Nras

I think you'll find that whether you are buying NRAS or non NRAS, if you are dealing with a property group/investment club/ wealth creation business, valuers tend to be very aggressive in down valuing the properties. This is because valuers believe that property sold through someone other than a conventional real estate agent, usually has a 20-30K marketing fee attached. Whether this is true or not... I guess its a matter for debate.

Unfortunately, NRAS properties are being sold mainly by these kinds of groups...

To say there's no potential for CG in an NRAS property is false, and ignores the fact that you'll likely pull 100-120K tax free out of each NRAS property over 10 years, not to mention superior Neg gearing and normal depreciation. One could argue that stacks up quite well against 20K?

We should probably also remember that the scheme was NEVER designed as a property investors dream. The aim of the scheme is to deliver 50,000 affordable houses units and townhouses in areas where needed, with police, nurses, teachers etc, being the targeted tenants. Because of the income thresholds required to be an eligible tenant, the properties were NEVER going to be elite locations. Most the NRAS stock wont be in cities ( units yes, houses no) but will likely be in larger regional areas like Townsville, Gold Coast, Ipswich, Newcastle, Wollongong, Ballarat, Geelong, Fremantle, etc etc.

The Victorian Government is driving a very specific agenda towards expanding Melbourne towards Geelong and Ballarat for example- so the 260-280K 3 bedders you can currently buy with NRAS incentives , near both those centres, dont look like a bad option?

Just remember what Redbank Plains and Ipswich looked like 10 years ago.... and look at the prices now
 
Sure- its a good idea, but it needs some tweaking; You only have two options for prices - 350,000 and 245,000- I assume these are meant to represent theoretical NRAS purchase prices? The calc doesnt really say. What if the investor purchases an NRAS property at a different price?

Also, the calculator only calculates the NRAS benefit for one property, or two ( if you select combined) - what if the investor has other investment properties with depreciation and interest and other deductions?

On your self qualification link- the calculator needs quite a bit of tweaking.
INCOME
1.Existing gross taxable income
2.Existing rental income
3.Proposed NRAS rental income- discounted to the appropriate level
FYI St G, Westpac, Rams and Firstmac all use a discount of 20%- even though some NRAS agreements require a 25% rental discount-ie QAHC. So on any of their calcs you would key in 80% of normal market rental for the NRAS rental component, and their calcs then apply normal rental income formulas to that figure- Most calcs assess rental income at 80% of the figure you input, so you effectively end up with 64% of market rental being used for rental income associated with NRAS properties- ie 80% x 80%
4.Any other income- ie- FTB parts A and B for example.
5.And, in the case of firstmac, you would also key in the NRAS incentive ie $9140 as tax free income.

LIABILITIES
Existing PPOR debt and repayments
Existing INV debt and repayments
Number of Dependent Children
Credit Card Limits rather than C/C monthly repayments. Banks generally assess cards at 3% of the limit, monthly - ie 36% per annum. Its the limit of the card, not the balance, that matters.

ADD BACKS
Depreciation for any existing investment properties
Costs for existing INV property -insurance, property management fees, strata etc
Depreciation for proposed NRAS property
**Costs for proposed NRAS property - insurance, PM fees, strata, plus NRAS fees- these vary amongst the NRAS Approved Particpant models (** see below for why this is so important)

Also, does your calc apply Neg Gearing, based on the taxable income and INV debt keyed in?? Without all these components, the calc is unfortunately not going to be anywhere near accurate.

** You really cant apply the full NRAS incentive (state or federal component) as a fixed/generic figure on your calculator unless you know which of the Approved Particpants models the NRAS property is being sold under (because the fees vary between models) and you've factored those associated fees into your calc where Ive indicated above via the asterisks.

As a very simple example-
NRAS properties bought under the Questus Model attract a fee of 5% of the NRAS incentive, plus GST. So on a $9140 NRAS incentive, that equates to $502.70 that Questus retains from the NRAS incentive. By the way- that is separate to any property management costs. Its simply a fee paid to Questus to administer the NRAS incentive. So, in the case of Questus, the investor would receive $8637.30 of the $9140. Questus retains $502.70.
NRAS properties bought under the Ethan Affordable Housing Model attract a fee of 7% plus GST I think (?) - that figure may be wrong but its in that ball park. Id need to check, but it will do as an example. So, assuming 7% plus GST for the moment, Ethan would retain $703.78 and the investor would receive $8436.22.
NRAS bought under QAHC's Head Lease model has different fees again- significantly higher fees actually.
NRAS bought under the Affordable Management Corporation model, or the Urban Affordable Housing Association Model, or the Aspire model, or the Yarran Group Model, or the Brisbane Housing Model etc etc etc...all have a different NRAS administration fee Its not horses for courses. The net result to the investor would be different in every case. Property price isnt relevant, only the fees applicable to the model are relevant- as the NRAS incentive is $9140 no what what price you pay.

Ive written quite extensively on other posts about NRAS, and why the "model" is so important, when crunching the numbers, and when understanding NRAS. The "model" is what lenders are lending against. Thats why some models are OK with banks, some arent. Ive also written extensively on who will finance what.

Having said all of this - if you ONLY sell on NRAS models stock - QAHC stock or Ethan stock for example- you can build a generic calc and use one set of fees for that model, but if you are hoping to provide a calculator on your site that covers all NRAS Apoproved Particpants, then you need to factor in each models costs- so you'd need to provide a drop down menu which populates the fee structure of the relevant model when selected...and automatically recalculates to show accurate figures.

Hope this assists.
 
quick update... saw NRAS being discussed on Your Money Your Call a few days back- where the NRAS proponent spoke in very broad (and inaccurate) terms about NRAS. Amazing. She said that loan applications are presented to banks just like any normal investment property application, so loans were easy to find for NRAS.
I wont name her, because she deserves the benefit of the doubt and rather than proposing that people commit fraud by failing to disclose NRAS, she may have meant that the paperwork required was the same, but I do think she should have been clear about the finance limitations, the LVR limitations and the fact that rental income from NRAS properties is assessed much differently by lenders.
If you apply for 90% finance and present an NRAS property as a standard investment property- you are committing fraud. The rental income that a bank is using to assess your borrowing capacity is false, and you are signing a declaration saying it is accurate and correct. If its a broker deal, they are also being fraudulent, and the responsible lending guidelines that non banks have been observing since July 2010 and which banks are now required to observe from Jan 1, make that so.
Also, if the loan ever goes into default/delinquency- a lenders right to repossess and dispose of the security is hindered by some of the NRAS third party agreement models - so if you havent disclosed its an NRAS deal, and the lender isnt aware of the restrictions - they'll come after you.
Until an NRAS deal (which hasnt been disclosed as NRAS) goes into default and a bank hits this problem, it wont come up- but someone will default at some point, and it will be revealed. Then the banks will audit every deal in that development- if there are other NRAS deals in there and they haven't been disclosed- watch out. Then theres the Mortgage Insurers- you'll be black listed for years. You'll be banned from being able to get LMI on a deal for years.
Dont be fooled by a broker or a property spruiker that NRAS is simple- just because a COS for an NRAS property doesnt mention NRAS. To proceed that way is to proceed on a fraudulent basis because you are falsely declaring the rental income. NRAS lending is specialised and its limited. See my earlier posts, and stay within those parameters. Do it with full disclosure and dont risk it.
 
This is great information! Thanks for sharing this. I am sort of scared away by all the troublesome from NRAS. For a normal investment property, I perhaps can get a 100% loan without paying the LMI while for NRAS the initial capital I need to have is much more than 10% of the purchase price which I believe it is not something favorable for an investor.


euro73 said:
quick update... saw NRAS being discussed on Your Money Your Call a few days back- where the NRAS proponent spoke in very broad (and inaccurate) terms about NRAS. Amazing. She said that loan applications are presented to banks just like any normal investment property application, so loans were easy to find for NRAS.
I wont name her, because she deserves the benefit of the doubt and rather than proposing that people commit fraud by failing to disclose NRAS, she may have meant that the paperwork required was the same, but I do think she should have been clear about the finance limitations, the LVR limitations and the fact that rental income from NRAS properties is assessed much differently by lenders.
If you apply for 90% finance and present an NRAS property as a standard investment property- you are committing fraud. The rental income that a bank is using to assess your borrowing capacity is false, and you are signing a declaration saying it is accurate and correct. If its a broker deal, they are also being fraudulent, and the responsible lending guidelines that non banks have been observing since July 2010 and which banks are now required to observe from Jan 1, make that so.
Also, if the loan ever goes into default/delinquency- a lenders right to repossess and dispose of the security is hindered by some of the NRAS third party agreement models - so if you havent disclosed its an NRAS deal, and the lender isnt aware of the restrictions - they'll come after you.
Until an NRAS deal (which hasnt been disclosed as NRAS) goes into default and a bank hits this problem, it wont come up- but someone will default at some point, and it will be revealed. Then the banks will audit every deal in that development- if there are other NRAS deals in there and they haven't been disclosed- watch out. Then theres the Mortgage Insurers- you'll be black listed for years. You'll be banned from being able to get LMI on a deal for years.
Dont be fooled by a broker or a property spruiker that NRAS is simple- just because a COS for an NRAS property doesnt mention NRAS. To proceed that way is to proceed on a fraudulent basis because you are falsely declaring the rental income. NRAS lending is specialised and its limited. See my earlier posts, and stay within those parameters. Do it with full disclosure and dont risk it.
Click to expand...
 
tvc889 said:
This is great information! Thanks for sharing this. I am sort of scared away by all the troublesome from NRAS. For a normal investment property, I perhaps can get a 100% loan without paying the LMI while for NRAS the initial capital I need to have is much more than 10% of the purchase price which I believe it is not something favorable for an investor.
Click to expand...

TVC- I wasnt saying that NRAS is difficult- just different. You're right that an investor is required to contribute more on an NRAS purchase (ie 15 or 20%, depending on the lender) than they are required to contribute on a non NRAS investment purchase, where as little as 10% is required as a deposit- but if you believe that you'd not be making a smart decision if you purchased an NRAS property. I couldnt disagree more. If you have the deposit, you will likely be significantly better of with NRAS than without. Which ever way you look at NRAS, the maths/numbers make for a compelling argument.
In particular, it suits equity rich investors who earn good incomes, because its so effective at providing great negative gearing benefits due to the reduced rental income (loss) while at the same time, being cash flow positive after the first years NRAS incentive is received. But you dont have to be equity rich. For any investor who can find the 20% deposit, and wants to build up a portfolio which includes some cash flow positive properties, its a fantastic scheme.
The main criticism seems to be about the reduced potential for capital growth, because most NRAS approved properties may not be in premium locations where massive growth traditionally occurs, but that ignores the 130-140K tax free benefits over ten years. I would think that amount of tax free money over ten years, combined with whatever capital growth the property achieves, would more than compensate for the possible lower growth (which would be subject to CGT tax if sold, by the way- NRAS incentives are tax free) when compared with a non NRAS investment purchase.
And aside from the incentives, remember that all the same tax deductions associated with investment properties, apply. All the usual depreciation benefits associated with new properties. Increased neg gearing befits due to the reduced rental income. Property management deductions... insurance deductions, strata, water, rates etc ( if applicable) and after you get your incentive back in the first year- you dont have to put your hand in your pocket for any holding costs (as long as you use the NRAS incentives to cover the holding costs for you- park them in an offset account for your PPOR until they are required- saving you interest on your home loan too) and all the while, you continue to take advantage of the usual neg gearing, depreciation and deductions for ten years.
At the end of the day- there's no other property investment like it. But you need 20% deposit.
 
Hi again. Still mulling over this one as my DH is not convinced that the government won't change the rules with the NRAS and end up making losers of us. The government have been known to 'tweak' things like this and end up only handing over a portion or turning off the tap completely...

A lot can happen over the course of ten years, especially in politics...

I'd be interested in what others think of the chances of something like that happening.
 
euro73 said:
In particular, it suits equity rich investors who earn good incomes, because its so effective at providing great negative gearing benefits due to the reduced rental income (loss) while at the same time, being cash flow positive after the first years NRAS incentive is received. But you dont have to be equity rich. For any investor who can find the 20% deposit, and wants to build up a portfolio which includes some cash flow positive properties, its a fantastic scheme. .
Click to expand...

I would have thought that NRAS would also be quite suitable for an SMSF purchase ?

ta
rolf
 
You're absolutely right Rolf- it would suit SMSF perfectly, but it seems that the lenders who offer SMSF loan products and have an NRAS policy- ie Westpac and St George , and NAB to a lesser extent ( they only do NRAS by exception-case by case), dont allow NRAS inside SMSF at this point. I hear that firstmac is also looking at an SMSF product, but I dont know whether they'll take NRAS inside their product hen it comes online, either.
 
Thanks euro73, for you excellent, detailed feedback.

The calculator was intended to whet the appetite of investors and raise NRAS awareness.
The income is Gross (noted that it is not stated, I will change)
Existing Rental income is not modelled in this calc. (yet)
NRAS level is 20%, but I will make 25% an option, (as it is in our internal calc)
PPOR debt is taken into account in our in our internal calc.

How does the number of children effect the tax rebate, loan qualification yes, not sure about tax rebate...

Depreciation and property running costs are taken into account in this model, so the Neg. gearing attributes of the investment are considered.

The calc is intended to show what is possible using NRAS using our methodology. We have a more comprehensive internal calculator that assess all of the clients current circumstances, but of course, we need a privacy agreement for that, hence, the "public" calc is somewhat generic.

You might also find the following interesting:
http://www.globeap.com.au/NRAS-Property-Investment.html and in particular:
http://www.globeap.com.au/NRAS-Compare-Property-Investment.html
 
Hi Globe. Yep...had a look at that previously. All good stuff. Sorry, didnt mean to pick the eyes out of your calc :) Im just big on crunching ALL the numbers, thats all. LVR and borrowing capacity are just so critical to getting NRAS properties sold and settled- which comes before the tax benefits.
 
hi rolf
I would slow down on this being a smsf at this stage
this is a pink bat thats not opened up.
and would not get a smsf into it for a while yet.
if you do the numbers their is no money in it

any thing with rudd on it I want to see that it makes money not makes the papers
and this program is a batts of me
so I do not recommend any smsf to get into it
oh and we put in 1000 2 br units into this programme and pulled the lot
so I do know the the programme
I am yet to see a rudd programm thats worked
for me invest as you like but smsf there is alot better
 
good article and some interesting comments that followed.

only history will tell how effective or not NRAS turns out to be.
 
If you think you can buy a cash flow positive non NRAS property at the same pricepoint, and generate 100K + tax free, plus the neg gearing, depreciation, capital growth.... then NRAS is indeed a poor scheme. But I think you'd be hard pressed to do so.
 
Did someone say cash flow positive?

I would like to go shopping for something that is CF+, pretty rare these days it seems. If NRAS is as good as some of you here say, then why isnt everyone queueing up to get them? Is there any thing else to consider that hasnt been discussed on this thread?

For the members who have taken part in this scheme, how is it travelling for you?
 
Angel said:
I would like to go shopping for something that is CF+, pretty rare these days it seems. If NRAS is as good as some of you here say, then why isnt everyone queueing up to get them? Is there any thing else to consider that hasnt been discussed on this thread?

For the members who have taken part in this scheme, how is it travelling for you?
Click to expand...

I think you'll probably find that there are four reasons why NRAS hasnt been embraced enthusiastically before now.
1. Lending parameters- Banks didnt like NRAS at first, because of the early Head Lease Arrangements. That has changed a little bit as newer models have evolved. Please read my previous posts which outline the lending options in detail, and the why's and why nots around lending for NRAS. Also, LVR's are generally restricted to around 80-85% LVR, meaning investors are required to put in 15-20% rather than 10% required for non NRAS properties. This takes alot of investors out of the market. And finally, servicing is based on the reduced market rental, and of the 4 or 5 lenders who will do NRAS deals, only Firstmac accepts the NRAS incentive for servicing. This, in addition to the lower LVR's available, can make many investors ineligible. Basically, you need to have more equity than usual, and stronger than usual servicing to obtain NRAS finance. Not saying its impossible, or even difficult- its just not quite as simple as non NRAS investment borrowing. My posts explain it in far greater detail.
2. Locations- NRAS properties are in average suburbs, not premium suburbs. This is a reality of NRAS, because the properties need to be rented to tenants within certain income limits. The scheme just wouldn't work for more expensive/premium properties at higher price points. This doesnt appeal to some investors, who have a capital growth strategy. In my view though, this focus on capital growth only, fails to recognise the "in built" tax free returns that NRAS provides. One could argue that the tax free incentives combined with less aggressive capital growth are still quite appealing in net terms.
3. The delivery of NRAS properties was delayed severely by the onset of the GFC, and the lack of commercial funding available to developers. Its meant that what started out as a scheme designed for large scale institutional investment in high density units has needed to be re-jigged to become a scheme designed for individual investors- and that has caused delays as developers have had to look at more of a balance of house and land packages to fit the schemes price points. And we all know what the lead time on getting new housing developments off the ground and available for purchase, can be.
4. Perception. The scheme wasnt marketed or explained very well, early on. It attracted a stigma of social housing rather than affordable housing, which are two very different beasts.

When all these factors are combined, you can see why NRAS has been slow out of the blocks. But all of that being said, the tax numbers are compelling and the scheme has plenty of merit, depending on individual investors goals. Certainly, I think that anyone who wants a cash flow positive property, significantly improved tax benefits and reasonable growth, could do worse to include an NRAS property or two in their portfolio. If you use a lender that accepts the incentives for servicing, it would actually significantly improve your overall borrowing capacity.

I think you'll find that NRAS will be in sharp focus in coming weeks and months. The final applications for NRAS allocations has now closed, so the developers now have to deliver the majority of the stock by June 2012. The focus has moved from winning allocations, to delivering the properties. That means they will have to start aggressively marketing and releasing the stock very soon, to meet those deadlines.
 
Angel said:
I would like to go shopping for something that is CF+, pretty rare these days it seems. If NRAS is as good as some of you here say, then why isnt everyone queueing up to get them? Is there any thing else to consider that hasnt been discussed on this thread?

For the members who have taken part in this scheme, how is it travelling for you?
Click to expand...


I think you'll probably find that there are four reasons why NRAS hasnt been embraced enthusiastically before now.
1. Lending parameters- Banks didnt like NRAS at first, because of the early Head Lease Arrangements. That has changed a little bit as newer models have evolved. Please read my previous posts which outline the lending options in detail, and the why's and why nots around lending for NRAS. Also, LVR's are generally restricted to around 80-85% LVR, meaning investors are required to put in 15-20% rather than 10% required for non NRAS properties. This takes alot of investors out of the market. And finally, servicing is based on the reduced market rental, and of the 4 or 5 lenders who will do NRAS deals, only Firstmac accepts the NRAS incentive for servicing. This, in addition to the lower LVR's available, can make many investors ineligible. Basically, you need to have more equity than usual, and stronger than usual servicing to obtain NRAS finance. Not saying its impossible, or even difficult- its just not quite as simple as non NRAS investment borrowing. My posts explain it in far greater detail.
2. Locations- NRAS properties are in average suburbs, not premium suburbs. This is a reality of NRAS, because the properties need to be rented to tenants within certain income limits. The scheme just wouldn't work for more expensive/premium properties at higher price points. This doesnt appeal to some investors, who have a capital growth strategy. In my view though, this focus on capital growth only, fails to recognise the "in built" tax free returns that NRAS provides. One could argue that the tax free incentives combined with less aggressive capital growth are still quite appealing in net terms.
3. The delivery of NRAS properties was delayed severely by the onset of the GFC, and the lack of commercial funding available to developers. Its meant that what started out as a scheme designed for large scale institutional investment in high density units has needed to be re-jigged to become a scheme designed for individual investors- and that has caused delays as developers have had to look at more of a balance of house and land packages to fit the schemes price points. And we all know what the lead time on getting new housing developments off the ground and available for purchase, can be.
4. Perception. The scheme wasnt marketed or explained very well, early on. It attracted a stigma of social housing rather than affordable housing, which are two very different beasts.

When all these factors are combined, you can see why NRAS has been slow out of the blocks. But all of that being said, the tax numbers are compelling and the scheme has plenty of merit, depending on individual investors goals. Certainly, I think that anyone who wants a cash flow positive property, significantly improved tax benefits and reasonable growth, could do worse to include an NRAS property or two in their portfolio. If you use a lender that accepts the incentives for servicing, it would actually significantly improve your overall borrowing capacity.

I think you'll find that NRAS will be in sharp focus in coming weeks and months. The final applications for NRAS allocations has now closed, so the developers now have to deliver the majority of the stock by June 2012. The focus has moved from winning allocations, to delivering the properties. That means they will have to start aggressively marketing and releasing the stock very soon, to meet those deadlines.
 
euro73 said:
I think you'll find that NRAS will be in sharp focus in coming weeks and months. The final applications for NRAS allocations has now closed, so the developers now have to deliver the majority of the stock by June 2012. The focus has moved from winning allocations, to delivering the properties. That means they will have to start aggressively marketing and releasing the stock very soon, to meet those deadlines.
Click to expand...

Does this mean the price will drop?
 

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