Second hand NRAS property

[Redom]

And who says NRAS is hard work? Once again - those who THINK they know may offer all kinds of criticisms, but those who DO know ( because they have done it and done it right ) have positive feedback to offer...

Most that throw NRAS completely under a bus probably don't understand it. Generally its ignorance talking. Picking the bad eggs and using it as a basis for all properties...isn't a great way to make a decision.

Can find plenty of flaws in it, but when well utilised is can be a powerful accelerant to achieve goals.

Cheers,
Redom

 

[Northy85]

Cheers Euro I should have looked at the DSS website before posting. Is there any more nras stock going that has 2 incentives? Was it you talking about the house and granny flat properties for sale? I'm on the land tax threshold in queensland but other states are definitely on the cards. Cheers

 

[VaSSagO]

Hi VaSSagO, may I ask which state it is?
I suppose the PM will do regular formal valuation and therefore will have the opportunity to adjust the rent in a more regular internal

It is in Perth, WA

I believe they are allowed to adjust the rent based on a formal valuation 6 monthly or yearly.

Is this your first NRAS properties?

I've found that well located NRAS just don't last. If its in Sydney, there'll be plenty of tenants to choose from.

Cheers,
Redom

Yes it was my first, got 4 more in the construction phase.

http://somersoft.com/forums/showthread.php?t=104451

Has anyone even been paid the entitlement for 2014?

Government doesn't seem to want to pay up...

Haven't got mine yet. Not as fussed going forward as have done a withholding variation.

 

[euro73]

Cheers Euro I should have looked at the DSS website before posting. Is there any more nras stock going that has 2 incentives? Was it you talking about the house and granny flat properties for sale? I'm on the land tax threshold in queensland but other states are definitely on the cards. Cheers

You're talking about double NRAS? ie dual key or dual occupancy? Yes, a few floating around but vals are always challenging on dual occ- irrelevent whether it's NRAS or not. And dual key, LVR restrictions.... whether its NRAS or not

 

[Northy85]

Yea I was talking about double NRAS. If the vals don't stack up and the LVR is too low it really messes with your ROI. The 2 I have are both 90% LVR and when I look at how cashflow positive they are and divide that by my initial deposit and set up costs, I'm sitting on a circa 20% pa ROI. Gotta be Happy with that !!!

 

[imbi3]

Yea I was talking about double NRAS. If the vals don't stack up and the LVR is too low it really messes with your ROI. The 2 I have are both 90% LVR and when I look at how cashflow positive they are and divide that by my initial deposit and set up costs, I'm sitting on a circa 20% pa ROI. Gotta be Happy with that !!!

Hi Northy85, may I ask which area are your dual occs located?

 

[Northy85]

There not dual occs I just heard they were around and am a little interested

 

[euro73]

Yea I was talking about double NRAS. If the vals don't stack up and the LVR is too low it really messes with your ROI. The 2 I have are both 90% LVR and when I look at how cashflow positive they are and divide that by my initial deposit and set up costs, I'm sitting on a circa 20% pa ROI. Gotta be Happy with that !!!

Yes, the ROI on a dual occ up to @700K can be worth @ 2.5 x the return on a single NRAS worth @ 400-450K. That's spectacular, but it requires finding the right one. The alternative is to shoot for 2 x 300Kish stock and replicate the numbers ( or very close to ) that way

 

[euro73]

Hi Northy85, may I ask which area are your dual occs located?

It can only really be achieved via dual key apartments or dual occupancy ( either attached or detached dwellings) house/land. Dual key apartments present LVR issues and potentially present val issues. Dual occ house/land present val issues and potentially LVR issues.

Have seen several that worked well in recent years, but we are into the last 18 months of available stock now, and for the time being at least, of the very limited number of "duals" I have been approached to sell, I haven't seen anything that quite stacks up. I doubt you'll see many more opportunities at this late stage.

 

[LukeQLD]

Euro,

Maybe you could help explain what this means from the DSS website.

As at 21 January 2015, the Department has received notification from 93 of the 103 Approved Participants stating that all of their claims are ready for processing. Some of the outstanding 10 are Approved Participants with large allocations. Of the 93, 90 have been assessed, and 81 have still been found to have areas of non-compliance in their incentive claims.

Particularly the part about non-compliance. Is there a real possibility that entitlements won't be paid due to some technicality in the system?

 

[imbi3]

Euro, is there any risk the consortium not paying the individual investors?

 

[euro73]

I can't personally guarantee what any consortium will or wont do, but NRAS commenced in 2008 and I'm not aware of any consortium doing the dirty on anyone..

Last years credits have been held up by Govt, while they await a number of valuation amendments and other administrative fixes - although some consortiums have completed the process and paid out their credits - but aside from the delays for last years credits I am not aware of any examples of consortiums simply not paying.

You enter into a pretty serious legal arrangement via a head lease or NEJV , and all the banks and insurers have had their legal people go through them pretty thoroughly - and you and your lawyer get the same opportunity, so I dont think you have anything to concern yourself with

 

[euro73]

Euro,

Maybe you could help explain what this means from the DSS website.

As at 21 January 2015, the Department has received notification from 93 of the 103 Approved Participants stating that all of their claims are ready for processing. Some of the outstanding 10 are Approved Participants with large allocations. Of the 93, 90 have been assessed, and 81 have still been found to have areas of non-compliance in their incentive claims.

Particularly the part about non-compliance. Is there a real possibility that entitlements won't be paid due to some technicality in the system?

The issue is simple - but complex. Stay with me here

The NRAS 2008 legislation (prior to being amended in August 2014 to fix this issue) required that the formal market rental valuation reports , which are prepared by licensed valuers and which are required to set the market rent for every NRAS property in Year 1, must be dated the same date as the activation of the credit . However since 2008, consortiums had been allowed to have a 13 week "leeway" on this by DSS, so that;

1. they could determine the market rent in advance of settlement
2. then obviously from that they could determine the correct NRAS rent, and
3. provide the $ figure to the tenancy manager so they could advertise for tenants prior to settlement.

The whole idea was to ensure you the investor had a tenant ready to go when you settled- in other words, a little lead time so you didnt have to wait until settlement to do these things. Simple. Logical. Quite reasonable all round, right?

So why the delays? Well, change of Govt and change of minister - and change of software platform ( used to FOFMS - is now called NRAS Portal) have contributed to a bit of a mess. Now whether you care about politics or not you couldnt have failed to notice this particular Govt has more than a little ideological "inflexibility" in their make up... so the minister ( Kevin Andrews, and now Scott Morrisson) obviously appointed a new department head and then also commissioned the Australian National Audit Office to review the compliance of the NRAS - just for political point scoring I would guess... "hey, look at how responsible we are at managing Govt programs - and look at how much better we are than the last mob" or something similar... and this ultimately has meant that DSS is being forced to check, re-check and re-re-re-re-re check everything... hence the delays

Every consortium has had to go back and get every valuation re-dated, re-documented, then re-enter all the data into the new platform, with dates and documents all done from scratch - and resubmit it all. That's thousands . And this had to be done while they were also being asked to prepare incredibly complex and cumbersome documentation to accompany submissions for change requests to move NRAS allocation- which had to be submitted by close of business Dec 23 2014 .

Add it all up -- you have a bottle neck. Then you have Xmas, public servants off for holidays etc... and here we are in mid Jan wondering whats going on...

The latest news is - I believe its close to being finalised. In fact, I understand the CEO's of the big 10 consortiums were in Canberra this week to get any undotted i's and uncrossed t's attended to.... and as others have posted, some of the consortiums have had their credits issued- so clearly the payments will come

Moving forward, the legislation has been amended and now allows for valuations to be done within 91 days ( 13 weeks) of the activation date. So while the Govt may be technically correct in their pedantic approach to the payment of the 2013-14 credits, it does seem to be awfully churlish given the fact they'll allow exactly these practices to start again from this current NRAS year (14-15) and they only applied this high moral standard to last years credits - they didnt ask the consortiums to go back and resubmit all the 2008-2012 stuff....

Seems an exercise in point scoring with the public, to me, which is kind of ironic - I mean, here we are on a property investor forum and most people here barely know what NRAS is or how it works - or they thought they did but really didnt - or they read some stories about forks in eyes that were so erroneous I dont even know where to begin - and the non investing public knows even less about it . So why the Govt would bother with an audit of 1 year and then allow next year to go back to business as usual, seems kinda silly.

Anyhooo...almost there. Then back to business as usual with the 13 week leeway

 

[imbi3]

Too heavy to read at 12 am

 

[Redom]

There not dual occs I just heard they were around and am a little interested

Oooh man most of these fit in the 'too good to be true' part. Valuations almost always fall short and hence don't stack up.

Only real one I've seen work is ones euro sold a year or so ago in SWS. Separate title duplexes solved finance and valuation issues there.

Cheers,
Redom

 

[Redom]

Too heavy to read at 12 am

Haha, its the government trying to hold public spending to account as much as possible. All so pedantic and a bit over the top.

 

[imbi3]

For those who have completed their Tax returns with NRAS properties, how have this private ruling affected the cashflow?

http://www.qahc.asn.au/images2/ATO Review of NRAS230812.pdf

 

[OKFFW]

I have 2 dual occupancy NRAS properties, both sourced through Euro73.

1 in Townsville.....valuation came in $9k short on a $530k property. That's well within acceptable limits to me. Property was tenanted from day 1 and has been a dream come true.

1 in Gladstone..........bank valuation came in spot on. We admittedly bought at the wrong time in the cycle and rents have tanked since purchase which has affected the returns. Even after the 20% discount on rental valuation is taken into account, my tenants are paying 25% and 30% respectively less than anticipated.

Having said that, the deal is still positive cashflow by just under $13,000 pa after tax. We had to put in just under $60k of our own money all up on the deal. How many bad deals can say they still give a ROI of nearly 22% pa, putting nearly $13,000 tax free pa in your pocket?? That just goes to show that if done properly even a not as great as hoped for NRAS deal is still pretty darn good.

 

[imbi3]

Having said that, the deal is still positive cashflow by just under $13,000 pa after tax. We had to put in just under $60k of our own money all up on the deal. How many bad deals can say they still give a ROI of nearly 22% pa, putting nearly $13,000 tax free pa in your pocket?? That just goes to show that if done properly even a not as great as hoped for NRAS deal is still pretty darn good.

The CF+ seems to be a bit low considering you have 2 dual occ which means you are receiving $40k from NRAS incentive. Looking at previous Euro's post, the projected CF is expected to be $10k per unit. Not having a go, but just want to learn what have gone wrong apart from the rent. Were the expenses understated when you did the due diligence?

 

[euro73]

I believe he's talking about one of the dual occ properties at 13K ( and that being a result of additional rental discounts) not both combined.

Also, my previous post used a 260K property as the example - as the OP was looking for examples of how to generate $400 net per week from $100K. Important to compare apples with apples; remember the NRAS credit is the same for a 260K property and a 360K property and a 460K property etc- obviously the stronger ROE's are achieved at the lower price points.

But lower price points ( where I personally believe NRAS works at its most potent ) also means regional or smaller metro stock- and some investors prefer to make a small compromise on the ROE in order to buy houses over apartments, or metro over regional for example.

All NRAS will be CF+ - but exactly how CF+ a particular property will be , and how strong the ROE will be, is determined by a number of things;

1. Interest rate and other costs that make up your expenses.
2. Market rent (and we all know yields diminish as you get over the 450-550K price range) which sets NRAS rent, which makes up your income.
3. Your Marginal Tax Rate
4. Depreciation ( some dwellings, and even some quanity surveyors "milk" more from depreciation than others )


Let me give you an example of how wildly things can vary even on the same asset price.

400K 2 bed apartment in Sydney v 400K 2 bed apartment in Melbourne

Contribution ( borrowed against equity)
For Sydney 10% deposit = 40K. Stamp Duty = $13,490 ( $8490 after NSW rebate)
For Melbourne 10% deposit = 40K. Stamp Duty = $19,070
Assume legals, building report, depreciation report are the same for both - $2500
10K buffer for both
Sydney contribution = $60,990 ( borrowed from equity @ 5% - repayments = $3049.50)
Melbourne contribution = $71,570 ( borrowed from equity @ 5% - repayments = $3578.50)

Other purchase costs ( borrowed against NRAS security)
90% + LMI ( 367K) for both @ 5% I/O = $18,350

Expenses/Running costs
Assuming p/mgt, rates, water, insurance and body corp $5000 for both;
Sydney total costs = @26.4K
Melbourne total costs = @26.9K

Income
Sydney Market rent ($420) NRAS rent = 336 ($17472 per annum)
Melbourne Market rent ($360) NRAS rent = 288 ($14,976 per annum)

Sydney pre tax Loss @ 8.9K
Melbourne pre tax loss @ 11.9K

Assume 10K depreciation for both, total deductions ;

Sydney 18.9K
Melbourne 21.9K

Assume Marginal Tax rate of 37%

Sydney ATO refund = $6933, plus $10,661 NRAS = $16,654 total refund. Deduct Pre Tax loss of $8900 and you are CF + @ 8.75K
Melbourne ATO refund = $8103 plus $10,661 NRAS = $18,764 total refund. Deduct pre tax loss of 11.9K and you are CF+ @ 6.86K

Sydney invested 61K of equity for 8.75K tax free return ( 14.3% tax free return on equity)
Melbourne invested 71.6K of equity for 6.86K tax free return ( 9.58% tax free return on equity)

Both properties cost $400K. But Sydney invested @ 10.5K less equity to make 2K more cash flow per annum. Doesnt mean Sydney is better than melbourne. Doesnt mean Melbourne is better than Sydney. Just showing you that NRAS is only one of the mathematical components that generates the end result.