Yearly rental shortfall

[Ralph1]

Hi all, I have a question about an NRAS property I am looking at at the moment. If it costs 445000 and I put in 10% deposit plus mortgage insurance and stamp duty and fees and the rental shortfall is around 16500 on the repayments including body corp rates etc then with my tax return and nras bonus I end up 6000 in front at the end of the financial year. How do I cover the short fall as painlessly as possible (I have equity in my ppor) to get me through the year? Does it sound like a good buy? This is all at 5% I/O loan.
Cheers

 

[HD_ACE]

Are you PAYG?

If so you may want to talk to your accountant about lodging a payg tax withholding variation

https://www.ato.gov.au/Individuals/...oldingvariationis#Whatawithholdingvariationis

 

[Paul@PFI]

- PAYG Variation so your salary has less tax withheld.
- QS report to max deductions without affecting cashflow.

 

[vaughan]

Didn't the NRAS get axed at the last budget?

 

[Paul@PFI]

Some NRAS properties are still available. I believe it has something to do with construction approval etc... Its a run-out sale of sorts.

 

[euro73]

Sorry gents- you're both wide of the mark. I'll try and clarify things a little...

NRAS when devised, was to be funded in tranches, or stages; Round 1,2,3,4 ,5a and 5b. 50,000 NRAS incentives in total were to be delivered across these stages.

The budget announcement surrounding NRAS was simply that funding for NRAS Round 5b would not proceed. This affected 10,000 NRAS incentives, which had not yet been awarded anyway. So there was no wind back of existing NRAS incentives...there was only a decision not to fund the last 10,000 NRAS incentives - which didnt exist yet anyway

To be clearer- NRAS incentives already allocated (and fully funded for 10 years, in the forward estimates) under Round 4 and Round 5a (more commonly called "shovel ready") were not affected. In other words, The treasurer has effectively downsized NRAS to a program delivering 40,000 dwellings instead of 50,000 dwellings.

Of the 40,000 NRAS that are still funded, approximately 18,000 remain undelivered . About half of those 18,000 are well under construction and will be delivered by 31 December 2014. The other half have until June 30,2016 to deliver. No NRAS incentives will be allowed to be activated after June 30,2016. The federal Government has drawn a very firm line in the sand regarding that date being D Day.

So NRAS is neither over, nor is there a run out sale. It's delivered approximately 50% of its revised 40,000 target , and there is almost a full 2 years left until NRAS will no longer be available to investors (as long as the properties are tenanted and therefore activated under NRAS before June 30,2016 )

Hope this clarifies things a little

 

[euro73]

Let me use my own situation as an example; I have 10 NRAS properties now. With each property generating an average of 10 K pre ? tax loss per annum and 10-12K depreciation per annum, they generate a combined 200-220K of deductions for me annually. Each property also produces 8-9K CF+ after tax, and that will increase annually because of the NRAS indexing. So with a salary of 250K, my assessable income will be reduced to @ 20 or 30K. With 18,200 being the tax free threshold , this means I?m going to pay little or no tax on my taxable income for the next 10 years. But I will also receive an additional 80-90K tax free from NRAS after tax cash flow ( 10 x 8-9K CF+)

I?ve invested @ 50K of equity for each purchase ( 10% + stamp duty) plus a 10K equity buffer to cover the first years pre tax loss, which gets replenished by the combined ATO refund and NRAS tax credit, meaning I dont ever put a cent of my own cash in. So a total of @ 60K per property has been invested from equity, ( this includes the 10K buffer to cover me for Year 1) Across 10 properties, this equates to 600K of equity invested (which again, I dont contribute ANYTHING to because of the CF+ nature of the investment) and conservatively speaking, it means I will pay little or no tax on 250K, PLUS receive 80-90K extra tax free dollars? so Im effectively going to earn 330-340K tax free for the next 10 years. In other words, 600K makes me 3.2-3.3 Million in Tax Free dollars over 10 years ? and that?s before any growth is accounted for. How much growth do you otherwise need to make, after accounting for losses and CGT, to match 3.3 Million Tax Free?

Whats my worst case scenario? If my 10 properties don?t increase $1 in value, I?ve made over $3 Million Tax Free anyway, just from cash flow. And I havent impacted my existing household budget one iota. If I suffer a reduction in income, the properties still make me a lot of tax free cash flow- it will just be less because I?ll lose some negative gearing as a result of having more losses than income. But I?ll still be earning the maximum amount of tax free income my situation allows for. The NRAS is a refundable tax offset, payable whether I have an assessable income or not, so I will still be CF+ on all 10 properties no matter what! And if the property market crashes, or rates increase, or we have a recession? The NRAS cash flow keeps me CF+ up to rates of 14-15%

Investing doesn?t have to be exclusively about growth. The certainty of Cash Flow can be equally as appealing, and in any balanced portfolio, within any asset class ? that is the investment norm. After all, you wouldn?t invest in loss making shares or term deposits or bank accounts, and hope for growth. Yet we seem happy to invest in loss making property with the exclusive goal of growth.

I guess my argument is this?. if you could invest your money in any other asset and earn 14-15% Tax Free, would you? because 60K of your equity or cash invested into 1 x NRAS property that makes you 8-9K CF+, is precisely that? a 14-15% Tax Free Return. And that?s without any growth whatsoever.

 

[Rob G.]

Bravo

Cash is a very important part of the equation, yet it is even forgotten in share investing.

You can only lock in an unrealised gain by a sale, however the steady cash flow may be reinvested in the optimum way without having to disturb existing investments if they are satisfactory.

I especially like your choice of refundable offset investments which actually reduces the risk on your investments even further.

Icing on the cake.