Regional Property

Deliverance style

 

Fire sale at Lorne and Skenes creek interests me... always wanted a holiday house there!

 

@DaveM hows the vacancy in Young going? Looks a bit high in general atm.

 

Hi guys - a friend is asking whether there is a good building and pest inspector anyone here can recommend for the albury/lavington area? thank you

 

Is your bathurst property older stock?

 

3 houses on Hunter St Wagga Wagga are for sale now.

 

Is that one of the good areas or bad Larry?

 

I wouldn't have a clue!

 

@Mr RD How are things travelling in Orange at the moment? Do you think there are any signs of the market improving. We looked at a few places in Bletchington about 12 months ago but didn't act on it. Wondering if it would be okay as a set and forget IP, probably around the high 2s, low 3s.

 

Some clients of mine paid 365K for new NRAS 3 bed townhouses @ 2 years back. Sold them just before Xmas at 400K and bank vals stacked up....
On the more recent NRAS project I sold there, 3 bed single level townhouses ( 150M2 internal + garage ) on @ 300M2 parcels are starting to settle, and 400K valuations are being supported on those as well. So it would appear Orange is doing just fine.

 

Why did they sell? Wasn't the $10k+ cashflow holding them up?

 

Divorce. You're correct in assuming they didn't sell because of cash flow pressures.

I've had no other clients sell NRAS approved properties in several years.

By the way, the incentive is almost 11K. $10,917.04 to be precise. It will increase again on May 1,2016. I expect it to increase to @ 11.3K or thereabouts

 

I guess nras is pretty insignficsnt for those that get paid in cash or high proportion in cash or who have a low income say anything below 25k

 

I think someone on a low income would benefit hugely from an additional 11K of tax free income.It would quite literally be the difference between affording to hold an investment property or not. So I cant agree with that assertion at all.

And I think someone on a very high income would benefit quite a bit from the significant extra neg gearing benefits generated by the larger rental deduction, plus the 11K of extra tax free income. Whether they believe so, may be another matter, but I'm not sure 130-140K ( when indexed over 10 years) of tax free money per property after all costs are accounted for, is something anyone would really sneeze at?

I would point to my own personal circumstance. I hold a $6Million+ portfolio, across about a dozen properties. I generate @ 300K tax free per annum from the use of NRAS within my portfolio. Now that may not be an ULTRA high income, but it's well above the median. I reduce 200K taxable income to zero taxable income using the massive deductions generated by the cash flow losses and depreciation from the portfolio, yet I have zero holding costs because with the NRAS credits I net over 300K per annum....

That's at least $3Million + of tax free money over the next decade before any growth is considered. That's sufficient to pay down just about all the debt against my portfolio. That in turn means I have a passive income for life already built ( I just have to wait 10 years or so) .... well over 300K of passive income using even modest assumptions... I don't have to get lucky. I don't have to get massive growth ( although it would be nice...just not necessary) and I can grow a MUCH bigger portfolio if I want to, because I will have both the equity and the income to access that equity , to do so if I wish.

Now forum members may want to consider just how they, or anyone here who isnt on a very very very high income, will be able to purchase sufficient # of properties , fast enough, to generate $6 million + of unencumbered property assets within 10 years, generating well over 300K after all expenses, using today's post APRA servicing calcs...

Sadly, the real value of the extra cash flow generated by NRAS isnt going to be appreciated by those pursuing old thinking, or those still in denial about the new game that is underway... but I believe that it's value is going to be even more pronounced in this post APRA environment than many here realise, as clients with some NRAS in their portfolio will be able to achieve far greater debt reduction than someone of the same income levels, without it in their portfolio. This will ultimately deliver rewards by improving borrowing capacity significantly over time because of the debt reduction.. Unfortunately far too many on the forum still believe it's equity or a great mortgage broker that gets them into the next deal.

I'm sorry to say, that thinking is redundant for all but the very high income earners here. For the majority, that model has been disrupted. No matter how bright your broker, for most mere mortals, when the borrowing ceiling is reached, the borrowing ceiling is reached. All the equity in the world wont get you past the fact that assessment rate sensitivity and HEM increases are here to stay. So if there's anything to learn from the APRA and ASIC regulatory intervention, its that managing borrowing capacity is the new game if you want to expand your footprint and get anywhere near a portfolio that will leave you with the kind of passive income for life that I have outlined above. Some may not realise it just yet, but a refresher visit to their bank manager or broker for a quick mortgage health check will reaffirm it quickly enough...

But back to regionals... I' m a fan , provided the regional in question has strong diversity. Places like Orange or Wagga or Albury or Ballarat for example... hospitals, universities, agriculture...these aren't one trick ponies. They can be used well in a portfolio to generate cash flow that gets you into other opportunities. I have used NRAS in these areas quite deliberately. Precisely because they offer lower price points, where clients can generate very very high cash flow using much less equity ( for deposits, stamps etc) and much less debt.... in other words, they can buy more of them with less, and pursue a much more aggressive debt reduction/portfolio expansion over the next decade... which will ultimately see them debt free sooner, and in a position to expand far sooner... in the end game - they will be far better off...

I will continue to work in regionals in the next few years. I believe dual occupancy opportunities, where results very similar to NRAS can be achieved , will be the next great cash flow /debt reduction tool to engage with... but the cost of land in major cities makes the delivery of a truly high yielding dual occupancy dwelling prohibitive... I'll be focusing on regionals such as Orange, Bathurst, Wagga etc... where 7-8K CF+ outcomes are achievable because land is far more affordable and construction costs can be managed .

 

Ok euro73
Re your comment about low income
My understanding of nras is that you buy new dwelings often at higher then market prices. You rent them out at market rent with the govrnement subsiding some of it. But due to the benefits you get a much higher tax deduction/ depreciation thus creating the positive cash flow

 

Market rents are required to be reduced by 20% under NRAS legislation. There are a small number of NRAS providers whose models require a 25.1% discount, but that is not a result of the NRAS legislation. It's a result of the fact they have established themselves as charities to avoid tax liabilities, and charities are only allowed to receive 74.9% of the rental income before they invalidate their charity status. I don't deal with those organisations.

There were certainly a lot of properties sold with mark ups, by the same companies who have always sold all properties with mark ups, but it's unfair to believe all NRAS approved properties were marked up. I screen all stock with multiple mortgage purpose valuations to avoid this issue as well. I have sold over 350 NRAS approved properties and have only had 1 valuation shortfall.

Rip off merchants have always been rip off merchants. But that doesn't mean that amongst the NRAS opportunities, great deals cant be found. There are many property chat and somersoft members who have purchased with me and I'm sure if you were to ask, they would confirm they are very happy with the outcomes.

The cash flow outcomes are not only the result of a higher tax deduction., They are a result of the higher deduction PLUS the NRAS tax free credits.

 

Slightly lower increase for 2016/17 NRAS incentive, 1.2% increase to $11048.04. Last year the incentive went up by 2.4%. in 2009 it increased by 8.4%!!

A clear indication of rents not increasing much across the country last year (not NRAS rents, all rents). WA, NT and ACT all had negative rental growth. Taken together, we get an average increase of 1.2% only.

Jurisdiction Percentage change from corresponding quarter of previous year – Dec 2015
Sydney / New South Wales 2.3
Melbourne / Victoria 1.7
Brisbane / Queensland 1.0
Adelaide / South Australia 1.2
Perth / Western Australia -2.9
Hobart / Tasmania 1.0
Darwin / Northern Territory -2.7
Canberra / Australian Capital Territory -1.5

 

Since this topic is on regional towns, how has things been to Ballarat and Bendigo? Are they doing better now in house prices as compared to last year?

 

It's a good story for those who make it good in regional areas: Tree change for families: financial pros and cons of moving to a country town

 

I just read an article on chinchilla vacancy rates dropping from 20% to 5 %. I heard nathan birch is buying up with low ball offers in some mining towns....