NRAS Investment Property
NRAS Properties Now Provide an Excellent Investment Opportunity
Great news for investors, the National Rental Affordability Scheme, more commonly referred to as NRAS, has changed, it’s now far more flexible and easier to fund. Combine this with the fact that investors receive all of the tax benefits of a normal rental property, plus over $100,000 TAX FREE from the Federal & State Government’s over a ten year period, it now makes for a fantastic investment opportunity.
We had previously steered clear of N.R.A.S. properties for a number of reasons, but primarily because:
- Investors were locked into a 10 year investment
- Investors had trouble financing these properties (due primarily to the fact that lenders did not like the 10 year lock in term)
But it’s now changed for the better
Under the current arrangements from some NRAS providers the situation has changed, investors are no longer locked into 10 years, this flexibility has lead to easier funding and as such we feel that NRAS property can make for an extremely good investment option, available to both local and non resident investors and available also for those with self managed super funds.
A Positive Cash Flow Property
The NRAS incentive will usually improve cash flow significantly and in many cases change a negative cash flow property into a positive cash flow property.
What is NRAS?
The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government to invest in affordable rental housing.
The NRAS Scheme seeks to address the shortage of affordable rental housing by offering tax free financial incentives to property investors who build and then rent dwellings to low to moderate income households at a minimum 20 per cent below market rates.
“NRAS tenants tend to be key workers, such as childcare workers, nurses, police officers, fire-fighters and paramedics. Approximately 1.5 million households are currently eligible to rent NRAS properties.” (from the Australian Government website)
The Australian Government has committed $1 billion to the Scheme over four years (commenced 1 July 2008) to stimulate construction of up to 50,000 high quality homes and apartments, providing affordable private rental properties for Australians and their families.
What’s in it for the Property Investor?
The NRAS Incentive is a funding stream not available to standard residential property investors. Each approved dwelling attracts the NRAS Incentive for 10 years, so long as investors continue to comply with conditions relating to tenant eligibility and rent discounts.
The NRAS year is 1st May to 30th April and the 2012-2013 Incentive is $9,981 per Approved Rental Dwelling and is indexed each year to the rental component of the CPI. The Incentive comprises:
• an Australian Government contribution of $7,486 per dwelling per year (as a refundable tax offset or payment); and
• a State or Territory Government contribution of $2,495 per dwelling per year (in direct or in-kind financial support).
Prior to any future CPI and rental increases, the cash Incentives will total over $99,810 over the 10 years.
NRAS Investors Receive
A Rental Yield
Under the NRAS scheme, an investor may expect to receive a discounted rental yield from their investment property. For example if the rent for a property is $400 per week, the discounted rent payable by the tenant will be a maximum of $320 per week (at least 20% less than market rent for the area).
Allowable Tax Deductions
As with typical investment properties, property related expenses (e.g. management fees, council rates, body corporate rates, interest on your loan) and non cash amounts (e.g. depreciation of plant and equipment) may be permitted as allowable deductions against the income generated from the property, subject to personal circumstances.
The NRAS Tax Free Incentive
In return for providing a rental property at a discounted rate, a tax free incentive will be provided to the investor each year for a period of 10 years whilst the property is part of the NRAS scheme. Currently at $9, 981 for 2012 to 2013.
How Does This Effect Cashflow
Investors receive the tax free Rental Incentive plus market rent (less a minimum 20%) and they have exactly the same tax benefits as an investor who owns a non NRAS property.
So before we even worry about the tax benefits, lets just look at a comparison on say a typical $495,000 townhouse, market rent say $438 per week:
As a standard investment property:
Annual rental income (assuming 2% vacancy) = $22,320, a return of 4.5% prior to any capital growth being taken in to account.
As an NRAS investment property:
Annual rental income at 80% of market rate (assuming 2% vacancy) = $17,856 + Rental Incentive $9,981 = $27,837. A return of 5.6% prior to any capital growth being taken into account.
That’s a difference of an extra $5,517 each year for the NRAS investor, over $100 per week!
Most investments are financed and by the time you take into account paying the interest on the loan, the NRAS Rental Incentive will turn a typical negative cash flow property into a positive cash flow property.
Here are some direct links to more comprehensive cash flow examples:
Local Investor, comparing the same property with and without NRAS, assuming you borrow the full amount. NRAS Cash Flow
Non resident investors, comparing the same property with and without NRAS, assuming you borrow 70%.NRAS Cash Flow Non Resident
Video Cash Flow Examples:
Or if you would prefer a video example, you can check out a cash flow comparsion that we have prepared on one of our current off plan Melbourne apartments, comparing the same apartment as a standard investment and as an NRAS investment:
From a capital growth point of view there should be absolutely no difference between an NRAS property and an equivalent non NRAS property in the same location. So the criteria for an NRAS property from a capital growth perspective is the same as our criteria for a standard investment property, ie location, demand and supply for the area, the right property to meet the current and future demographic of the area, priced at current market valuation etc.
NRAS Housing Quality & Allocation
To comply with Government criteria for NRAS certification, NRAS properties need to be developments that are well positioned in solid growth, low vacancy locations close to employment, schools, shopping centres, hospitals and transport.
NRAS housing is no different from standard dwellings. In most cases the NRAS housing forms a small allocation within a total development. For example in an apartment block of 100 apartments, 20 may be NRAS properties and share the same quality design, build and finish as properties sold to non NRAS investors or owner-occupiers – making the NRAS property equally attractive, livable and good for resale. There is generally no distinguishable difference between an NRAS and non NRAS property.
Standard State and Territory residential tenancy laws apply to NRAS properties, NRAS landlords and NRAS tenants, just as they do for any other private residential investment property. This includes laws applying to registration and licensing requirements for property managers. The laws regarding evictions, maintenance obligations and responsibilities of tenants apply to NRAS tenants just as they do to other tenants in the private rental market.
Tenant Income Levels
The NRAS scheme was created to reduce the rent payable by “key workers” within the community, such as police officers, nurses, childcare workers, ambulance service workers, paramedics, teachers, fire-fighters and other critical community members. Other types of tenants include sole parents, apprentices, students and retirees etc.
NRAS homes are required to be rented to eligible tenants at least 20 per cent below the market rent to be eligible for the National Rental Incentive annually. The income levels for eligible tenants are specified in the NRAS Regulations. Initial tenant income levels are assessed against gross income according to the household composition. Example household income limits are as follows;.
Household Type Entry income level ($) Upper income level to maintain eligibility ($)
Single person 44,128 55,160
Two adults 61,006 76,258
Sole parent with 1 child 61,049 76,312
Sole parent with 2 children 75,685 94,606
Couple with 1 child 75,641 94,553
Couple with 2 children 90,277 112,847
Couple with 3 children 104,913 131,141
Household income limits are indexed annually on 1 May in accordance with the NRAS tenant income index. Household income is defined as the combined annual income of all persons ordinarily residing in the dwelling.
Eligible tenants’ gross income must be equal to or less than the Initial Income Limit when they become a tenant of an NRAS dwelling. Eligible tenants cease to be eligible tenants if their gross income exceeds the Upper Income Limit (the initial income limit for their household plus 25%) in 2 consecutive eligibility years.
NRAS Is Not Social Housing
NRAS is geared to key workers (service industry), over 55’s and families. People who are earning a low to medium income.
With NRAS there is control with tenant selection.
With social housing there is no control over the rental rate charged- the government subsidises the rent and sets the amount, with NRAS the rental rate is set by the market rent and is valued by an independent valuer.
The Australian Government has no legal or equitable claim over NRAS properties.
Most Importantly – Investors can Exit the NRAS scheme prior to the 10 years if they wish
Subject to meeting the terms of any existing tenancy agreement, the NRAS accredited properties that Home Port provides can be exited from the scheme at any time. This can be achieved by:
- Renting the property at full market rent ; or
- Exiting the tenant and moving in as owner occupier; or
- Exiting the tenant and selling the property to an intending owner occupier or investor looking for a standard residential investment (not an NRAS property).
The Rental Incentive no longer applies once the property has been removed from the scheme.
Home Port’s NRAS Property Selection Criteria
Home Port selects it’s NRAS opportunities based on:
- The flexibility provided by the NRAS provider
- The same general criteria as regards build quality, location, demand factors etc that standard residential investments are chosen
Receive Information on our current NRAS Opportunities
NRAS stock is usually in limited supply and high demand. As such it often does not appear on our website as it sells so quickly. If you would like information on current and future NRAS opportunities please complete your details on our Priority Investors page and please be sure to mention your interest in NRAS property opportunities.
For general NRAS information, you may like to visit the Australian Governments website: http://www.environment.gov.au/housing/nras/investors.html#tenants