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NRAS in a post-boom market

Discussion in 'Where to Buy' started by MrsNixba, 27th Oct, 2015.

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  1. MrsNixba

    MrsNixba Well-Known Member

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    Hello brains trust!

    I know a few threads have touched on NRAS and the feedback is mixed, but in a post-boom environment (Western Sydney), what's the sentiment?

    More specifically - on paper, negative gearing and tax incentives are good, in reality, cash flow is positive provided you qualify for the incentive every 12 months. Given that positive properties are hard to come by in Sydney at the moment, is it worth considering NRAS? Or waiting for a few more years for the desperate sales, which we all know are coming?

    Our income is high enough to make the tax incentives worthwhile. But the lack of control over a ten year period is concerning.

    My concerns are:
    1. Come settlement time, market will dip a little / oversupply will kick in and val will come in under purchase price, making settlement difficult.
    2. Poor property management meaning we may not get the $10k every year - has anybody experienced this? The lack of control bothers me... I've heard the paperwork is insane and they can easily knock you back for the incentive payment.
    3. The 10k indexed to inflation won't match the rental growth and the property will end up becoming negative / more lucrative without the NRAS incentive. High break costs.
    4. Exit strategy - there isn't really one?

    If we buy now:
    Great tax offset, good buy and hold for the ten year period depending on rental growth relative to CPI, limited CG for a while, potentially poor quality tenants, potentially poorly managed, still in a position to buy in Sydney in a few years time, but more limited as big chunk of money will be parked in NRAS with (predictably) limited CG, can't manufacture equity as its brand new, good depreciation

    If we buy a non-NRAS property:
    Negative cash flow, no potential settlement problems, still limited CG, better tenants, control over PM, can hand select property, no delayed settlement / settling in a different market, can wait for market to dip further before purchasing, better exit strategy - able to sell to a wider market

    I know you shouldn't buy JUST for tax benefits, but nothing else in Sydney is positive at the moment - let alone $100 per week positive. So the question is... buy or wait?

    What is people's advice on this?
     
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  2. abbyfresh

    abbyfresh Well-Known Member

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    If you paid a premium to begin with at the top of a rising market simply for NRAS tick of approval, I can't see the value equation looking too good if rents and values further soften by 15%. Shouldn't be a major drama in 10 years time though.
     
  3. Jamie_

    Jamie_ Well-Known Member

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    Take a search on the forums for other NRAS threads, there's been quite a bit going on recently.
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Concerns 1, 2 and 4 - these aren't any different to normal properties.
    Concern 3 - By it's very definition it does. They report on the rental CPI and PM's are only allowed to increase rent on the properties by this amount. I believe the incentive payment follows the same.

    Why dont you just buy something positive if being negative scares you so much? About 18million people live outside of Sydney.
     
    Last edited: 27th Oct, 2015
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  5. MrsNixba

    MrsNixba Well-Known Member

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    We've diversified enough outside of Sydney. We want to slow down and position ourselves to get back into Sydney when conditions become more favourable in 2018/2019. But then this came up - so do we jump in now or follow the original plan and wait? That's the dilemma. It's no loss if we don't, but is the gain great enough if we do?

    As my parents have always said, "Don't wonder whether you'll regret it if you do, wonder whether if you'll regret it if you don't!"
     
  6. Danieljk101

    Danieljk101 Active Member

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    Our Bungarribee NRAS townhouse settles early next year in Feb/March. Haven't had any buyers remorse yet... :)
     
  7. D.T.

    D.T. Adelaide Property Manager Business Member

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    Grats - willing to share what purchase price / rent ?
     
  8. Redom

    Redom Mortgage Broker Business Member

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    Few random thoughts, more on your questions rather than NRAS itself (plenty on these forums about it):

    1. I'd be very careful purchasing a Sydney OTP at the moment. This isn't NRAS specific, but more about purchasing strategy. OTP can work and has worked for me in the past, but that was very much in a fast rising Sydney market. Now? I'm not so sure.

    2. NRAS payments, do some googling/PC searches and you'll soon see your fears are partially justified. This has been a complete failure and a source of frustration for many. Expect to do your tax returns twice every year as NRAS payments may be ready by the time the following tax time is here.

    3. Exit strategy, not sure this is an issue so much - you can remove the NRAS incentive with most consortiums for a relatively small fee (<$1000). I don't think this one applies so much. If your purchasing in a big development with lots of NRAS's, probably worth considering potential demand impacts.

    4. I haven't heard much about poor quality tenants. I'm not certain there's enough evidence to suggest that this is true. In theory i suppose, its a risk. You can manage this with a good PM.

    5. Consider overall finance implications. You can't release equity with most (they'll only do dollar for dollar refis).

    6. Overall on high incomes, NRAS becomes that bit more potent and attractive. There's a growing secondary market available where you can actually find some decent buys too. Not quite the depreciation benefits that a higher income earner may benefit from, but you can purchase without the premium and lots of frustrated NRAS owners may be selling up with the grants taking forever to process. Opportunity is here i think.

    7. NRAS stock comes online in a way thats tied to government rounds. Right now theres slim pickings for new stock thats actually available. I suspect when they all fall due in June 2016 there'll be more to pick up. Not sure about this though, just random observations on the current market relative to this time last year when the last round was due.

    Cheers,
    Redom
     
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  9. Danieljk101

    Danieljk101 Active Member

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    3 bedroom townhouse - no body Corp, 9 in a row. Also fronts onto the parklands.
    Purchase $550k
    Estimated rent $500
    About 8k (yr1) to 14k (yr 10) +cf a year
     
  10. D.T.

    D.T. Adelaide Property Manager Business Member

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    Is that market rent or nras rent?
     
  11. euro73

    euro73 Well-Known Member Business Member

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    The Bungarribee project is mine - 34 x 3 bed, 2 bath townhouses in total. All priced mid to high 500's. 10-15 year old 2nd hand 3 bed townhouses in the Doonside and Blacktown area start at mid 500's, and new stock starts at mid 600's and goes into low 700's so I expect my clients will do very very well out of these deals, with over 100K ( potentially 150K) of equity at settlement + NRAS cash flow for the next decade. Even if the market came back 20% by settlement in Feb/March 2016, I still wouldn't anticipate any valuation shortfalls.

    2015-09-11 12.27.18.jpg 2015-10-08 15.25.18.jpg
     
  12. euro73

    euro73 Well-Known Member Business Member

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    2015-10-08 15.28.27.jpg 2015-10-08 15.28.00 HDR.jpg 2015-10-08 15.28.00 HDR.jpg
     
  13. euro73

    euro73 Well-Known Member Business Member

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    And here's another of mine- Cecil Avenue Castle Hill. 5 x 2 bed, 2 bath apartments . Sold for 620K. Will settle with a value of 750K+ in 6-8 weeks time, and 10 years of NRAS cash flow.

    These are 90M2 internal + balcony + parking 2015-10-15 13.38.55.jpg 2015-10-15 13.39.23.jpg 2015-10-15 13.40.01.jpg 2015-10-15 13.43.43.jpg 2015-10-15 13.44.34.jpg
     
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  14. euro73

    euro73 Well-Known Member Business Member

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    And here's another. The very definition of an NRAS 5 star cash cow. 40M2 Studio Apartments with balcony + parking , under construction in Port Macquarie. On the site next door to Port Mac hospital, and a few hundred metres from the new Charles Sturt University campus due to open early 2016. The first tranche of these sold for 260K. They will generate over 10K CF+ from year 1 .

    I have purchased 2 of these myself and just the cash flow from 2 of them will pay one off . Even with zero capital growth, I will have an unencumbered property with ( by the 11th year) over 20K of income being generated . This is only costing me 60K of equity to fund. ie 20% + stamp duty.

    Imagine paying 2.6 Million for 10 of these, waiting 10 years and being left with 5 unencumbered properties and 100K income, even if they achieve ZERO capital growth.

    Beats any other passive income for life strategy I have seen anyone else here , put forward - by quite a distance.

    I will have 20 - 30 more of these available for sale soon IMG_3583.JPG IMG_3554.JPG

    IMG_3587.JPG IMG_3588.JPG
     
  15. euro73

    euro73 Well-Known Member Business Member

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    As for Sydney - I have a fantastic project with 10 x NRAS apartments ( out of 19 ) available right now, In Harris Park/Rosehill. Completion by Feb 2016. I will be commencing sales on Monday Nov2 when I get back from Jakarta and Bali.
     
  16. D.T.

    D.T. Adelaide Property Manager Business Member

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    So you develop them, sell them and finance them?
     
  17. JohnPropChat

    JohnPropChat Well-Known Member

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    The things that concern me about NRAS are
    1) Compliance
    2) Deferred payments
    3) Usually a 10%+ markup over comparable sales.
    4) After using some of the $10k/year to make up for(even after NG) the reduced rent and potentially higher PM fees. You are left with may be 7 to 8k to reduce debt - still not too bad for the "right property"

    Was talking to an NRAS seller in WA. Apparently very similar properties in the same development can come in at different NRAS rent valuations.
     
  18. euro73

    euro73 Well-Known Member Business Member

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    Hibernian Australia ( me) has two businesses

    Hibernian Wealth - which sells NRAS properties
    Hibernian Finance - which finances residential properties - this includes portfolio restructuring or tweaking, PRIOR to commencing an NRAS purchasing plan.

    On the finance side - I probably have more lending experience than most on here realise - I'm not sure many on here realise the depth of my banking/mortgage credentials. I have been in senior mortgage lending and management roles at Aussie, HSBC and FirstMac over more than a decade, prior to commencing this business, Hibernian. I developed, designed and delivered the first NRAS loan product in Australia, while at FirstMac. That process included securing the mortgage insurers approval of all the NRAS models investors deal with today , whether that be QAHC ( now NAHC) AMC, ethan, Providence, Aspire, AHC, Questus, Evolve, Hume, Bridge, Mission, Quantum , Horizon, or anyone of the 134 approved participants. It's why I know NRAS so well, and all it's key players so well.

    On the property side - I am able to access unused/surplus incentives, and I put deals together with developers and NRAS consortiums to deliver those orphans. I organise it all, and I control the pricing - all developers I deal with enter into agreements with me whereby they MUST accept my pricing , which I MUST determine using resi mortgage vals done on each dwelling. The deal is basically - I will get your stock to use for delivering NRAS to my client base. You will get full, fair, valuer supported prices- and fast. I dont discount for buyers. I dont inflate for developers.

    The end result is;

    1. I basically dont sell any of the stock you will find on any of the other NRAS sellers sites - I prefer to get my own stock and control it from cradle to grave - whereas they all pretty much just sell the same pool of stock as each other. Scroll their websites and you'll see they have a lot of common property.
    2. I don't have valuation issues. There has been one ever, and that was when I sold something I didnt put together from cradle to grave. But that is extremely, extremely rare.

    To this point - I have sold well in excess of 350 NRAS properties in the last 3 years, and have only ever had 1 val shortfall . And that was on someone else's stock. That's a pretty fair record, I think for anyone.

    They way I designed this business was quite deliberate. I want my clients to know that there's the NRAS deals I do, and there's everyone else's. I think any of my clients will happily tell you the same.

    From a client perspective - every one of my clients has direct access to me 7 days per week, to talk money, strategy, budget, or anything else. I dont have any staff. No one else speaks on my behalf. I return every call. every email. Personally. This business is my responsibility, right down to organising BMT depreciation reports and building inspections on every deal I do.

    That's what I do, DT ;)
     
    Last edited: 28th Oct, 2015
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  19. euro73

    euro73 Well-Known Member Business Member

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    You are right to be concerned. But at the same time - don't be. When you engage with NRAS using the right people, you will not encounter 10% valuation issues. RE compliance and Govt payments, this has only occurred in 2014/15 and I have it on good authority the issues are resolved. remember NRAS has been running since 2008/9 - this has not been the typical experience until last year.
     
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  20. JohnPropChat

    JohnPropChat Well-Known Member

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    Good to hear. I've also read that NRAS could be no more in the coming years. Any insight into what's happening behind the scenes?