Second hand NRAS property
- Thread starter imbi3
- Start date
I too am looking at a second hand NRAS property and would like to know the same.
Some obvious pitfalls would be the missed cashflow that the property already has generated and the depreciation that has already taken place.
But if there is still a substantial amount of time remaining on the NRAS than there are some upsides to it as well. One being that the property is already established and can be tenanted straight away if not already. No need to wait for the property to be built and hopefully valuations stack up.
Some obvious pitfalls would be the missed cashflow that the property already has generated and the depreciation that has already taken place.
But if there is still a substantial amount of time remaining on the NRAS than there are some upsides to it as well. One being that the property is already established and can be tenanted straight away if not already. No need to wait for the property to be built and hopefully valuations stack up.
Was it hard to organise the legal paperwork?
I've always wondered how the secondary NRAS market will play out - will people be willing to pay a premium/less/more? I see some operators selling stock for ludicrous amounts because of the grant, but could be owners being unrealistic.
I don't think the transfer of NRAS entitlement will cause too much concern, if that's what you're worried about.
Cheers,
Redom
I don't think the transfer of NRAS entitlement will cause too much concern, if that's what you're worried about.
Cheers,
Redom
Hey VaSSagO - if you don't mind, just curious how the negotiating process went? For new stock, it can be very difficult driving the price down, but will be keen on hearing whether there's more room to manoeuvre with older stock.
Depending on the NRAS consortium, it's as simple as signing up to the NRAS consortiums agreement and you will receive the tax credits for the period you own the property.
There wasn't room to negotiate on this deal but was well priced to start off with (cheapest 3x2x2 in the area).
Legal paperwork was easy. Just sign the agreement with the consortium and chose a property manager approved by the consortium (there was about 5 to chose from).
Should also mention that the property manager has just put the rent up $21pw (so $46pw increase in total in less than a year we have had the property) we have just started advertising the property to find a new, tenant, as the current tenant is leaving in a couple of weeks.
The first viewing was today and had 11 interested parties take application forms.
Looks like it will be much easier to rent than my non-NRAS properties.
The first viewing was today and had 11 interested parties take application forms.
Looks like it will be much easier to rent than my non-NRAS properties.
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
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
Hi Redom. How would you define a good quality NRAS property? Is it one that stacks up to bank's valuation?
I use NRAS mainly as a cash flow play, so I have my own little framework for finding deals that are a little more inflexible/stricter than non NRAS purchases.
One of my close friends and I talk about them as 'bonds' rather than bricks and mortar. It's not a great way to consider it, but it does help detach my NRAS purchase framework away from other normal property investments.
My criteria:
1. Valuation. Valuation. Valuation! Just not willing to destroy ROI's by tipping in my own cash.
2. Vacancy risk. This is important otherwise I may not get my NRAS incentive! This needs to be considered within NRAS paramaters - E.g. if your purchasing a 1 bedroom in a 'family centric' area, then the vacancy risk may be higher as the income limits only 45k here. Whereas near CBDs, this type of stock is fine.
3. Price. NRAS stock suits lower price points. You get one grant whether the price of the property is 250k or 450k. If you can get double grants, big wins! I calculate the 'value' of the NRAS incentive to be around 160-170k given that the cash it gives me in my pocket each year can be used to earn returns.
4. Net Yields. I prefer not to have this as high as possible. Servicing loans is already difficult with NRAS, I don't want to make it more difficult. Some consortiums make this difficult, so I don't want to go with them (e.g. QAHC 25% discount?).
5. Upfront cost at 90% lends. If I can get this below 50k, I'm getting close to a 20% ROI with a 10k p.a. + cashflow. Things like NSW stamp duty rebates change my incentives here. The ACT had recent stock going where they paid the state NRAS incentive upfront which was a very attractive boost (although this needed to be done at 80% lends).
6. Metro - I prefer this as its got more upside growth potential. Its the 'perfect' deal if I can get this too! But its the part that i'm generally willing to trade of on.
Cheers,
Redom
Hi Redom
Thanks for the thoughtful reply. What do you mean by vacancy risk and NRAS incentive not being paid?
If the nras property is untenated for 90 days out of a calander year the property may loose it's incentive entitlement. It becomes a double wammy then were you've lost considerable rent and also about 10 grand. However because the places are available for a considerably discounted rent (20%) this is unlikely, providing you buy the right product for the area.
Not quite correct
Legislation was amended in Nov 2014. Now looks like this...The NRAS incentive will be proportionally reduced for vacancies greater than 13 weeks (91 days) and less than 26 weeks (182 days) in an NRAS year.
However, if the dwelling is vacant for longer than 26 weeks in a single NRAS year or continuously across two consecutive NRAS years , the approved participant (consortium) will be ineligible to receive an incentive for the respective NRAS year .
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...The secret has always been, and will remain - as Redom has said earlier - before all else, buy well priced stock. That means not paying well over the odds and not wasting valuable equity. Then, even if the property market went dull for 10 years ( not saying it will- just using it as an example) you are at the very worst still going to be a long way ahead just from the surplus tax free CF, and even further ahead if you reinvest that surplus tax free CF for a compound effect - by paying down non deductible debt, or by boosting super, or investing in other things. And it's cost you $0 out of your pocket, because it's a pure equity play.
