Exiting NRAS

Hi

That's right, exiting, not exciting.

I am in my 10th year, and need to either sell or renovate what was a very nice 3x2 near shops, services, train and river parkland.

A poke in the eye from the NRAS rental valuer too. Even though rents have climbed (25%) in Perth, the NRAS valuation has just been decreased the rent 5% or so.

I want out.

Because the unit is in a cluster of 11 NRAS, banks regard these properties as below what would be the value if they were not in NRAS. About 10% less.

I need to re-vivify it as a normal property. That would mean renovate and then renting at the market rate.

The tenant has re-coloured the villa smoke-yellow. Needs full re-skinning inside, inc. new carpets.

I can't renovate until the tenant is out. But if I evict him too soon, then I will miss the State and Federal rebates (max. 13 weeks unoccupied in the NRAS year).

Can the value really be improved by renovating? Meaning that even if it smells normal and has clean surfaces inside, it is still next to 10 other NRAS properties... Which all will come out of contract around the same time. So, if I wait there will be a glut. Hence, I'm tempted to exit and get the jump.

Anyone done this? Is breaking the contract early troublesome? Does everyone sell?

 

@euro73 is usually your man for all things NRAS.

 

I don't get why you wouldn't wait until the end of the NRAS period. I don't think there will be a "glut".

 

NRAS rental is indexed in arrears, not in advance, because its impossible to see the future . In your case the Jan 1, 2020 - Dec 31, 2020 Rental CPI data is what drove the rental indexation that was applied on May 1 2021, as the new NRAS year commenced. Any increase in rents that has occurred or will occur during the period Jan 1- Dec 31, 2021 will flow through in next years indexation on May 1,2022

NRAS is a tax incentive and has nothing to do with the value of the dwelling. Valuer bias exists on occasion for sure, but only where the valuer is an idiot who still doesn't understand that NRAS is a tax credit , is voluntary not mandatory, and doesn't form any part of the dwelling. It's like devaluing a property that is negatively geared.

Then they wont be NRAS eligible properties anymore... so problem solved with valuer bias, no?

91 days ( 13 weeks ) of vacancy doesnt trigger a loss of the entire NRAS for that year. It triggers a pro rata reduction for the next 91 days. At 182 days ( 26 weeks ) of vacanyc in the NRAS year the entire payment would be forfeited.

What is the end date of your NRAS incentive? Work backwards 91 days/ 13 weeks from that date and you'll know the cut off for retaining the entire years eligibility

 

Hi Euro73, Thank you for the vacancy effect info.

Re Valuation: Yes, you would think so. BUT... in Perth, what has happened in practice is that generally Low Soc-Ec types (not Nurses / Police Officers / young teachers) have infested these groups of dwellings. (My guy sponged off his wife's income and only got himself work after she took the kid and left him. ) Because of poor treatment of the dwellings and the potential for bad behaviour, they have a poor reputation.

 

Meanwhile, the project cluster of 11 units was completed at the end of 2011.

Because all the other owners will be coming out of NRAS at the same time, I am guessing some of them will put their units on the market because of the way the market is going. That will create competition against my product, hence I want to get the jump.

My NRAS period ends 23 Feb 2022. So, from what Euro73 said, I can have it vacant from 1 December and still get the full rebate.

The rental is now monthly, (no lease) so I can give notice 1 November.

But is getting NRAS "off' the property earlier a procedure? The NRAS manager is Questus, who 'got it' off Quantum in Jan 2020.

 

By on the market do you mean sell? If you exit NRAS now and rent normally and the others sell then there is less competition for you not more. Or are you intending to sell - your original post says renovate to rent out again or sell. Your property is 10yrs old and would be due for a refresh regardless due to simple wear and tear - a 10 year old property will generally need a repaint and new carpets. How much work are you intending to do and what do you aim to gain from that? You need to be careful not to overspend if the end values aren't going to get you your money back.

I have 7 NRAS properties in Perth and my sales valuations have been fine but they are either standalone NRAS or in very small complexes (ie no more than 3 nras in the complex)

 

Thank you for your reply. You sound like you are going great.

How are your tenants? I have not liked mine. And it is Maddington about 40k from me. Tenant is a nitwit, who reports things are broken when they are not. E.g. doesn't change the battery in the remote for fans or Aircon. Gas plumber called out to the 'broken' water heater, but it was going fine.

Total initial purchase was 375K, 369K for land and building.

The bank who loaned to me said (later, once they realised it was NRAS) they would never have let me the money if they knew it was an NRAS project. They revalued it at 315K in 2018 (I wanted to finance another non-NRAS purchase).

Recent valuation by an agent on drive-by was 400K (without looking inside, and without knowing it was NRAS).

I guess I have become kind of depressed and beaten down in my attitude, and wanted to exorcise the NRAS aura by renting it on the open market then selling it.

I hadn't thought of renting for income as being worthwhile. Current rent is 252/wk plus the rebate.

 

A drop like that for valuations in Maddington in 2018 is probably about right. I think you might be lumping 2 issues NRAS and a poor performing asset into one thing and they might be separate. Any asset in a group of 11 will grow slower than a stand alone or asset in a small complex in a good location. Maddington has improved since 2018 but a lot of Perth suburban stock is still not yet at past prices

My tenants have been mixed but generally good. I have one 'needy' tenant, one that I have evicted and the rest are just general tenants the same as my other properties. Of note I have 3 properties in Westminster that are not NRAS that cause me more grief than all of my NRAS combined.

 

I suspect a good chunk of NRAS properties are under non-NRAS approved finance meaning it was never declared as NRAS at the point of application which is technically fraud and can trigger a recall by the financiar if they so chose, possibly penalties to apply as well?

 

Hi @euro73 ,

I have got a scenario with NRAS property :

It is a unit located in Deception Bay , QLD.
NRAS Property eligibility period until 30 June 2022
71 sqm + 10 sqm balcony
Complex of 8 units of NRAS

Price has not moved up too much since the purchase.

The options are Sell while there's still abit of NRAS left OR Sell after the NRAS expires depending on the sale price.

Would be interested to hear your opinion/view of whether it is better to sell while there's NRAS left or after NRAS expires ( so that we are able to sell to people looking for PPOR) ?

 

Being < 12 months to go I dont think adds much if any value (by the time you sell/ settle it'll prob be 6-9 months (also have no idea how quick it is to sell a unit in deception bay). If your looking to sell the property might as well start now. No idea how it would go evicting tenants after NRAS is over (I highly doubt they would want to pay the additional 25% if your looking to get it back to market value)

 

I was thinking to sell mine too. 3 bedder unit in a complex of 40 from memory. But just checked re.com.au, none in the complex was successfully sold. There are couple on the market now, been there for months, with very low price compared what it was purchased for.

It seems that people are worried when they know it is NRAS property.

 

I don’t think anyone will see value in 10
Months of remaining eligibility …. So if you are selling it , just sell it vanilla . The sale value of the property should not be impacted one way or the other , really …

 

We've got one ending soonish. Already give tenants notice & changing management to my existing agency in the area. Should be no issue in obtaining normal market rates.

 

thank you all for your informative response

 

NRAS Approved dwelling purchased through us for $365,950 in mid 2014. Sold 7 years later for $610,000. 7 years of NRAS credits along the way as well.... so @ 70K ( give or take) of NET after tax cash flow on top of the almost 250K of profit . Thats almost 320K combined. People have taken great pleasure over the years in telling us that NRAS can't make money for our clients.... You should believe me when I say that I very much enjoy proving them wrong again and again and again.... just like I enjoy proving them wrong about Dual occ's and just like I enjoy proving them wrong about regionals and just like I enjoy proving them wrong about the importance of cash flow and debt reduction. This particular one belonged to a PC member. #aheadofthecurve #cashcowsrule
https://www.realestate.com.au/sold/property-house-nsw-gregory+hills-137577730

 

The booming value of property in that time cant also be excluded. Leaving that aside, the net benefits of NRAS cashflows is generally positive for those I see. State and Commonwealth incentives are major benefits for the apparent lesser rents. Many feared toothless housos and unemployed tenacies but this isnt what I have seen. I tend to see well managed outcomes except a few who got on the wrong NRAS provider bandwagon. And those who build smaller units did better than those with dual occs. The same benenefits were paid for small 1 beds. It was a license to print money if you could snare a golden ticket.

The Grattan Institute concludes NRAS was a mistake for Govt. It was expensive, inefficient, and poorly targeted....But for landlords they get those issues as benefits. It was lucrative, financial efficient for cashflow and targetted at tenancies that were not that bad. They were not all homeless people on crack - Nothing like it. I love their graph labelled "investor windfall"...That is pretty true. Learning from past mistakes: lessons from the National Rental Affordability Scheme - Grattan Institute

The "new NRAS" is the new public affordable housing tax incentives...Aimed at much larger institutional players. Corporate funding on a larger scale.

 

Not a bad deal for the tenants either of course. 20% off the rent in a new property on a typically secure long tenure.

 

Has anyone found NRAS has a negative impact on sales?

Two dwellings (one with nearly 4 yrs remaining) had to have NRAS exited upon settlement