Thanks for clarifying. I know 10 years is still far away but what would be your exit strategy once NRAS incentive is finished and depreciation claim would be lower by then?
If you were to do a quick calculation on a 400K property that gets $400 per week today, and assumed 4% compounding increases to market rent were to occur ( rental CPI has averaged 5.2% since 2008 so 4% is a conservative figure to use) you'd be receiving $575 per week after 10 years. That equates to almost 30K per annum.
Assuming you were carrying 430K debt (400K + stamp duty, costs and 10K buffer) that represents a pre tax yield of approx 7%. Depreciation would still likely be @ 5K per annum, and other costs ( p/mgt, rates, water, insurance, strata etc) that started at $5000 today would be @ 7K by then ( assuming 3-4% inflation ) so you can quickly calculate that unless interest rates were very high, the property would remain CF+ even after the NRAS ceases.
The idea is...hold them beyond 10 years. There seems to be an assumption that NRAS properties will all be sold after 10 years of ownership, but I dont see why that would be the case . Sell if you wish to, but why sell an asset that is costing you $0 to hold, even after the NRAS tax credit ceases? The longer you can hold it, the greater probability of realising a significant profit. In the meantime, the first 10 years has created sufficient surplus tax free CF to be reinvested in aggressive reduction of non deductible debt, and has helped pay off a PPOR much faster, or has helped boost super, or has helped with whatever else you may have redeployed the surplus cash flow towards.
Some properties it will be 6-7K per year. Some might be 8 or 9K per year. some (such as very inexpensive stock or dual occ stock) may be 13,15, even 20K CF+ . All however, will assist in paying down a PPOR 12-15 years sooner and that means equity is being created even in the event of a flat market. It also means borrowing capacity is being improved over the longer term by the removal of non deductible debt.
Take a small amount of dormant equity ( usually 60-65K) invest it in an asset that yields 6,7,8 K or more of tax free CF, then use that surplus cash flow to create a multiplier/compounding effect by reinvesting it towards something else. All done with $0 out of pocket - equity , negative gearing and NRAS funds the entire thing.