Monday, 27 May 2013

NRAS - "To buy or not to buy"

Thinking about buying an NRAS investment property... think long and hard first.

In principle NRAS sounds like a great investment...
You buy a property with NRAS approval and place a tenant from a service industry like a Teacher, Fireman or Police Officer at a reduced rent of 20% below market.
In exchange the Govt will give you about $10,000 p.a. (Tax Free) for the next 10 years.

You dont have to be a mathematical genius to work out that a 20% discount is about $60 - $80 per week and the Govt $10,000 pa is about $200 pw before taking into account the Tax benefit. So it is more like being about $260+ before Tax. Sounds too good to be true... that is nearly $200 pw positive cash-flow, so what is the catch?

Well there are some catches, that they don't necessarily tell you about when you are lining up to buy one...

The first one is, there are some fees that you are going to be charged because it is a scheme that needs to be reported to the Govt regularly. Those fees will vary greatly from one organisation to another but let's ignore that for the moment.

Let's start with the type of tenant because it is the tenant that helps you pay the mortgage.

They say that they are aimed at servive industry workers like Teachers etc. but when you look at the maximum income that the tenant can earn under the NRAS rules, you could only get a Teacher, Fireman or Police officer that was working part-time... and only about 50% of a week at that.

So what sort of tenant are you really going to attract?
The answer is unfortunately, in many cases a social housing tenant. And realistically that makes sense... the Govt are not doing this to make the investor rich. They are doing it to provide affordable housing to those people that cannot afford to rent a home for standard rent.

We are getting reports from Property Managers (admittedly in Qld because there are more NRAS houses in Qld) that tenants in NRAS houses are less likely to pay the rent and more likely to do damage. But it will likely be that case in SA and other states equally.
Crazy isnt it... you give people a great deal with lower rent and they abuse it. That is unfortunately human nature.

But that is not the end of the problems with these NRAS houses.
Some of the people that have invested have decided that because of the non payment of rent and other hassles it is not worth the hassle so they have decided to sell the property... only to find that the house is not worth what they paid for it.
We are hearing stories that some of these houses are now worth $50,000 - $100,000 less than was paid to buy them. How can that be?

"Whenever there is a great opportunity there is an even greater opportunist."

What has been happening in some cases is Property Marketers and/or Builders have inflated the price because the deal is so attractive that people will pay more to buy it....
And of course these houses are often in areas that are already either over supplied with properties or in areas that are more affected by recessions and periodic slow downs in property prices.
Hence there may be a higher turnover of properties and therefore a lowering of prices, to make sales.

Prediction: We have all seen the stories of the tenant from hell is a Housing Commission house. Well look forward 10 or so years and i think we will be seeing those stories about people in NRAS houses.
If you have already bought one i hope, for your sake, that i am wrong... at least with yours.

The moral to this story is:
If you want to make money out of property investment you need to buy the best house you can afford and put in the best tenant that can afford your rent. Then will get consistent growth.
Where are those houses?
Generally closer to the CBD of the major cities. It is those areas that are less affected by the economics of downturns because the people that live there are in higher paying jobs and less likely to be laid off. Therefore they are in a better position to pay your rent. That means that you have less hassles and will make more profit over time.

If you would like more information on how to find a property that will make money for your future give us a call...

On 1300 131099

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