.

Yep - I used to obsess about changes in numbers. I've gone through my NRAS cash flow spreadsheets for hours on end.

Reality is, slice and dice it whatever way you want - be ultra conservative and assume some really bad numbers. Your still likely to be ahead.

E.g. put the interest rate up to 8% and you're likely to still be in positive cash flow territory.

 

[AtomicP]

Thanks Redom and euro73,

According to the letter it was the DSS that has revised it's policy guidelines and QHAC/NAHC are just implementing it so it is interesting that no one else has heard anything?? I think it was dated 16 July 2014.

Is there any particular reason you'd stay away from these guys euro73? I'm pretty new to the game so it'd be good to get some info if they're a bit dodgy, so far they seem to be okay, although the property only settled in May so early days.

I guess 1 or 2% at the end of the day won't be that bad, I'm sure I'll be a lot more relaxed when i get the my tax and grant next year after year one.

While I've got some nras experts, I've just realised after looking at a few other threads the serviceability often comes up as a topic, do you guys know of any larger banks that take the grant into account? I never saw this as an issue because I was initially just after one property to go with some shares and was not going to buy another but I've got the "bug" so to speak so I'm now keen on building up a portfolio. I'm 26 at the moment and earn just over $100k so it probably won't affect my next purchase but I'm starting to think that I might start being restricted (with banks and amounts) the further I go on??

Thanks again for your advice.

 

[Redom]

Thanks Redom and euro73,

According to the letter it was the DSS that has revised it's policy guidelines and QHAC/NAHC are just implementing it so it is interesting that no one else has heard anything?? I think it was dated 16 July 2014.

Is there any particular reason you'd stay away from these guys euro73? I'm pretty new to the game so it'd be good to get some info if they're a bit dodgy, so far they seem to be okay, although the property only settled in May so early days.

I guess 1 or 2% at the end of the day won't be that bad, I'm sure I'll be a lot more relaxed when i get the my tax and grant next year after year one.

While I've got some nras experts, I've just realised after looking at a few other threads the serviceability often comes up as a topic, do you guys know of any larger banks that take the grant into account? I never saw this as an issue because I was initially just after one property to go with some shares and was not going to buy another but I've got the "bug" so to speak so I'm now keen on building up a portfolio. I'm 26 at the moment and earn just over $100k so it probably won't affect my next purchase but I'm starting to think that I might start being restricted (with banks and amounts) the further I go on??

Thanks again for your advice.

Hey AtomicP - I've posted on serviceability issues on this thread earlier.

Part of the answer to your qn will depend on whether you are buying at 80% or in LMI category?

On that level of income you'll be fine for more than your next purchase. And the purchase after that. And the one after that one! One of my clients is planning a pretty rapid accumulation of NRAS properties and I've mapped out a plan for him to get to 4. His on a 75k income. So on a 100k, you should be fine to get to that point and a couple beyond.

I'm going to take a quick guess by your age that your income is also likely to rise over the medium term. So it could go even beyond that. Of course a range of assumptions being put in place.

Lenders will only take into account 80% of the discounted rent (or 64% of the market rent). This means multiple NRAS properties do reduce your overall borrowing capacity with the majority of lenders.

There are one or two that do accept the grant @ 80% LVRs (Firstmac definitely and Adelaide I believe) and some have debated whether having the grant in multiple years tax returns will sway the minds of banks to include it in servicing at a later point in time. For those two lenders, your borrowing power is fine - the grant is pretty material increase in income (10k) and increases your borrowing cap significantly.

Overall - I wouldn't say NRAS investing in isolation isn't the best for your servicing - it doesn't make sense to reduce your lender pool to one or two. But having a few in your locker shouldn't do drastic damage (but will lead you closer to your serviceability wall quicker).

 

[euro73]

Thanks Redom and euro73,

According to the letter it was the DSS that has revised it's policy guidelines and QHAC/NAHC are just implementing it so it is interesting that no one else has heard anything?? I think it was dated 16 July 2014.

Is there any particular reason you'd stay away from these guys euro73? I'm pretty new to the game so it'd be good to get some info if they're a bit dodgy, so far they seem to be okay, although the property only settled in May so early days.

I guess 1 or 2% at the end of the day won't be that bad, I'm sure I'll be a lot more relaxed when i get the my tax and grant next year after year one.

While I've got some nras experts, I've just realised after looking at a few other threads the serviceability often comes up as a topic, do you guys know of any larger banks that take the grant into account? I never saw this as an issue because I was initially just after one property to go with some shares and was not going to buy another but I've got the "bug" so to speak so I'm now keen on building up a portfolio. I'm 26 at the moment and earn just over $100k so it probably won't affect my next purchase but I'm starting to think that I might start being restricted (with banks and amounts) the further I go on??

Thanks again for your advice.

1. They require a 25.1 % rental discount vs 20% elsewhere
2. They charge 10% + GST of market rent for tenancy management vs 8 or 9% +GST % of the discounted NRAS rent charged by most other models.


This is why they are my least preferred NRAS model. They affect your cash flow by @ 1.5 - 2K per annum. It isnt because they are scoundrels or anything like that. It's simply a cash flow issue, for me. And like Redom has suggested, slice it and dice it however many ways you wish... the numbers are either impressive, really impressive or really really impressive, up to @ 8% Interest rates.

Of course, if the property in question has strong fundamentals and particularly strong growth potential and you are happy with a compromise of 4-7K CF+ instead of maximising the outcome to 6-9K CF+ with an alternative, there's nothing wrong with that. For me though, the Cash Flow is certain, the growth is speculative.

So their model is perfectly fine...it's just my least preferred

 

[HeadsOnBeds]

Is there a certain purchase price point where Nras is most effective? I assume it's at the cheaper end! Ie $100k to $200k

 

[D.T.]

Is there a certain purchase price point where Nras is most effective? I assume it's at the cheaper end! Ie $100k to $200k

Given that they're all overpriced, i doubt there's anything at the cheaper end. And if there was, it'd likely be sub 50sqm units which are difficult to get finance for.

 

[Redom]

A groups of investors and I often view NRAS as bond purchases to reason with it. If we leave it to 'bricks and mortar', we fall back into traditional investing models and view it through the typical DD lense and its often harder to purchase. But that doesn't mean that the deal isn't often insanely good.

For example, a couple clients of mine have just bought a block of NRAS units, where each unit gets a 25k government rebate and they were already just tenanted (but had full 10 year NRAS attached). So while the area wasn't really the best place to invest (horrible!), the upfront cost was literally $15k. For a solid $8,000 return each year.

That is literally an 50%+ ROI. It valued on the $$$ too. Quashing DT's suggestion that they're ALL overpriced.

My point is, I look at the cheapest upfront cost - not necessarily the cheapest cost.

Obviously 8k p.a. isn't amazing, especially if your simply budgeting to get your money back at exit point in ten years time. But if you have a few of these, you'll have enough deposit every year to add to your portfolio without saving a $ or relying on CG/equity release....noting the finance issues I've touched on repeatedly of course!

 

[euro73]

Given that they're all overpriced, i doubt there's anything at the cheaper end. And if there was, it'd likely be sub 50sqm units which are difficult to get finance for.

Gee you love a good long - bowed generalisation! "all overpriced" .... I guess it must be horribly inconvenient for you that I've found 120 + NRAS properties for clients in the past 18 months or so, where all valuations (barring one with a 9K shortfall) came in on contract price? Or that those included locations like Elanora Heights, Brunswick, Alderley, Zilmere, Gregory Hills, Rose Hill, Pendle Hill, Ringwood, Fairy Meadow, Orange, Dubbo, Wynnum and Baulkham Hills amongst others.

 

[euro73]

Is there a certain purchase price point where Nras is most effective? I assume it's at the cheaper end! Ie $100k to $200k

The CF effectiveness of NRAS, if that's what you mean - is affected by several things other than the price. Weekly rent and establishment costs ( stamp duty, deposit etc) can have an impact as well.

It's true that broadly speaking, less expensive properties generate a higher return on equity because the $10,661 NRAS credit is the same whether you spend $300K or $500K, but there are circumstances where that isn't necessarily the case

Here's a quick example, assuming that the marginal tax rate is the same and the interest rate is the same...

A 300K apartment in Melbourne might cost you 30K as the 10% deposit and 15K for stamp duty, 10K CF Buffer and 2K for legals and depreciation report. It might achieve $300 market rent ( $240 under NRAS) and therefore produce 6-7K CF+ , having invested @ 57K of equity or cash.

But a house/land package in NSW for 400K, where the land is 200K and the construction is 200K, would work like this; 10% deposit = 40K, stamp duty @ 5.5K , 2K legals and depreciation, and 4-5K to cover interest on the construction loan for 4-5 months + a 10K buffer. But you would receive a 5K NSW stamp duty rebate , so your total contribution might still be @ 57K- same as the 300K Melbourne property. But because you have a house rather than an apartment, you've avoided strata costs, and may be in a location where weekly rental yields are higher, and may have better depreciation.

The property might achieve 430 per week market rent for example, or 344 per week, and cost you 2-3K less per annum because there are no strata costs, so it may generate @ 9-10 K CF+ instead of 6-7K CF+ , having effectively invested the same 57K of equity that you would have invested on a 300K property in VIC.

These are just rough numbers. Just trying to do a quick and dirty demonstration that variables other than purchase price need to be taken into account before assuming that cheaper always = more effective.

 

[HeadsOnBeds]

Thanks euro!

That was what I meant. Any issues buying Nras in trusts. Can you move the tax concessions around from the trust?

 

[AtomicP]

Thanks again for your insight euro73 and Redom,

I'm pretty happy with the fundamentals and growth prospects as the NRAS only got approved after I'd purchased so it was just a bonus I guess.

This might sounds like a stupid question but I'm assuming that QAHC are linked to this development and that it wouldn't be possible for me to change to another provider??

 

[euro73]

QAHC owns the NRAS allocation, because they are the Approved Participant. They allow you to access the scheme through their status as an Approved Participant (this is why you sign the QAHC agreement) and then they pass the incentive through to you in return for a small NRAS fee/compliance fee. So unless they are willing to forfeit that income and allow another NRAS participant to take over the compliance , you are stuck with QAHC. The chances of them agreeing to that are buckley's and none

 

[euro73]

Thanks euro!

That was what I meant. Any issues buying Nras in trusts. Can you move the tax concessions around from the trust?

No issues purchasing through a trust. Tax implications are a conversation you should have with your accountant, because different trust structures attract different tax treatment.

 

[simonc]

Borrowing off Equity

Redom is correct ...


Quick example. Broad brushstrokes, using a 350K strata titled property as an example.

Loan 1 - secured against whichever property provides equity - 60K
10% deposit = 35K. Stamp Duty = 13K. legals 2K. 10K Cash Buffer.

Loan 2 - secured against the NRAS INV property. 320K (90% + LMI)

Hi Euro and Redom,

Previous comments have said that releasing equity in NRAS property is near impossible. In the example you list about, how are you able to release equity from 1 investment to fund another.

Cheers

 

[Redom]

Hi Euro and Redom,

Previous comments have said that releasing equity in NRAS property is near impossible. In the example you list about, how are you able to release equity from 1 investment to fund another.

Cheers

No issues in releasing equity from another property to fund NRAS deposits.

 

[bazwami]

NRAS cals

Would you purchase the investment property without an NRAS incentive?????

If not then don't buy it. If yes then go for it.

NRAS is a gamble a bit like playing the lottery, good luck.