I’ve been looking into this in a little detail lately, for an individual investor I cant see any real problems and there certainly seems to be monetary incentive.
That said, I dont seem to be able to find anyone who has actually given it a go. I just dont want to be the first to jump in.
Does anyone have any direct experience with the scheme? any pitfalls, problems?
Hi Mr5o1,
I enquired on the scheme and they forwarded me calculations based on a set purchase price. The properties are quite negatively geared throughout the financial year until you lodge your tax return and get the federal and state government rebates. It has its pros and cons it just depends on your financial situation and if you can support the negative position until tax time. After you get the rebates it will likely turn the property cashflow positive however I found when I played around with higher interest rates it was still negative after rebates. This turned me off the idea, I can forward you the email a company sent me with some figures and you can put in your income etc. Another downfall I think it will negatively impact on your servicing when you apply for another IP loan as the banks are only using the 80% market value rent not 100% at the moment.
hi jaqui
A PAYG variation would help with the negative cashflow during the year, if your paying any tax that is..
Whether the property is positive or negative at the end of the year.. based on my calcs on an average property your looking to get between $5k and $7k after tax cash benefit, so even if the property is still negative, your still $5k better off.
I’m a little dubious of the idea of buying a credit from one of these companys onselling them. According to the FAHCSIA website, the initiative is not aimed at private investors. So I dont really understand how a company can buy a bunch of them and then onsell them to private investors.
I’ve PM’d you – love to get a copy of that email!
Mr5o1,
Do you have a govt website you can recommend with more details on the scheme. I've only read a little bit about it and dont understand what qualifies you to be a part of the scheme.
Andrew
itsandrew
Go as far as you can see and you will see further.
Hi itsandrew,
Myself (& others) have found it very difficult to find accurate information on the subject, as it pertains to private investors. The scheme is administered by fahcsia, there’s some helpful info here:
http://www.fahcsia.gov.au/sa/housing/pubs/housing/nras/Pages/default.aspxre: what qualifies you.. there are indeed qualifying characteristics which would have to be met by an individual property. That said, fahcsia will not deal with individual investors. So you cant just construct a rental, and then ring fahcsia for your NRAS accreditation.
I’ve heard it said that a standard 3×2 would be elligible for the scheme provided it has never been tenanted before. Whilst that may be true, the trouble would be getting an NRAS accreditation. I believe that the costs of having a single property accredited would be impractically expensive.
For a private investor, I think the only way to get in on the action is to buy an accredited property. For example, a developer may be constructing 20 units, and decide to have 10 of them accredited as NRAS properties, and then sell the whole lot through a marketing outfit.
If you wanted to buy one today, http://www.nraspropertysolutions.com.au is the only marketer I know of. “The Investors Club” is certainly interested but I dont think that they currently have any NRAS properties for sale at this time.
Hi Mr501
I have done 100 of hours researching NRAS and I have just put down an EOI for a property in Qld. So I'm sold – Do your homework the scheme is brilliant for a number of reasons – one of the few things the Govt got right.
website http://www.landordcentral.com.au will show you some of the properties around. The website is a good starting point in that you can change the variables on the calculator to get an approximation. I built my own on Excel spreadsheet to check and the figures are pretty accurate…
I am buying my propert y through SMSF so my return is a little less due to tax position etc.. but the 10 year hold is fine by me. As an aside you can sell your property mid way through NRAS contract.. it may have to be sold with the certificate, that may cause some issue with resale etc… unless another investor picks it, at what price??
Produce a report on landlord central, and you will get 2-3 pages on risks /assumptions this gives you a good overview of how it works from a practicble standpoint.
The three major risks I can see (apart from all the others in property investment) with NRAS.
1. Whilst it is not a 'Govt housing' project and aimed at low -medium socioeconomic , can't guarentee what tennat quality will be like. However , 20% will encourage tennants to look after property, or they are out. Your PM should be doing this for you anyway.
2. THe Property Manager must ensure your tennants each year are still eligible ,if not they have to move out, if they breach, you may not receive tax credits etc for that year.. again your PM must be on top of this.There are long time frame allowances.
3. The areas I have found are not your most desirable suburbs etc… however they have been idnetified by Govt as high growth… so need to be unemotional about the transaction – as you should be with property anywway.Otherwise this program is a no brainer whilst you loose 20% in rent you gain approx 30+% back in the incentive. There is a cash flow issue , with the lag between rent discount and picking up the incentive, but if you can weather that , your in front.
Finally, use google like "realestate NRAS" and http://www.realestate.com.au and domain .com will pick up a lot of properties from smaller developers with NRAS certificates attached. Another point stay away from Headleases if you can , banks are still not as friendly as they should be, I'm sure someone will reply , I have done NRAS through bank with headlease, interested how they went. My property is a NEJV without a Headlease.
Hope this helps.
Tim
Hi Tim
I have just signed contract for NRAS applicable property and am still concerned about ATO ruling regarding head lease arrangements. From what I have read, it didn't seem possible to avoid having a head lease – so how did you manage to do this and still use a NRAS approved property manager?
Amanda
Hi Amanda,
I haven't signed yet, awaiting contracts. However, I have looked at 50 to 60 various developments and most have headleases. My understanding It is upto the developer to 'decide' how they want to arrange the NRAS payments to be managed. Some are using headleases and some not (NEIJV) . This is my first question to the selling agent, if yes then I say not interested. Unfortunately some of the best properties are using leases, shame. Regards.
Tim
Whats the issue with a head lease ? Why do you want to avoid them ?
I'm very close to signing a contract on a NRAS property, one with a head lease & one without. (I think)
Also your accountant can apply for a PAYE tax variation to you don't have to lose money all year & then get the $9k back at the end of the year.
This is what I have managed to find out about the diffences between the Head Lease model and NEJV.
The head lease version of NRAS (or Heads of Agreement) was thought to be restrictive by banks and lenders as there was some concern in regards to the disposal of the security property and the restrictions that the head lease placed on this. The WBC group have done a massive amount of work on a large consortium in Qld with a head lease and they have now released a policy in regards to lending on properties under this scheme with this particular consortiums head lease. This policy also covers RAMS and St George. I have seen a lot of these in Qld with no huge issues for the investor. I would imagine that it would depend on exactly who applied for the NRAS approval on that particular property and if they are involved with a consortium that uses a head lease. I have also heard of one investor in Qld who had purchased an NRAS property and decided that they no longer wanted it to managed by the consortium that they were with and managed to move it on to a compliance manager who was under the NEJV model. I am not sure if this is something that would be easy to do (or if you would be able to do it) I would be interested in knowing what it is that is specifically stopping investors from purchasing properties with a head lease?
The non-entity joint venture model of NRAS has no head lease attached. This is basically a tax term, and it relates to the investor/purchaser and the compliance manager who share in the rebate for the scheme. Unlike the headlease there is nothing registered on the title.
If anyone wants more information on the differences I have details of a man in Qld who knows pretty much everything there is to know about NRAS.
Hi ,
We were originaly building an NRAS house in Chinchilla, but we pulled out of it and went private instead. We still built the house as we were part way through building when we pulled out and had it rented for full asking price in no time. The reason we pulled out was not because of bank issue's our's were ok with it, but because of the consortium. They were dragging their feet changing the headlease several times never had a property manager in place or Insurance organised. Then when we were about 6-8 weeks from completion they then said they were trying to get Park Trent to manager, well that was the final straw we pulled out. I wouldn't go near Park Trent if you paid me. The consortium was the main provider of NRAS in QLD hopefully they have their act together by now, we pulled out March/April. We are still all for NRAS but the headlease has caused lots of problems mainly with the banks but I believe things are starting to improve now.
We are still interested in the scheme it just has to be done correctly and are not against doing our 2nd IP possibly through it if we find something that suits and is run correctly. Would not go through the consortium that we were dealing with for the first as they really messed things up.Good Luck to you all and I hope things turn out better for you all.
Marnil who is the guy you know in QLD?
G'day JPS
I've been looking at Chinchilla for my next investment property, would be interested in your experiences as I don't know to much about the area except from what I've read. My finacial advisor has just come back from there after looking at the potential of the place. He seemed to think it doesn't look to bad. I know there is a lot of gas and mining starting up around there. How have you found the rental demand for new properties as I would be looking at new, any info would be good.
Cheers
Rod
Hi Rod,
We bought our Investment house through Surat Basin Homes, we went direct by contacting Steve Bradford. He is no longer there but Di Ewen and Jay will certainly look after you. You will find there website is very informative http://www.suratbasinhomes.com.au 1800 041 411 is the phone number. Pretty sure they were still doing NRAS for Stage 2 of the Bottletree Estate, but give them a ring or look on the website. Di's email [email protected] and a link to some of the recent info they just sent me is http://www.isuu.com/suratbasinews Also check out http://www.advancewesterndowns.com.au Lots of other builders out there too but I don't know their details.
Chinchilla itself is a nice country town which with all the mines already there and more coming to town or growing does have potential. I recently recieved a news letter from Di and there will be a Woolies coming to town to soon, already an IGA based there. At the moment a new Motel is being constructed to be competed in December so it is definitly going to grow some more with a lot of housing projects already finished or near to finished.
Check out the realestate.com.au for current properties for rent. It has gone down recently from under 90 to under 70 now. We were lucky that we had someone interested in just over a week after handover, not everybody has been so lucky. Saying that there are some house not as well built as Surat basin Homes and not the same inclusions. Certainly worth a look, I don't know where you are based but we went through a number of times to check the progress and talk to PM's and everyone was very helpful. We are lucky in that we live on the Sunshine Coast and although we did opt to stay overnight on 2 of the occasions it was possible to do in a day trip.
Good Luck
Jean and Paul
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