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NRAS finance

Discussion in 'Property Finance' started by Trent M, 7th Aug, 2015.

  1. Trent M

    Trent M Member

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    2nd Jul, 2015
    Posts:
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    Location:
    Brisbane
    Hey guys & gals

    Long term reader on ss & first time poster on PC, & i need help :)

    I have a one bedroom NRAS apartment in Brisbane coming off initial 1 year fixed rate with anz. Details below

    - Initial valuation 400k
    - 80% Lvr @ 4.79% fixed for 1 year with Anz
    - Current loan $320k
    - Current rent $308p/w ( 70% market rent )
    - $10700 worth NRAS incentives pear year
    - $222k currently in offset ( will be looking to pull some out for a deposit on another investment property & the remaining towards my own PPOR, am going shopping nxt weekend )

    Im looking for advice on what to do in September in respects to the financing of this property, & which banks / rates would be best suited for my position so that it won't stump me in the future?
    Ie. 80% Lvr or 90% Lvr
    Fixed or variable
    Banks with the best offers
    Or
    Mortgage brokers anyone can recommend?


    Thanks :)
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    There is a lot more to it than just the best interest rate. Other elements which you need to consider is:

    1. Cashout/Leverage policy - how flexible is the lender in releasing equity for you to purchase more properties

    2. Servicing/borrowing capacity - you don't want to use a generous servicing lender too early in the piece. There also may be a situation whereby you need to use a lender that takes into consideration the bras incentives as part of servicing

    3. Specific policy/product such as Interest Only terms - Westpac, St George, CBA and a few others do 15 years IO (but only Westpac and St George can do 15 year without affecting the servicing) whereas say a lender like NAB or Macquarie will only do 5 years IO. If you want to extend it then you will need to submit a new application and your circumstances or the bank's lending appetite may have changed considerably.

    Interest rate is one of the last things you should be thinking about unless the plan is only to have one or two properties.
     
    mcarthur likes this.
  3. Redom

    Redom Mortgage Broker Business Member

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    Heya,

    Shahin's points are great. In terms of NRAS:

    1. Cash out/equity release - without an exception, its difficult to do an equity release (exceptions have been made by a few in the past). Most lenders will only do dollar for dollar refinances for NRAS. You may be able to get away with an equity release at sub 80%.

    Note, if you take this point into consideration, you've already traded of some of the 'flexibility' element thats required to set up finances. Its party why fixed rates are attractive for NRAS - generally a 10 year play and difficult to release equity anyway.

    2. Servicing/borrowing capacity - there's a couple lenders that do NRAS better than others. If you've got an NRAS property, purchasing at 80 and are struggling for borrowing capacity, it may be worth looking into.

    3. If you can, get a 10 year I/O term. Saves having to revisit in 5 years.

    Cheers,
    Redom
     
  4. Trent M

    Trent M Member

    Joined:
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    Posts:
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    Location:
    Brisbane
    Thanks for the replies Shahin & Redom.

    For the moment & the foreseeable future this property is more of a set & forget. Due to it being Otp, with the price i paid i don't see much CG in it for the next few years.

    I feel more aggressive with my 2 other properties, & looking at my next possible purchase next weekend ( purchase Reno rent out realise equity )

    In respects to this property with my set & forget mentality

    Would i be best to refinance at 90% IO on a fixed rate?

    @ 90% rather then the 80% Lvr im currently on, yes would have to pay Lvr ( tax deductible ) but would put $40k more in my pocket, potentially another deposit.


    Current wage - $240k p/y ( 3months left on my contact )
    Surplus - $2300 p/w

    Future wage - $80-$90k p/y
    Surplus $500 p/w


    Thoughts please :)
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    90 with cash out on an NRAS will not be easy........... so much so that this will really limit your already limited options

    ta
    rolf
     
  6. Trent M

    Trent M Member

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    Rolf would you suggest then leave it at 80%, this makes the property slightly positively geared at these current interest rates.

    Then with the 220k in the offset, 60k say for another investment prop in logan at 80% almost slightly positively geared, 160k towards my own PPOR.

    For my own PPOR i would be looking at say something around the 400k

    400-160 = 240k owing on PPOR with then my one bedroom, one future ip both slightly positively geared, with the other two existing properties neutrally geared @ a total cost of $200 pw to service both. ( $100 each )

    Therefor 240k (PPOR ) @ 5% IO 100% offset = $250pw

    $250 pw + $200 = $450 pw

    With a future wage of $1250 take home.

    $1250 - $450 = $800

    Leaves me with $800 - PPOR holding costs/living cost/paying into offset.
    Hopefully let CG play its part & re asses in a few years.

    Does this sound like a decent strategy?

    Thanks :)
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hard to gauge what's best since we only have a small proportion of the date that's needed to help make a call.

    Cashflow wise that works obviously but without the soft data it's hard to gauge whatm is actually right for u

    Ta

    Rolf
     
  8. euro73

    euro73 Well-Known Member Business Member

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    You should be far more than "slightly" positively geared - more like 8-9K CF+

    Also wondering - why are you only receiving 70% of market rent? It should be 80%, or in the case of NAHC ( formerly QAHC) , 75% .
     
  9. Trent M

    Trent M Member

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    Euro your correct i will be a little more then slightly geared. 8k + depreciation :)

    Regarding the 70%, this is something i also questioned AMC about, it states that for the apartment block of which my apartment is in was originally signed to be accepted through NRAS at 70% of market rent.
    I haven't seen the documentation to back this up.

    He did say it was rare, but this was one occasion where for me to be eligable i will need to discount 30%

    Have you come across this?
     
  10. euro73

    euro73 Well-Known Member Business Member

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    Never. You should ask Rob Beaumont for the document
     
  11. Redom

    Redom Mortgage Broker Business Member

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    I've seen it a few times on some properties @euro73 - not sure why, but i believe it was for those not for profit consortiums. Never with the private ones though.
     
  12. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    Trent, do you need to refinance if you intend to keep the lvr at 80%.

    The Anz 1 year rate comes with a 100% offset account and whilst the rate is 4.94% (0.15% discount for breakfree customers) so not the sharpest it all boils down to your end goals.

    The Anz Bank Pro package is fairly competitive as long as you use or need all of the features.

    As far as serviceability is concerned they are certainly not the most aggressive when it comes to maximum borrowing but have a few little niche features.
     
  13. Trent M

    Trent M Member

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    That is true Richard i inquired today and the 1 year fixed is currently 4.79% ( break free package being at 0.15% discount $375 annual fee ) where as the variable is 5.65%.

    So if i were to refix for the 1 year my rate will stay the same in which im comfortable in.

    Nxt in my investing path is to get a pre approval of ~ $480k ( my next investment property don't plan to use that much but just incase )

    Any advice on which banks/lenders would be most accommodating for me. My current situation is..

    Ip 1 - 1/3 (with parents/brother) $460k @ 5.13%. Fixed suncorp IO

    Ip 2 - 1/3 (with parents/brother) $370k @ 4.29%. Fixed suncorp IO

    Ip 3 - $320k @ 4.79% fixed anz IO

    Current wage $240k p/y
    $220k cash
    No personal loans
    Living at home

    Total $200 out of "my" pocket to service all 3 property's. I understand Ip 1 & Ip 2 is complicated due to it being in partnership with parents/brother looking back i would rethink making that decision. ( could effect my serviceability )

    Which lenders would be most generous, ideally this will be my last IP before i look to buying my ppor hopefully later this year.

    Like i said at the start of this tread i need help! I don't have anyone in my circle to talk with about investing, i read books, forums etc
    I guess personally trying to get feedback on if im doing things right here, or am i well off the path of one day becoming a successful investor.

    Do i need to take a step back & do more research, do i sound overly keen without knowing a few of the fundermental aspects of investing?

    Cheers
    Trent
     
  14. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    Trent it is probably a matter of looking at a potential suitable lender for your PPOR and then working backwards.

    With the properties and loans owned by other family members many lenders will take the entire debt into consideration as an expense however only apportion your share of the rent as income.

    In saying that there are lenders that apportion both the rent and the loan repayments in accordance with the percentage of ownership i.e 25% etc.

    You would also probably want to keep as much of your current savings up your sleeve to put down as a deposit on your PPOR when you get that far and look at a 90% lvr inclusive of LMI for your next IP.

    On your income the premium will be Tax deductible at the highest rate over a 5 year term so you will get a high percentage back over time.

    Without knowing the exact loan feature you require for your next IP it is difficult to advise you of such a lender but a couple spring to mind.

    I am happy to email you a copy of an API interview i did on how I built up my portfolio over the last 18 years but certainly don't think you are far off track.
     
  15. Trent M

    Trent M Member

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    Richard thanks for your wealth of info, ive been in contact with my broker, (used him once before without issues) the ball is now rolling.

    My main wants were
    90%
    IO
    100% Offset ( which will come in handy until i purchase my ppor )

    I was open to all banks as per his advice so we shall see what he comes back with, i explained my position & my future goals so i guess its his time to shine for me :)

    It would be awesome if you could email me your API interview, nothing better then reading success stories, at times of doubt i refer to them as motivation :)

    Email : chile_n_aust@hotmail.com

    Cheers
    Trent
     
  16. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    No problems Trent.

    Interview emailed.