You're right - the loan repayments from the equity releases against the PPOR to be taken into account too. That reduces the net income by quite a bit.
Redom is correct. He is taking all of the debt into account.
Quick example. NRAS 400K purchase geared to 80% LVR
20% deposit secured against PPOR = 80K
Stamp Duty secured against PPOR = 16K ( 11K in NSW )
Legals, Building, Pest, Depreciation secured against PPOR = @2-3K
Buffer secured against PPOR = 10K
Total secured against PPOR = @ 108K . Call it 110K to be conservative. 105K in NSW
Total secured against NRAS purchase = 320K ( 80% LVR)
Total debt 430K (110K + 320K) @ 4.99% I/O 5 Yr fixed $21,457 P/annum
Total other costs ( water, rates, mgmt, NRAS compliance , strata) $5000
Total expenses = $26,457, inclusive of everything, including all PPOR debt - which includes the 10K CF buffer. Call it 26.5K
Total Income from Rent $320 per week ( instead of $400 ) - $16,640 p/annum
Pre Tax CF Loss = @ 9,900 ( call it 10K ) the 10K buffer secured by PPOR covers this. So your out of pocket expenses = ZERO.
Depreciation = 13-14K. Call it 12K to be conservative
22K deductible loss. (minus 16% NANE apportioning) = 18.5K deduction
ATO refund @ 32.5% = $6012.50 + $10,661 NRAS = @ 16.7K . Take 10K and set it aside to replenish the cash buffer ( to cover CF loss in Year 2 ) and you have @ 6.7K of Tax Free money available to use however you wish.
ATO refund @ 37% = $6845 + $10,661 NRAS = @ 17.5K . Take 10K and set it aside to replenish the cash buffer ( to cover CF loss in Year 2 ) and you have @ 7.5K of Tax Free money available to use however you wish.
ATO refund @ 45% = $8325 + $10,661 NRAS = @ 19K . Take 10K and set it aside to replenish the cash buffer ( to cover CF loss in Year 2 ) and you have @ 9K of Tax Free money available to use however you wish.
Repeat each year, for 10 years.
Numbers will vary slightly between properties, but as I keep saying, an NRAS property will typically generate @18-20K of deductions and generate @7-9K CF+ , with ZERO out of pocket costs. Those CF+ results will increase annually with indexing, particularly when you can lock in 5 years of your costs @ 4.99%. remember that interest costs represent more than 80% of your annual expenses- so if you can secure those at sub 5% for 5 years, you can be certain the indexing will add to the annual CF+ result.
But assuming no net benefit from indexing, you are still generating between 7-9K CF+ annually, after ALL costs have been accounted for, including the debt secured by the PPOR.
This is how you take dormant equity from your PPOR which is doing nothing for you,and make it work for you. Right now the equity is just sitting there ; neither making you money, nor costing you money. NRAS , and the structure Redom has recommended, puts that equity to work and turns it into an additional 6-9K of tax free money, each year for the next 10 years. Then you use that tax free money to pay down your remaining PPOR debt aggressively, which in turn, frees up cash flow you are currently directing towards the PPOR debt, saves you a truck load of interest, and leaves you with not only the extra CF+ money from NRAS + the also the money your are currently spending on your PPOR debt.
Beyond that, you have multiple options. You may wish to start paying down the INV debt you have secured against the PPOR, so that a large portion of that is also paid down before the NRAS money stops in Year 11, or you may want to invest in more property, or start making additional contributions to Super, for example.
However you utilise it, all of this equates to the same simple philosphy. Take X amount of equity. Deploy it to an asset that costs you ZERO to hold ( NRAS) Generate 6-9K of tax free cash after ALL costs are accounted for, and then re-invest that tax free cash and get a multiplier effect. Best place is your PPOR debt. Once that's done, it can be super, shares, more property- whatever. Point is, it's a ZERO cost accelerant. It gets you well ahead of the curve, and equity, the ATO and NRAS pay for all of it. You pay for none of it.
