I have to say, the attacks on NRAS as slums of the future are a little unfair.

There are only three types of property that can attract NRAS
1. Completed Spec Home
2. New Construction Home/Townhouse
3. Units/Apartments.

Except for small unit/apartment developments, concentration levels for NRAS are limited to 30%. There are only a very small number of apartments/units small enough to have been awarded 100% NRAS concentration ( and most of those have been bought by institutional investors who will be very keen to maintain their assets) so the idea of NRAS properties becoming slums is pretty unfair.

NRAS stock was never intended for Mum and Dad investors. NRAS was intended for Institutional Investors- ie pension funds, superannuation funds, etc….and  these institutional investors have so far accounted for about 40% of all NRAS purchases- mainly units. The limited number of developments where NRAS concentration has been allowed to 100% have been almost entirely swallowed up by institutional investors.  Its unlikely that these investors/funds will allow their assets to be poorly managed, run down and left in disrepair, so the probability of those developments becoming slums is remote. In any event, those developments are not available to investors such as you and I, generally. The institutional investors almost always take the whole lot.  So theres nothing for you or I to worry about with these NRAS developments.

NRAS was always intended to drive new unit and townhouse construction, in delivering its affordable housing objectives. It was aimed at providing centrally located, easy to manage medium to high density stock to institutional investors, at price points that suited NRAS ie-300-450K. Perfect for 1 and 2 bedroom metro units, and perfect for 3 bedroom units  and townhouses in outer metro suburbs of some capital cities and major regional centres.  However,as we all know, the GFC created difficulties for developers in the past 2-3 years, in obtaining development finance, so the number of medium and high density units FAHCSIA antcipated would be built and sold to institutional investors through NRAS, has been severely affected. The only other new construction finance that can be obtained relatively easily is residential property construction finance, so we've seen a shift in focus over the past few months towards house and land stock.  Institutional Investors arent interested in owning hundreds of different houses in a variety of locations, so as a result, we are now seeing NRAS opened up to Mum and Dad investors. 

Under NRAS guidelines, concentration levels for house and land estates are limited to 30%. The reality however, is that in almost every instance, the real world concentration levels have not exceeded 15% in any estate yet, as most housing developments have multiple stages and NRAS hasnt existed long enough for allocations to exist across 30% of the total development.   So again, the probability of new housing estates where NRAS property is available, becoming slums in the next 8-10 years, is unlikely. With concentrations well below 30%, and the majority of other houses being owner occupied, the risks are low.

There have only been about 15,000 of the proposed 50,000 NRAS incentives awarded so far.  Of the 15,000,  the first 6,000 or so were bought up by institutional investors ( units mainly, as described above)  and another 3,000 or so have been bought up by housing co-ops to provide affordable housing to their clients ( I would agree these have the potential to turn to slums in years to come because of the potential tenants they attract through their owners, but these are not properties you or I have access to- the co-ops have bought every NRAS allocation in those developments, so its not a valid consideration in this discussion)  and that just leaves a few hundred units/townhouses available off the plan, and several thousand 3 and 4 bedroom house and land construction deals – which is the bulk of investment stock available to the public at this stage. 

So all in all, unless you're buying one of the very few units in a development that hasnt already been swallowed up by a co-op or institutional investor, and that development is in a less than desirable area and has 100% NRAS concentration, its highly unlikely there is going to be any slum issue to worry about.

Remember, this is affordable housing, not housing commission.  Tenants have to be working and earning money to qualify to be tenants. The target markets are police, ambulance, nurses, teachers etc… in their first and second years out, on lower incomes. There are significant compliance requirements that approved participants/property managers are required to undertake to keep the property NRAS eligible- and that includes valuations in years 1,4 and 7, plus rental re- appraisals annualy, as well as income checks and employment checks on the tenants…. all in all, I think people are making pretty invalid accusations about the risks and slum potential for NRAS properties.

• Prices have definitely been jacked up, no question. Easy to verify with a property search.
• 1/3 of the rebate is lost in fees. So that 91K (Qld!?!) is closer to 60K

Prices Jacked up-  thats where valuations are key.  This problem isnt exclusive to NRAS property.
1/3 lost in fees-  its a broad statement but not entirely accurate- depends on which NRAS model you buy through.

I'll try and provide some broader perspective below, because NRAS seems to be misunderstood. Perhaps this may assist;

First and foremost, its important to understand NRAS from the beginning. NRAS incentives are applied for through a tender process, by Approved Participants- otherwise known as consortiums. These groups have been appointed by FAHCSIA.  Developers pay these AP's a fee to secure them X amount of NRAS incentives in a development, from FAHCSIA and the relevant state Housing authority ( because the NRAS incentive is made up of a state and federal component)  The tender process is rigorous, and incentives are allocated to properties where both the state and fed departments believe there is a need for affordable housing. Approved Participants include groups such as QAHC, Questus, Aspire, National Housing Group, Ethan Affordable Housing, UAHA and others…   a full list is available on the FAHCSIA NRAS website.

Once the NRAS incentives are secured, developers have a choice on how to market and sell their NRAS approved property. Some will use in house marketing teams, others will sell via property groups, seminars, internet etc.  This is why you are seeing alot of property groups popping up when you do a google search for NRAS, showing lots of different properties. I must stress, in almost all these instances, the person selling the NRAS property is NOT the Approved Participant. They are usually a property group being paid a marketing fee to sell the property. Of itself this is not unusual or problematic. (After all, real estate agents are paid to sell properties, too.) but excessive marketing fees can be a problem, as valuers will look to reduce valuations on stock where they know the seller has a high marketing fee reputation. This isnt the case for all property groups though- so don't tar everyone with the same brush.  Just be mindful..there are cowboys in every industry- so deal with reputable property groups who have been in business along time and have a proven track record. Some approved participants have deliberately capped the marketing commission payable to a property seller, to ensure there is no gouging. Ultimately though, lenders will undertake valuations.

OK…so the AP has secured X amount of NRAS incentives for a developer.  The developer begins selling stock, marketing it as NRAS approved stock… whats next?  Does the AP have any further role?  Yes.  Their first role was to secure the NRAS incentive for the developer, through one of the tendering rounds offered by FAHCSIA. Once that's done, their role changes considerably. Because NRAS incentives have eligibility criteria attached to them – ie mandatory 20-25% rental discounts, tenant income thresholds, etc- someone must be responsible for the administration of the scheme, to ensure compliance, and therefore ensure the investor is eligible to receive the NRAS incentive.  That "someone " is the AP. Put plainly, most developers dont have the skillset or an interest in being compliance/property managers for 10 years, after their stock has been sold… so that responsibility goes back to the AP's.

This is where people start to get confused, and its the reason why finance for NRAS has been difficult.- because each of the approved participants approaches this role differently. Firstly, each has a different contract/model,  which the NRAS investor is required to enter into, and each has a different set of fees and charges.  There are three basic models; 
One AP uses a Head Lease Agreement, and charges significant entry fees and ongoing property management/compliance fees.  Properties are rented at 25% below market rental
One AP uses a Managed Investment Scheme, has lower entry fees and lower ongoing property management/compliance fees. Properties are rented at 20% below market rental
All other AP's use a Non Entity Joint Venture. Fees and charges vary. Properties are rented at 20% below market rental

Because of the variety of different models, lenders have been reluctant to embrace NRAS. A lender would have to review and sign off on every model in the NRAS market in order to develop a straightforward NRAS policy- so instead, what you will be seeing is that some lenders are approving certain NRAS models only.. so its critical that you know which models are ok with lenders, and which arent. This is much more important than the actually property itself, because its the key to obtaining finance.

For example, QAHC's "head lease" model has been signed off by rams, westpac, st george and firstmac. Genworth has also signed off on the QAHC model. Each of the 4 lenders mentioned will officially lend for QAHC properties, subject to certain strict criteria. For example, they will accept only 65% of the normal market rental, and they do NOT accept the NRAS incentive as tax free income.( firstmac does, however- so they have the best borrowing capacity for QAHC) Westpac will do 85%LVR plus LMI. Others will do 80% LVR.

Questus use a Managed Investment Scheme model- and Genworth has also signed off on this model. firstmac and st george have also signed off on it, and will both lend against Questus NRAS  stock. Again, firstmac accepts the NRAS incentive as assessable income, St G does not.   NAB will probably also take a few Questus deals- case by case…but mainly through branches. They also wont use the NRAS incentive as income for servicing.

Ethan Affordable Housing uses a Non Entity Joint Venture. No entry or exit fees… Adelaide Bank and firstmac have signed off on this model. …..

What Im trying to demonstrate is this- the first question you should ask anyone , when considering an NRAS property, is "who is the approved participant?" Research the  individual Approved Participants models, first. When you've done some comparisons, decide for yourself  whether they have property you are interested in. If you find stock from a participant that doesnt have the support of lenders, you'll probably find it next to impossible to finance it anyway, so its probably a waste of your time.

As far as 1/3 of fees being lost is concerned- research the models. Some have very flat fees. Ethan for example, charges 7.5% of the NRAS incentive- thats it. Questus also has cheap fees. Others may not be quite as cheap…but its up to each individual investor who is considering an NRAS purchase, to understand the various models fees and charges… and do a comparison before deciding on what they wish to buy. Im not recommending one model over another. Im just demonstrating there are differences which need to be better understood by people here.   If you want property in a particular location and its being sold under a more expensive model, and if you are not interested in other properties, available through cheaper models, in other locations… its something you'll just have to accept as a cost of doing business.

Bottom line….  look into the approved participants models and their fees. Be realistic about which ones the lenders support and how they assess borrowing capacity, and make your NRAS property and finance decisions on that basis.

The only negatives to Cash Flow positive properties are the perceived negatives.
1. the properties must be cheaper and therefore are likely to be in less desirable areas and show less growth.
2. The types of properties that fit CF + profile.  Student Accomodation, regional property etc. May be more difficult to borrow against and LVR's will be lower, generally

These are all very real issues but arent necessarily limiting. They are certainly not a reason to avoid CF + property, if its the only way you can particpate. What I mean is that for some people, CF + is the only realistic way to go, as negatively geared property is something they cant afford. The monthly holding costs are beyond their budget. Its all well and good to run a property at a loss in the hope of achieving some tax benefits and long term wealth through growth, but that can only work if you can afford it.  In those cases where people cant afford it, CF+ is still a viable investment strategy even though the growth MAY ( and usually will be, to be fair) be inferior. At least you are still able to get involved in some form of property investment.  Something is usually better than nothing, right?

I keep hearing that the majors are about to start doing NRAS deals. Seems the Head Lease Agreement issues have been ironed out/amended, and some of the leading consortiums have brought the relevant Govt depts and banks together to sort it all out.

Thats still possible shamematt. You'll still have access to equity but its just stricter now.  No ones saying you cant get a Line Of Credit for legitimate purposes or access equity for legitimate purposes.  That hasnt changed.  The real difference now is that  banks will no longer give anyone money with a "no questions asked" kind of approach, just because they have lots of equity and can service the loan.   Banks want to know what the money will be used for and they want to be perceived as being more responsible in their lending practices. They'll give you the money but  will demand to see evidence/quotes for what you are spending the money on. So if you legitimately wanted to get money to do renovations or purchase a car, thats fine. You'll now have to make a declaration regarding the purpose of the funds in the loan application.If you were renovating they'd ask for quotes, building plans etc. If you were just doing an internal tidy up such as paint or tiles or new shower or kitchen they'd just ask for some quotes.  But be sure that you use the money for what you said you were going to use it for, because when you go back in 2 or 3 or 5 years looking to tap into equity again , they'll be taking a very close look at you assets and liabilities, and they'll expect to see some of the assets you said you were going to buy with the last money they gave you.  All in all, still possible, but its just stricter and you have to have a clear idea of what the money is for BEFORE asking the bank for it. 

As for the credit crunch you are referring to from a decade ago. There was a recession about 18 years ago, but there's never been a GFC like this. The Depression of the 30's was the closet thing from a perspective of scale and cost, but mortgages/lines of credit/equity loans werent really part of the picture then.  It was stockmarket related.  The difference  with this particular crisis has been the trillions of securitised funds being written off-  they're called RMBS  Residential Mortgage Backed Securities. As I outlined in my previous post, thats a big part of the reason why there will continue to be stricter control and tougher entry criteria for mortgages for several years yet.  

 We just need to realise that we arent exempt from the effects of  the northern hemisphere,  and its not going to be as easy as it was 3 or 4 years ago to get cash for anything we want. 

What about finance?

I keep hearing that very few lenders will touch these.

Who are the lenders that will ?
Are they available through third party or only through select branches?
What LVR's will they look at?
How are they assessing serviceability? ie do they take 80% of the discounted rental ( which is already discounted by 20-25%) PLUS 100% of the NRAS tax free incentive, or 80% across the board?

shanematt, you're going to have a really tough time getting any lender to let you do this anymore. Cash Out is pretty heavily policed these days. The LOC you have in place is fine- you got that set up in the past where cash out wasnt scrutinised so closely, but when your LOC hits its limit (and it will eventually) and you go looking for more money I cant see you getting much joy unless you can show serviceability. Of course, this could change, but as it stands now- unless no docs come back to the market, or maybe, just maybe you could sneak through with a PAYG lo doc if you played it right  and had a low enough LVR, I think you're going to run out of luck.

A 95% strategy is completely unnecessary given your fantastic position.  At 95% LVR, you wont easily find cash flow positive properties either, so you will have to top up the monthly mortgage payments, possibly by several hundred dollars per month. This will also limit your borrowing capacity. No need to rob Peter to pay Paul.  If you have a significant income and can afford it, and want some neg gearing benefits, that might work, but why take the risk when you have so much equity?  You could simply put a larger deposit towards each purchase and let them pay for themselves.  You're in an incredibly strong equity position, but you didn't mention your income level so if you are going to be relying on rental income to contribute to servicing the loans on the investment properties you buy,  stay below 80% LVR and you can still buy several properties and let them take their time to grow without any real risks. It would be beneficial to your borrowing power too.

So…

On property 1 you would get an I/O loan for 480K. ( 80% of 600K)
On property 2 you would get an I/O loan for 640K  ( 80% of 800K)

I'd start with one property only- lets say you get a 480K loan approved- you could easily go and buy 4 x 500K properties.
You put up 20% on each (100K)  plus stamp duty. In NSW for example, that would be around 20K.  So there's $2million worth of properties bought using 480K of your equity!!!!  Then borrow 400K for each of the investment properties, and let the tenant pay the loans off. All loans would be at  80% LVR, so no LMI to pay.  Also, be sure to use at least 2 different lenders for the investment purchases. Dont give one bank, all five loans. That puts too much control in one banks hands, and may impact on your ability to gear any further at a later date, if you wish to.

You'll have 4 x rental incomes to service the loans. If you buy well, each should rent for 25-26K per year. That's100K across all 4.
You'd have an I/O loan of 400K for each one. At current rates (lets use 5.5% I/O ) your repayments would be 22K. 88K per year.
That leaves you with a little bit of a buffer for vacancies, repairs, insurances, property management fees etc and you dont need to put any of your own money in.  Even if rates climbed 1.5% to around 7%, you'd only have a shortfall of a few thousand per year on each property, and because your PPOR is unencumbered and you have no mortgage, I will make an assumption that you could easily cover a small shortfall like that.   This sort of a strategy may not provide the "maximum" number of properties or the "maximum" amount of growth, but this way you take no risks and can still own multiple properties. Nothing wrong with sensible geared investment, especially when you have such an enviable equity position to start from.

You could then look at repeating the process using your other unencumbered property- but I'd look at putting a chunk of that money into a self managed super fund and buying a couple of the investment properties through it. You'll need to put up about 30% deposit on anything you buy in a SMSF, but the tax benefits are fantastic

Anyway, just an opinion, and to be honest these are just random numbers Ive selected. You could easily buy properties that are more expensive or less expensive than what Ive suggested- but I had to use an example for the purpose of the exercise.

Do as Terry suggests, but consider taking a LOC up to 90% of the value of the PPOR so you are only repaying what you draw down.
1. Pay cash for a 500K PPOR. If you are a First Home Buyer you are exempt from stamp duty, and the FHOG will cover your application and legal fees easily.  You should be left with several thousand dollars from the FHOG. 
2. Take out an Interest Only LOC that features multiple sub accounts/splits, so that you have the right type of loan to grow your wealth.  You should be able to secure a 90% LOC, so 450K.
3. Use the 450K to purchase however many Investment properties you wish to.If you purchase at the right LVR the properties should be comfortably cash flow positive. You may pay some tax, but so what? You will also be accumulating significant wealth.
You need to speak with a broker who can do some calculations for you. Just because you have 450K available to fund X number of deposits, your borrowing capacity will not be unlimited. Your income, your rental income and any liabilities ( personal loans , credit cards etc), plus dependent children as your circumstances change in future, can all have an impact. In your case, you should have no debt. Use cash to pay off all personal loans and credit cards, etc…

Lets say you buy 3 investment properties worth 500K each. You provide 20% deposit on each ( 100K each- 300K total) plus whatever stamp duties and legal costs ( probably about 20K-22K on each property,but will vary from state to state )  In this scenario you will have borrowed $1.2 Million. ( 400K on each property) but you will have 3 x rental incomes and your own income. 
You basically have countless options. The most important thing is that you buy your PPOR for cash and then set up a 90% LOC so you can take whatever opportunities you like.  With that kind of money, I'd also be strongly considering a Self managed Super Fund to purchase investment properties.  The Tax on any positive cashflow will only be at 15%, and the Capital gains Tax is NIL if you sell the property after pension age. Even if you sell beforehand, the CGT is only 10%. Go see an accountant /Financial Planner who has a good broker working with him. You'll need tax advice, financial advice and loan advice.
You're in an enviable position having 500K cash to play with. Your possibilities are almost endless.

Hopeful

The situation you and your husband are in is regrettable, but you are literally at the crossroads and there are only two options; pay up or sell up.  Your bank has already extended you several months of grace, and they are not obliged to. Soon enough they will call in your loan and you will lose the property. 

Regarding refinancing to buy yourself time to find work; realistically, unless you can immediately make up the arrears and keep the loan in good conduct for 6-12 months, no lender will refinance you. It's really that black and white. From what your post suggests, that's not possible. Im afraid that its black and white- you will not be able to refinance from your current situation.  
It doesnt matter whether you try for full doc or lo doc.  Neither the lender or their Mortgage Insurer will approve a  refinance or any additional advance to any loan account that is in arrears or has been in arrears. I am not wishing to be brutal, but you will be considered a credit risk by any lender.  Leaving conventional lenders and seeking private funding will only further exacerbate your situation. Once debt becomes unmanageable, it quickly spirals. If you seek a solution through a much higher rate, via private finance, you will only be burying yourself.

While you can, you should cut your losses. Sell one of the properties, downsize your expenses by renting as cheaply as possible, securing work ( move back to your previous location if necessary)… but the bottom line is that you have to sell.  If you do not, it's highly likely the bank will sell and they don't care what they get for the property as long as they get their money back. You could lose most or all of whatever equity you currently have in the property.