The NRAS Cash Flow Advantage
You have found four investment properties of interest. Two have asking price $360,000, each exactly the same as the other, except that one is NRAS accredited, the other is not. The other two are $400,000 each, also exactly the same as each other, except for NRAS.
You can afford the purchase price, but you are not sure that you can afford to pay the holding costs, the excess of ongoing interest and expenses compared to the rental income. Using two different investor tax rates, let`s look at the difference NRAS makes.
| Assumptions | No NRAS | NRAS | No NRAS | NRAS | |||
| Property Cost and Loan | 360,000 | 360,000 | 400,000 | 400,000 | |||
| Gross Rent (NRAS 20% less) | 370 | 296 | 410 | 328 | |||
| Investor Tax Rate | 31.50% | 31.50% | 39.50% | 39.50% | |||
| Interest Rate | 7.40% | 7.40% | 7.40% | 7.40% | |||
| Cash Flow | |||||||
| Gross Rent (4% vacancy) | 18,470 | 14,776 | 20,467 | 16,374 | |||
| Interest | 26,640 | 26,640 | 29,600 | 29,600 | |||
| Property Expenses | 4,156 | 4,156 | 4,605 | 4,605 | |||
| Pre-Tax Cash Flow | -12,326 | -16,020 | -13,738 | -17,831 | |||
| Building Depreciation | 4,500 | 4,500 | 5,000 | 5,000 | |||
| Fittings Depreciation | 3,150 | 3,150 | 3,500 | 3,500 | |||
| Interest | 26,640 | 26,640 | 29,600 | 29,600 | |||
| Property Expenses | 4,156 | 4,156 | 4,605 | 4,605 | |||
| Loan Costs | 900 | 900 | 1,000 | 1,000 | |||
| Total Deductions | 39,346 | 39,346 | 43,705 | 43,705 | |||
| Tax Loss (Rent – Deductions) | -20,876 | -24,570 | -23,238 | -27,331 | |||
| Tax Credit | 6,576 | 7,739 | 9,179 | 10,796 | |||
| NRAS credit (net of audit fee) | 8,455 | 8,455 | |||||
| Total Credits | 6,576 | 16,194 | 9,179 | 19,250 | |||
| Annual Cash Flow | -$5,750 | $174 | -$4,559 | $1,419 | |||
| Weekly Cash Flow | -$ 111 | $3 | -$88 | $ 27 | |||
Note: The above calculations do not reflect any delay in receiving tax credits and NRAS credits.
The NRAS Rental Advantage
Consider a NRAS qualifying household or tenant that is offered a choice of three properties for rent. All the properties are in the same location or suburb, all the same configuration, size, bedrooms etc. Two of them are brand new. One is your NRAS accredited investment property, the other, not yours, is also brand new but is not NRAS accredited. The third property is 10 years old.
Your NRAS property is available to rent for $328 per week ($17,056 p.a.), the other new property, exactly the same as yours, is available for $410 per week ($21,320 p.a.). The third property, because of its age, is available at $390 per week ($20,280).
Which property will the tenant most likely select?
How many tenants qualify for NRAS?
Around 29% of all dwellings in Australia are rentals. That`s around 2.3 million dwellings.
The Government has estimated that around 1.5 million Australian households are eligible for NRAS housing.
Under the NRAS program a maximum 50,000 additional dwellings will be approved by 2012, adding just 2.2% to the current total of rental dwellings in Australia.
