It takes time
There are ways to add to the yield of a property but it's generally a combination of items. You can improve yield by capital growth, reducing buy costs (i.e. your own developments, buying and reno), NRAS, granny flats etc etc
No one I have ever met has instantly created 100k rental income. It takes time generally. The only exception might be something like NRAS which if done well could generate quite a bit of additional income.
This is correct. It could be particularly effective if you were to purchase less expensive NRAS properties and used fix rates around the low 5% range.
To explain...
You should first understand that it is completely reasonable to expect that an NRAS property under 350K (and certainly under 300k) should generate a minimum 6-8K Cash Flow Positive. In some cases it can be 9 or 10K CF+, but lets work with 6-8K. That figure should increase incrementally over the 10 years of the NRAS, as the annual incentive is indexed upwards with rental CPI. If you have used a 3-5 year fix rate, your debt wont be increasing during that period, but your rent and your after tax cash flow will, so the numbers can be even stronger.
Then there are the tax benefits on the other side. Of themselves, tax benefits aren't a reason to invest, but it's important to understand them, nevertheless. Working with very general numbers for the purpose of the exercise, an NRAS property should generally produce approximately 20K of deductions (sometimes it can be 22 or 23K, sometimes 18 or 19K. But let's say 10-12K for Cash flow loss and 8-10K for depreciation, so 20K) Of course this will vary from dwelling to dwelling and will depend on your Marginal Tax Rate and a few other variable, but generally speaking it's about right.
So - 20K deductible loss produced by each NRAS property, and 6-8K CF+ also produced by each NRAS property. Pretty simple stuff so far. How does it impact on real people though?
For a person earning 100K per annum, the purchase of 4 NRAS properties should produce around 80K of deductions ( 4 x 20K) meaning their assessable taxable income would reduce to 20K ( 100K - 80K) getting them to an almost tax free income. (the first $18,600 you earn is tax free) But they would also receive around 25K CF+. ( 4 x 6-8K)
So you'd only be paying tax on $1400 ($20K minus $18,600 tax free threshold) , and at 19% Marginal tax rate, so on a 100K salary you'd effectively be paying $266 in tax plus your medicare levy.
The net result would be this . You 'd have your 100K salary - paying less than $300 tax plus medicare levy PLUS you'd be receiving 4 x 6-8K tax free from NRAS ( lets call it 25K in total) which equates to 125K income, with a tax bill of less than $300 plus medicare levy.
So in broad terms, 125K tax free, give or take a few hundred bucks
For someone earning 200K, if they had the capacity to purchase 6 NRAS properties for example, they could reasonably expect to reduce their assessable income by 120K ( 6 x 20K) PLUS generate 6 x 6-8K from NRAS ( say 40K on average) So they'd have total income of 240K and be paying tax on 80K of that income
For someone earning 60K who can buy just one NRAS property, they'd see their assessable taxable income reduced to 40K, but would effectively be earning 66-68K
And so it goes.... pretty powerful stuff. And all of those figures make no mention of capital growth, deliberately. Because the investment doesn't require luck, good fortune or speculation. NRAS is very simple - you save tax and make extra money tax free, with or without capital growth. So if the markets change, if the economy changes - you still make money , full stop.
Looked at from a different perspective, if you were to utilise 95% lending, whereby you contributed 8% deposit ( the bank covers the other 92% plus capitalises the LMI) and stamp duty, plus a 10K cash flow buffer to cover the majority or all of the 1st years holding costs, the returns can be viewed a little diffrerently.
Using a 300K property as an example, and assuming a 6-8K CF+ outcome ( which is more than reasonable) your contribution would be 24K (8% of 300K) plus 12K ( stamp duty - could be far less if you bought house and land and only had to pay stamps on the land) plus 10K ( cash flow buffer) That is a total contribution of 46K. If that 46K generates a 6 -8K tax free return using NRAS, a 6K return equates to a 13.04% tax free return on your money, and an 8K return equates to a 17.39% tax free return on your money.
If a bank offered you a 13.04% tax free account or 17.39% tax free account tomorrow, would you invest money in it????? If so, why not NRAS then?
So yes, employed correctly, NRAS can assist in transforming your cash flow position better than just about any other form of investment. Problem is, most people cant see the forest for the trees; the property spruikers see it ONLY as a property play, and criticise it for location and the lack of potential growth- especially when the commissions they get are from non NRAS developers
But they're having themselves on, and they're having you on, if they believe they can create wealth for you with the kind of 1990's growth they promise you, in the post GFC environment. The fear mongers criticise it as social housing and a tax scheme, where it clearly is not. The naysayers dont appear to be able to operate basic functionality on a calculator, and say they don't see the cash flow benefits, when anyone who can add 2+2 understands the maths are a no brainer. But most importantly , people just dont seem to see that NRAS isn't "just" a property investment. Nor is it "just" a tax scheme. nor is it "just" a cash flow generator. It is all three, working at once, simultaneously - and needs to be viewed as such in order to understand why it is such a powerful investment.
