I am interested to hear whether anyone has information regarding how NRAS properties are being revalued.
I recently had my NRAS property revalued with the intention of releasing equity only to be informed by the bank that due to it being NRAS, it cannot be valued against all similar properties, but only against comparable NRAS properties and the resulting valuation came back at less than purchase price. Basically they said that as far as the valation is concerned, the pool of potential purchasers is limited to those who want to invest in an NRAS property.
I am intersetd to find out if others have had the same experience or whether anyone knows any facts about how an NRAS valuation should be performed.
If this practice is correct then it seriously limits the benefits of NRAS properties in my mind, due to the limited ability to gain access to equity for additional purchases.
Long time reader first time poster?
Sorry, no experience with this. Although I do doubt it is as simple as this.
Change lenders.
Clarification – obviously it was the valuer that has provided the low valuation (I have full copy), the lender is not the issue, other than the fact that they used a particular valuer.
I am impressed that you got hold of the full valuation from the lender. Mine won't give me a copy, no matter how nice I ask.
A couple of ideas for you to take or leave;
1) Call some other panel valuers in the area and ask their opinion about NRAS properties. Do they have a similar view?
2) Call some valuers in other areas and have a chat. Try and find out their opinion.Would be a fatal flaw in NRAS as an investment option if this turns out to be a standard opinion in the valuer/bank field.
I don't understand why the valuer is using the "limited pool of buyers" argument. My understanding is that you can take the property out of the NRAS scheme at any time and put it on the general market with any other property. The only loss being any of the tax benefits directly related to NRAS. Perhaps if you show the valuer that this is part of the NRAS agreement you are signed up to? Maybe they simply don't know this.
Thanks emptyvessel.
Those suggestions are along the lines I am thinking. I assume that the logic of the valuer is – as it stands on the day of valuation it is in NRAS so to sell as is, the buyers pool is limited. The interesting part about the valuation statement was that the valuer did not definitively know the property was NRAS, I am guessing they had a dicussion with the tenant about the rent they are paying and deduced it was NRAS, and the valuation was done on this assumption. I could say to tem, "how can you base the valuation on the [potentially invalid] assumption that it is NRAS?", but I guess the argument will then be " if it is not NRAS we accept it is incorrect, so will provide an updated valuation", to which I have to admit that actually it is NRAS and they then say the valuation still stands.
What I would really be interested to hear is other people's experience on revaluation, to see if this is the standard practice, in which case this is an as yet unpuplicised flaw in the NRAS model. Other than coming out of NRAS, the long term option is to wait until the ten years are up, revert to market rent and true market valuation.
Interesting…
I just came off the phone from another major valuer who basically said the same – lenders are providing specific guidelines on particular types of properties, such as NRAS that indicate that it is a higher risk security and therefore the valuations will in most cases be lower. Another issue is that the banks require valuations to be done on a "vacant possession" basis and therefore view NRAS with long term tenants more difficult to get vacant possession once again resulting in higher risk to the valuer hence the lower valuations.
Firstly , a valuer does not ‘assume’. Based on the current restrictions, the highest & best use is NRAS. There is a limited market for this type of investment as it achieves a below market return, valuations are not based on tax incentives as each person’s tax situation is different.
You will achieve a better valuation when there is only 1 year to run on the agreement or if property values go through the roof making it worthwhile to end the agreement.
Scott
Exact wording in the valuation was "We believe this property is part of the NRAS scheme …", which does not look to me like a statement of fact. Anyway I don't really have an issue with that because assumption or not, it was correct.
You said "Based on the current restrictions, the highest & best use is NRAS." – sorry don't understand what you mean
Also "valuations are not based on tax incentives as each person's tax situation is different." – Fail to see any relevance here, why are we talking about a person's tax situation, obviously this has no bearing on a property valuation.
From my investigations and talking to other valuers about NRAS, it is clear that NRAS should be taken as an investment for what it is, ie a scheme that provides below market rent for tenants and that provides owners a payback for providing the lower rent. NRAS properties should not be expected to provide a great deal of equity, and whilst in the scheme will always lag behind the 'true' market in terms of property values.
I am done with this now. Thanks for the comments Scott and emptyvessel.
That's a bummer. Steers me away from NRAS for the next few purchases. Just won't help me use equity growth to fund further purchases.
That said, they could fit extremely well in the portfolio later once I have the base growth engine ticking along nicely. i.e. NRAS tackles the cashflow side of the equation nicely and could offset the significant tax I will be paying on rental income in later years. 2 of these in about 3 years will round out the portfolio nicely.
Great thread and thanks for sharing.
As the NRAS payment runs with the property, it should be considered as part of the income for that propety.
I would approach the professional body that looks after valuers and suggest that they reconsider their advice to their members.
It is not logical to fail to take into account a guaranteed income stream on that property, especiallly as it is attached to the property, not the person that was the first owner under the scheme.I do think it is convenient that they are forgetting that you can pull your property out of the NRAS scheme at any time.
If you do pull it out of NRAS, doesn't it then just get valued as any other equivalent property? The so called "pool" of buyers now includes standard non-NRAS buyers. So standard valuation should apply.
You are completely correct, but I guess they are valuing as being in the scheme, if you want the true valuation you need to leave the scheme and then get the valuer back in.
All a bit of a nonsense I think. Probably not all valuers will do the same and if you are lucky you may not even have the problem. Guess you need to give it a go with your own NRAS property and see what happens, then come back and post on this thread then we can at least start increasing the sample size.
I will do that, when I buy one (NRAS) in a few years. Right now, plenty of opportunity outside NRAS for me.
I will certainly ask every valuer I speak to about how they treat NRAS. And will post here on my results.
mwenborn wrote:I am interested to hear whether anyone has information regarding how NRAS properties are being revalued.
I recently had my NRAS property revalued with the intention of releasing equity only to be informed by the bank that due to it being NRAS, it cannot be valued against all similar properties, but only against comparable NRAS properties and the resulting valuation came back at less than purchase price. Basically they said that as far as the valation is concerned, the pool of potential purchasers is limited to those who want to invest in an NRAS property.
I am intersetd to find out if others have had the same experience or whether anyone knows any facts about how an NRAS valuation should be performed.
If this practice is correct then it seriously limits the benefits of NRAS properties in my mind, due to the limited ability to gain access to equity for additional purchases.
Sounds like your using St George bank? – i know The dragon has this requirement- hence why i stopped using them for NSRA lending.
There are still a good handful of another lenders that will do NRSA valuation as standard.
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There are 137 consortiums, and only about a dozen (actually, 14 I think) are actually approved by Genworth LMI and various lenders. To get approved, their agreement documentation has to pass the banks and the insurers scrutiny, which means no restrictions on repossessing or disposing of the asset in the event of a delinquency.
So bottom line is, if a bank has approved the NRAS model, there is simply ZERO excuse for a valuer to treat it any differently. If the banks and Genworth LMI have OK'd the consortiums model, they are obviously satisfied that it places their mortgage under no threat whatsoever, as far as disposing of the asset (selling it) is concerned. So a valuation should reflect that!
The only time this might come up and be understandable is if you are purchasing an NRAS property where the consortium (the owner of the NRAS allocation for that property) has a rubbish agreement, which isnt bank approved. And no one should be dealing with those properties anyway because the only way to get finance is to not disclose NRAS, and you'd be committing fraud by doing that.
Unfortunately , like many investors and commentators, its been my experience that many valuers just dont understand NRAS. The first Head lease model released in 2009 had severe restrictions on lenders abilities to repossess and sell a property if the mortgage became delinquent, and I think that many valuers still think that's the case, and applies to all NRAS consortiums agreements. Its just not the case though. That particular consortium ( QAHC) has long ago (at least 2 years ago) amended their head lease agreement to remove that restriction, and all the lenders are happy to lend against their model these days. I think valuers just arent up to speed in many cases, is all.
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