Has anyone got advise on NRAS?

Just keep in mind that you wont be able to resell on the open market for 10 years. If you need to get out before then you will need to sell within the scheme to other investors. If you are happy with that then its definitely worth looking into.

I'm not a huge fan – often overpriced and valuations come in low too often.

Cheers

Jamie

Donna, against the advice given by 'Investily', you can sell within the 10 year period to anyone. You have the choice to offer it to an investor to remain within the NRAS scheme or you can sell it to open market and have the property removed from the NRAS pool.

There is generally a 6 month notification clause if you wish to sell outside of NRAS and you will no longer qualify for any Federal or State government financial incentives. Check your consortium's specific contract conditions and penalties.

Depending on the consortium managing the property, you may not be able to specify your family as the recipients; they will also have to meet the income criteria and be registered as NRAS tenants.

I have one NRAS property and 3 open market properties, all seem to be going well.

Here's a really simple Cash Flow Analysis to help you understand.  In this example I want to use the example of a 400K property, completed, being purchased in SA.

For this exercise, I also want to assume you are borrowing 90% plus LMI, so your contribution is 10% of the purchase price, which is  40K  ( this is borrowed against equity)

You will also need to contribute Stamp Duty in SA, which is $16,630  for a 400K purchase ( minus $8500 Revenue SA rebate)  =  $8,150 ( also borrowed against equity )

I'd also like you to set aside 10K as a "cash flow buffer" – to cover the  out of pocket holding costs for Year 1  ( also borrowed against equity)   You'll see why, below.

let's also allow 2.5K or so for conveyancing, quantity survey and building/pest inspections.   (also borrowed against equity)

So let's consider your total contribution is $51,650 – the bank is funding the rest

EXPENSES

You have borrowed $51,650 , plus 90% ( 360K)  plus capitalised LMI  ( Im using 2% in this example- so $7200)   so your total borrowings = $418,850. 

If you borrow at a 2 or 3 year fixed rate of 4.99%, Interest Only , your repayments = $20,900.62 per annum

You will also have miscellaneous expenses such as Property Management, Strata, Rates, Water, Insurance – lets call it 5K per annum

So your total expenses for the year will be $25,900.62.  Lets just call it an even $26K

INCOME

The property would normally achieve $400 per week rental income, but under the NRAS, you will receive 80%, so $320 per week, or $16,640 per annum

THE TAX STUFF  PART 1

Your expenses are $26K for the year ( see above) .   Your income is $16,640 ( see above) .  So you have generated a cash flow shortfall of $9,360  ( if you recall, this is paid for by the 10K you borrowed against equity – see above. In other words, ZERO cash input from your pocket. It's a straight up equity play- nothing else. )   This is a deductible loss for tax purposes

You will also have a further deductible loss which you can claim for the depreciation.  Let's use a figure of 10K in this example.

Your total deductible loss is therefore $19,360  ( $9,360 cash loss AND 10K depreciation)

THE TAX STUFF  PART 2

Depending on your Marginal Tax Rate, you will most likely be entitled to an ATO refund for the $19,360 "loss" you have incurred.  Assuming a MTR of 37%, this "deductible loss" would result in an ATO refund of $7,163.20  PLUS a tax free NRAS incentive totaling $10,350.  ( Total = $17,513.20 received back from ATO and NRAS)

Remember that your pre -tax "cash flow shortfall" was $9,360,  ( see above) and you've now received an ATO / NRAS refund for $17,513,20 ( tax free)   so your AFTER TAX outcome is to be Cash Flow Positive $8,153.20

If you recall; you accessed exactly $51,650 of your equity to produce a tax free CF outcome of $8,153.20, which is equal to a 15.79% tax free return on equity.

Of course, you can change the purchase price , stamp duty ( less for house/land for example) and interest rate to suit whichever scenario you're considering-   and just by way of an example, on 350K  (ish) house/land packages  where Stamp Duty is only payable on the land, you'll generally be contributing 40-45K instead of 50-55K , but still netting 8K or more tax free, so the ROE is closer to 20% tax free.

Whichever way you do the numbers, the returns are entirely tax free, and entirely superior to any other opportunity in residential property.  But as others have warned-  valuations can be a serious problem. ESPECIALLY when you buy from the online project marketer community. 

So before all else- rule 1 is very simple – ask for a copy of a recent valuation, completed by a reputable/recognised firm, before agreeing to anything.  Or, have your broker order a valuation upfront before signing anything.

There are many, many good NRAS opportunities where valuations are rock solid.  Every one of my clients will tell you that every NRAS property I recommend has valued on the contract price or in a rare few examples, very close to the contract price.   Just make sure to ask about valuations first and foremost

If the valuations on NRAS come in low and you have comparable sales to support your investment decision then it is time for a new lender. If they come in low and their is a good reason then time for a new property? Have just switched lenders on a nras deal and what was short came back at purchase price. No probs deal done happy client ready for the next property.