14 May 2012

NRAS as an investor?

| davjp
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I have been looking into the National Rental Affordability Scheme NRAS as an investor and was wondering if anyone is doing it or knows anything about it in Canberra?


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Hi davjp,

I am involved with NRAS in Canberra.

Feel free to give me a call if you would like some more information regarding NRAS as an investment opportunity in the ACT.

0408 488 148

VYBerlinaV8_is_back1:41 pm 14 May 12

I’ve a very quick look at this, and I think it could be made to work, BUT there would be a number of conditions that would need to be met for it to be a viable investment. Off the top of my head I can think of a few things I would need in place before I would invest:
1) The property should be in a location that when the scheme finishes (10 years I think) would be in red hot demand.
2) I would want property management rights over the property, ie if the tenant damages the place I will be chasing them (either directly or through my insurance company), and have the power to evict those tenants who don’t comply with the lease conditions
3) More clarity is needed around exactly what constitutes ‘20% below prevailing market rates’
4) More clarity is needed around how the CPI+10% rule applies
5) Am I required to build this property, or can I use one of my existing ones? What are the building requirements for NRAS properties? Do units count?
6) What are my options for withdrawing from the scheme? A quick read suggests I can withdraw whenever I like.

I wouldn’t be averse to investigating further, but on first golance this doesn’t look like something I’d recommend to the first time investor. Do some other IPs first to learn the ropes before taking something like this on. On the surface, it looks like a reasonable deal, but the devil is in the details.

Google chc affordable housing or community housing Canberra (too hard to link from my iPhone). They recieve a lot of NRAS funding and should be able to help or point you in the right direction. I’d assume there would be some tax benefits from investing in such properties, different to your normal rental property tax implications.

The main thing that stands out to me is that NRAS deliberately focusses on the bottom end of the rental market, and is oriented towards a rental return strategy rather than a capital appreciation strategy.

That is, you’ll be aiming to make your money from rental returns rather than leveraging the equity in your property as it increases in value. The NRAS picks the houses, so you can’t just say, “here is my chosen property, please subsidise the rent so we can put poor people in a nice house.” So on that ground, the NRAS appears to operate on a similar basis to DHA: except NRAS doesn’t appear to offer any support in the case of the tenants trashing the joint (so make sure you get your Landlords Insurance from a company known to pay out rather than quibble). The DHA offers to refurbish the property (new carpets, new paint) at the cessation of the 9 year contract.

The NRAS, like the DHA, also picks the tenants. These people will basically be public housing tenants which means that despite all the really nice people who take care of the property they’re being allocated you will inevitably have a tenant or two who will trash the place.

So if you’re investing, have a look at your options and proceed with the NRAS option only if the properties they are offering suit your chosen investment strategy. Don’t expect an NRAS property to perform equally to the same property outside the NRAS scheme. This is philanthropy, not investment. Absolutely participate in the scheme if you have a spare $100k or so lying around. If you’re betting your superannuation on it, I’d steer clear.

I am not a financial advisor, this is not financial advice. This is an opinion from an anonymous person on the Internet.

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