Advice and comments neede for NRAS property ?

People,

I've been thinking to get NRAS property to secure against the market change and for potential Capital Gain benefits.

Does anyone here know or ever succeed in owning NRAS property for long term in Brisbane or in NSW area ?

I'm now focusing for NRAS not Defence Housing Scheme (DHS).

Thoughts and comments are greatly appreciated.

Thanks.

 

Capital gain benefits? What do you mean?

 

Euro73 is a gun on the subject.

 

@thatbum what I mean is for holding it for 10 years at least.

 

@Ace in the Hole thanks mate, hopefully @euro73 can give shed some light of the caveats of investing in this type of property.

 

Have you considered looking at one of the existing million threads on this?

 

@euro73 is the man to talk to.

Main thing to consider is how it will impact your borrowing capacity in the future as most lenders won't take the ~$10k NRAS incentive into consideration for servicing, so they are looking at your reduced rental income only.

 

Well, I already got my Pre approval in hand last month for up to $650k.

@Steven Ryan do you mean that the bank won't accept it if the property is NRAS ?

 

Most lenders will not factor in the NRAS incentive as income, so to them it looks like your property just has a 20-25% lower rental income than "market rent".

 

I think Redom is knowledgeable in this area also

 

Exactly! JH, spend a day or two reading somersoft on this topic, covered in great detail, then come back here and ask a specific question or two if something still unclear. But, in a nutshell, NRAS would be great for you, as you mostly get them of the plan so here is your chance...

 

Sure is.

 

Like others have said, there are already a heap of threads on this subject. Read them, then come back and ask questions for anything that is unclear.

 

I've never looked at them because I avoid what I consider to put together or contrived schemes . For me the basic investment needs to work .

On the weekend we interviewed a couple of PM's and asked them about a specific suburb and they both mentioned it was a problem with " Enras" properties attracting less desirable tenants , enras being the first point of call for the less desirables in the area . We had similar comments from a local agent who told which specific streets to avoid buying near ....

Durrrr .... I'd didn't click that N.R.A.S was " Enras " .

Not saying that stigma will apply to all NRAS properties , but it was almost like the stigma that has applied to houso areas is being applied to NRAS in this specific area .

Cliff

 

I have two NRAS properties in the Brisbane region and have never had trouble with the tenants. Very popular properties so lots of tenants to choose from, I've got a retiree in one and a single mother and her son in the other. I'm getting very reliable cashflow and they've been pretty much set and forget and resulted in $5k & $7k positive return after tax for 2014-15.
Haven't seen capital gains though since I bought off the plan and there is the obligatory premium price for the shiny new property. They are still worth similar to what I paid 2 years ago (getting one revalued in the next week or two so that should be very interesting). I won't be buying OTP again but I am happy with the NRAS and would consider buying an established property that's registered in the scheme.

Although the banks won't take the $10k incentive into account for servicing, I've found that several are happy to use the market value of rent (supported by RE appraisal) instead of the reduced amount that you actually receive so it doesn't hurt serviceability, but it doesn't help it as much as it should either. Can get LVRs up to 90%.
@euro73 said there were one or two lenders that do take the incentive as income but I'm not sure if that is still the case now after APRA has cracked down on investor lending.

 

Kirsti has summed up the issue that I have with NRAS perfectly. They're usually OTP which come with all the usual issues as well as a premium, so CG would be limited in the initial stages.

Personally, I think it's more suitable for investors looking for a steady cf+ income to fund their early retirement than those in the accumulation phase who rely on CG to build the portfolio.

 

Incorrect on both counts. As I have posted many times before, you have to look to other sources than google to find the excellent NRAS deals. There are countless examples of NRAS approved completed dwellings that I have sold where growth has been excellent. ( even though I make no promises of growth to any of my clients)

Here are just a few quick examples.
Elanora Heights 2 bedders - sold as completed dwellings at 590-600K @ 18 months ago. Now worth 750K + and generating @ 9-10K tax free per annum
Castle Hill 3 Bed townhouses - sold as completed dwellings at 770K. Settled 6 months ago. Now worth 900K + and generating @ 9-10K tax free per annum
Gregory Hills dual occupancy ( 4 bed house + 2 Bed studio on separate titles) sold as completed dwellings at 850K @ 16 months ago . Now worth @ 1 Million + and generating @ 9-10K tax free per annum
Rosehill 2 Bed Apartments sold as completed dwellings at 430-450K @ 24 months ago. Now worth 600K + and generating @ 9-10K tax free per annum
Wentworthville 2 Bed Apartments sold as completed dwellings at 390-400K @ 24 months ago. Now worth 500K + and generating @ 9-10K tax free per annum

The other point I would make is about the comments pertaining to borrowing capacity. It is true that if you look short term, the reduced rent will reduce capacity (unless you use FM or ABL at 80% LVR's) but the 9K-10K of surplus income generated by NRAS , if redeployed towards aggressive debt reduction, will see you better off within a few years. And I would have hoped by now that the myth of equity from capital growth equating to borrowing capacity had been well and truly busted

NRAS will allow you to hold for a decade at zero cost while you await a pot of capital growth at the end of the "cycle" rainbow - whenever that may come - which cant be calculated. What can be calculated though is that it will aggressively reduce debt while you wait, meaning that you are creating equity AND borrowing capacity even during dormant markets.

The secret has always been - where do I find the good deals where Im not paying 50K over?

 

You'll see that I did write "usually" because there are always exceptions. My point simply was that CG for brand new properties are usually less likely than with established properties. Most experienced investors would steer away from non-NRAS OTP purchases but some of those developments do get CG too.

 

You have to understand that you are buying more than the property - you have to understand the cash flow and what you can use it for. This is a Dividend Reinvestment Plan using property.

Each property equates to @ 18-20K of deductible loss per year and @ 9-10K CF+ ( based on 37% Marginal Tax Rate) per year. 9-10K tax free holds a similar value to 13-14K taxable. But reinvesting the 9-10K increases its worth to far more than 13-14K taxable . In the longer term, 9-10K of debt reduction per year produces nearly 18K of value, via saved interest. In the post APRA world, this should not be underestimated as a potent multiplier.

Take my portfolio as a very simple example of why I believe this is such a sensible way to invest. It's worth @$6million at the moment, with @ $4(ish) million in debt - but it generates 180-200K of losses and 100K CF+ on top of my 180K income. So for me, it means I will earn @ 2.8Million + in tax free income across the next decade. ( It will actually be over $3.5 Million with the NRAS inflation, but I always like to show the most extremely conservative estimates, not the most optimistic ones) If the portfolio only gives me 50% growth across the next decade (and I only need 3% - 3.5% compounding annual growth to get 50% across the decade, so it's not an ambitious target, and I think it's far more sensible than making ridiculous claims about cycles doubling every 7 years) that gives me $3 Million in equity I can then liquidate.

So imagine where I will be in 10 years, even with ultra modest growth.....
I will have set aside a large amount of the $2.8Million in tax free cash flow , and I should only need to sell of 2 or 3 or 4 of my dozen properties in order to pay down all of the debt while retaining 80% of the dwellings - which will leave me with a very comfortable passive income in the vicinity of 250K per annum and equity of more than $6million.

And Im not having to guess or speculate- I already know this works- I have already paid off a 440K PPOR mortgage in less than 2 years doing precisely this.

Then consider the multiplier effects. Within 10 years I will have

1. The equity ( $6 million) and
2. The capacity ( 250K +) + whatever salary I am earning

to continue to grow. All with ZERO out of my pocket. So you see, NRAS , if you use it right- is a dividend reinvestment plan that will deliver extremely good results if you are patient and let it work - ask Mr Buffett how he grew his portfolio using that very same concept.

 

This part I agree with totally. The cashflow from a solid NRAS portfolio is very attractive. However, I still think this is dependent on being further along in your investing where you can have such a portfolio. If you're starting out, I just can't see the NRAS strategy being as effictive in the accumulation stage.

The extra cash flow is nice obviously, but you can't fund more deposits on 9k cash flow a year and so you'll still need to rely on CG to build your portfolio. With the new properties, opportunities to renovate/value-add/develop to create equity would also be limited.