NRAS and income vs growth

Yep..thats a rubbish deal. But thats not one of my deals, and if they didnt do their due dligence and get vals done etc etc... then a fool and their money are soon parted.

 

Ok my paddy friend...here are the round numbers for the Gosnells one as per Hibernian Wealth....

A 3 brm T/H in Gosnells which has a market rent of 350pw. I note that comparative sales are under between 290-340k in the market.

Purchase 390k
Stamps 13k
Other fees 2k

So a total spend of 405k.

So the expense side of things ...without depreciation...a total of $24,100
NRAS Admin Fee 600
Property Mgment Fees 1500
Interest @ 4.5% 18,000
Land Lord Insurance 300
Rates 1300
Water 800
Strata 1600

On the income side of things
NRAS tax free payment 11k
Rent at 280pw = $14,560

So it is all apples right net CF before depreciation is positive by $1460 pa and depreciation in the first year is $8500....so at 47% marginal rate you are getting back about 5k...is it all apples?

Well here is what hurts....well the price you paid is about 60k over the market...deprecation will ramp down over the next 9 year. So the total you get back in 10 years is more like 30k.

So without inflation you are down 30k.....because you overpaid for the property.......

Your numbers state that year 10 the property value is 508k....but that was on the basis of 390k purchase....the true price is more like 330k...so the increase is likely to be 410k end value based on your line of thinking. So technically you have not increased the value of your asset and you have bought something which is harder to sell and finance compared to other items.

People like @Connor @Perthguy @Lacrim are not wrote amateurs....

Look forward to your response...

Sure some of your Sydney ones were okay...but not all what you sold was great...in my opinion.

I guess I am die hard traditionalist...just simple homes, units, T/H, Villas for me...nothing complicated like NRAS...

 

comparables for older 3 bed, 1 bath , 1 car and no land , and 20-30M2 smaller living areas. But new, larger 3 bed, 2 bath, 2 car with larger land areas are a little different. In a supposedly crappy market like Perth, where all new stock is being crucified, they all valued up - on the button - with low risk ratings - so while you might not see value, perhaps the various valuers might have a better idea of comparables than you?

All buyers got sub 4% I/O rates , fixed for 4 or 5 years. So reduce your interest costs by @ 2K per annum.

Again - says you. 10 bank valuations from multiple different lenders and valuer firms said otherwise.


Here's what it boils down to. You cant understand how property can be a winner even without growth, so you look to always buy under market value . Fine, thats an equity play. I however see how property can work without growth. I dont wish for no growth, but I do plan for no growth. I work with borrowing capacity rather than equity, front of mind. In other words, cash flow for debt reduction trumps growth for equity creation. Using my approach, even if I got zero net growth , I'd still make massive inroads into debt and that is what allows me to expand my portfolio without needing growth.

Your mind is pre conditioned to the traditional pre APRA game. And thats reasonable because of when you started investing. But Im showing investors how to operate in the post APRA game. That means thinking differently about how to get to the end goal - which we all agree is a passive income for life. I'm not interested in pursuing old traditional approaches that just wont be effective in a post regulatory servicing era . It works for you because you started so long ago and time has allowed you to develop strong yields that take care of the debt reduction for you. But they took you 18 years to build up to and you did it when lending was easy and a free for all. It will fail to work for the next generation because they havent been at it 18 years and dont have your mature rental yields and wont get anywhere near 33 properties worth 10 Million as lending is more difficult and not at all a free for all...

I'm interested in generating massive cash flow much sooner than 18 years and using it to build an income producing portfolio. Essentially NRAS and Dual Occ allow me to take a huge shortcut and catch up to your 18 years income levels, much sooner. In the end, it means I can survive no growth and still get rid of huge amounts of debt. And really, if Im after 200 or 300K per year as the end game, what does it matter whether my portfolio is worth 6 million or 8 million or 10 million or 12 million if it's making me 200 - 300K per year?

 

Good stuff.....my strategy is similar.so we are in violent agrement...I can achieve the same ...200-300k in income by selling down 20% of portfolio...the icing on the cake is EQUITY MAAAAATE.........the beauty is debt levels will drop to 15-20% LVR......

As for fixing for 5 years...what happens if you clients have trouble holding?

 

How does someone have trouble holding a 10K CF+ property, @sash?

 

Yes, cash flow that took you 18 years to accumulate. NRAS or Dual Occ cuts that period down to 1 year. Its an accelerant . So in the end you have arrived where I am starting - large portfolio sustained by strong surplus cash flow. Tell me, did you have a large PPOR debt to pay off ? Dependents ?

 

Will it be 10k positive when rate rise and depreciation drops?

Hold 10 of these...and you could be out of pocket 2k a pop or 20k??

Heard all this before......if you ain't go the Cash in the bank don't do it?

The numbers are very rubbery....the way they are presented....is also interesting....love the disclaimer about it being indicative. Hear that a lot in the building trade also...do you guarantee the investment being CF positive...or would that become a ASIC issue?

 

No PPOR debt...just IP debt.....look mate good onya if you can make NRAS work...horses for courses...I realise you have something to sell...I don't...so people need to go into NRAS with eyes wide open.

What you are banging on about will not get people to 20 properties any faster than some buying properties independently.

Question..your CF positive income is only 5k net via my calculation...how are they going to get more properties without growth??

 

Maths isnt your strong suit. I make an average of 10K per dwelling tax free . How you arrive at 5K CF+ is beyond me...

 

How you get to a 2K loss per property?

 

You're the one telling me that the reduction of rent over 3 years is negligible on serviceability VS debt reduction over that same period. Like I said previously, how much difference do you think a 30k reduction in debt will make?? Bugger all.

What you propose is that a modest income earner buys an NRAS, kills his/her servicability and then what? They can't borrow any more $$... They wait until they improve their serviceability? How long will that take? 3,4,5+ years?? My example which i've repeated over 12 years gets you way ahead. Every 12 -18 months you go again!!

You ask my point?? I simply showed a way that someone on a modest income can be in a far superior position in that same time period or less. And have options via selling 1 or both and repeating the process. They have real a way forward.

What do you think my example does?? Does it not remove debt? Ofcourse it does, and alot quicker than the 10k pa you keep harping on about!

Again with the 3 years, you implied in your first response that an NRAS purchase can limit serviceability in the initial 2-3 years more so than a regular purchase. And went on to say that the reduction of debt restores it. I simply offered an alternative over that same time period (3 years), which is clearly superior!! But you think its nonsense..
No where did I say anyone's in the game for 3 years, this is something you made up. But one can achieve alot more over that time period than sitting there waiting for their NRAS credit.

Well done, my returns on most projects have been in excess of that also, but I'm not here to gloat or condescend others.
Equity? With dual occ you can easily sell one, take that equity and dump it on the other. You still keep 1 rental income and have a significantly reduced loan. That clearly increases borrowing capacity! But equity means nothing right?.

My argument is there on the table, clearly explained and proven over the last 12 years.

Obviously someone with a vested interest isn't going to going to acknowledge alternatives that are superior to the product the offer. Your condescending remarks to myself and others clearly say it all.

 

Of course its indicative. Salaries change. interest rates change. marginal tax rates change. medicare levies change. expenses for rates and water and property management and insurances change... or does everything you own have fixed costs, immune from inflation? Are all your interest rates locked in for 30 years? Do you have a deal with the ATO where your marginal tax rate is set for life? Your portfolio must somehow be immune to normal forces of nature, I guess...

Explain how. I dont see how you make a claim like that without substantiating it @sashtrump
There are plenty of rubbery figures and alternative facts being bandied about but they aren't coming from my keyboard .

Ive never claimed NRAS will do that. If you took the time to read a little, you'd see I explain quite plainly that the property reverts to full market rent and yields of @ 7.5-8% from year 11. What I have claimed is that 10 years of aggressive debt reduction will reap big rewards.

I'll give you this - you do try very hard to manipulate the things I write.

 

Is it possible to quarantine debates about NRAS to a separate thread. It seems most threads end up there at some stage and it detracts from the original topic.

 

And what happens if you dont get the 100K growth that your model relies upon to work? Where is the detail about GST? Where is the detail about CGT? Stamp Duty? Subdivision costs? What happens if you end up in negative equity, making a loss? What happens then? What is the contingency for that ? There is zero detail to what you claim is a 100K+ per 18 month , money making machine...

How about you take the time to set out step by step how your strategy works. Detail the costs. The contingencies. The entry and exit duties and taxes and selling costs. Detail exactly how it can help people to retire from resi property? That would be helpful. Thats what people read the forums to learn about .

 

And what happens if your dog eats your homework? And what happens if you are made redundant and have a non NRAS, vanilla 4% yielding property? Sneaky sneaky. So selective in trying to manipulate your argument. You imply one set of rules applies to NRAS, and anything that is not NRAS is somehow exempt from this little thing called life.

You have conveniently neglected to recall or remember or mention that every one of my clients borrows a 10K buffer for each purchase. It forms a mandatory part of the structure and covers 100% of holding costs for 12-18 months , so they contribute $0 in holding costs - a point you are well aware of. It must be more convenient for your argument to forget that little structural requirement. Every time you try and put together a "sashflowanalysis", you try the same thing

That 10K surplus is then replenished each year by the combined 17- 20K of after tax dollars received back from ATO and NRAS refunds and credits . Now, you know that too... and again you conveniently neglect to account for that. sneaky sneaky @sashie trumpie - but Im well and truly onto your game. rubbery figures must just bounce off that keyboard of yours !

# sashflowanalysis # sashenomics

 

OK here is a scenario......you buy 10 NRAS properties for say 500k a pop and you have 150k in income (100k via Tax free credits and 50k in tax back via deductions). That means you are reducing your principle by about 180k per year (including reverse compounding). In 10 years you have reduced debt by say $2m and growth is lets say 0% per annum total equity is $2m

Well if you bought 10 properties 500k which are positive to the tune of $5k per year average over 10 years(depreciation offsets income). That is 50k reduction in interest or 500k over 10 years reduction of loans size. But if your property grows at 7% per annum....that add another $5m in equity. This is how I got to my position.

For the record..I am now reducing my loans by 200k compounded...so in another 5 years I plan to have $1m equity from this and another $3m in growth.....

 

Id really like to talk about debt reduction... as I have stated several times.. these guys just cant let go of trying to rip into NRAS at every opportunity. They fail every time, but they just cant help themselves.

 

Not selective...but that 10k buffer has an opportunity cost?

Lets compare apples with apples.....if you own 15 NRAS 17k times 10 properties is 170k in reductions...I do this in my portfolio anyway.......so 10 years later I not only have this but also the good capital growth....that will easily add another $6m conservatively......so by the time you have paid off say $2.5m in 10 years......I have $8.5m......

Are you sure you are licensed to push this so agressively? How do you get around the ASIC rules for selling this...isn't this financial structuring? Will be very interesting if the authorities know....did you sit the initial financial planning compliance basic course?

 

Thats great @sash, but you dont ever qualify this by telling readers that you have no PPOR, no PPOR debt, have been at this 18 years and accumulated the majority of what you have when banks were giving money to anyone who could fog a mirror. Your circumstances are very different to most here. yet you never ever acknowledge that or qualify it in your comments

Ive said all along that NRAS isnt for you. Lost count of the number of times Ive said it . You just cant seem to let it go.

How about you try and put yourself in the shoes of a younger married couple with 2 or 3 dependents and a large PPOR mortgage - facing post APRA rules, and map out a strategy that will get them to where people like you and I are, in 15-20 years. try that . It would be a far better use of your time and experience I think.

For the record I have retired 2 million of debt in the past 12 months, without selling anything . And yes, lots of that money comes from income from my business, but lots of your income comes from income from your salary too. The difference is that I have a model that works post APRA, for all shapes and sizes, and all income levels... and without guaranteeing it , I can certainly "indicate" to you that it works .

 

Okay..so you got the lender....will they take the 10k in tax credits as income?

How will they assess the risk profile on CF negative proposition based on 7.5% serviceability...it will hit the same wall.......

Hmmm......$2m in debts retired...that is lots of NRAS properties and trailing commissions on the loans...now I understand. If you have 15 NRAS properties you could be retiring about 300k pa...plus some compounding...but congrats...your business is doing well. For how long though?