My response to NRAS naysayers: Adrian Jenkins

There are good and not-so-good operators, developers and agents in the market. Do not let the not-so-good people distort or discolour NRAS as the investment vehicle through their own lack of fact and knowledge.

Both NRAS and non-NRAS agents who do not know what they are talking about, often misrepresenting facts and figures through lack of their own knowledge.

It has two constituent parts. The property and the rental agreement.

The property

Properties built and sold with an NRAS rental agreement, are identical to the same design neighbouring non-NRAS property built by the same developer.

NRAS properties cannot be conveniently ‘pigeonholed’ by the un-informed to be poor capital growth areas or properties.  How can major cities and State capitals be blanket covered as “poor growth areas”.

As a rule the NRAS allocations are placed in areas with population growth and upward rental pressure. Surely, some of the essential cornerstones of all research into good investment property.

The Rental Agreement

The NRAS consortiums providing the rental agreements have different models to consider.

Topline - NRAS is a very flexible rental agreement that sits over the property that you purchase as an investment. The property can be re-sold, with all benefits of NRAS passing on to the new owners. NRAS can also be dropped.

Its simple limitations are that there is an upper limit of income that precludes higher income earners from benefitting from discounted rents. It has a positive social impact. Primarily but not limited to being for tenancy by undervalued essential key workers in our community (nurses, teachers, etc).

NRAS v non-NRAS

Non-NRAS investment properties have two revenue streams.  Cash-flow is made up of a tax rebate based around investors’ marginal rate of tax (negative gearing), and rental income.

NRAS investment properties enjoy three revenue streams. More revenue streams, has to make investments, more robust and secure.  NRAS investment properties cash-flow is comprises all the benefits of negative gearing, rental income, plus the third stream of NRAS contributions being $10,350 (2013-2014).

The facts

Contracts: Any NRAS rental contract will be dealt with by a solicitor – it’s not for you to worry about. And it’s not complicated.

The finance: Most lenders lend against property with NRAS rental agreements.  Why wouldn’t they? It’s no different property build, cost and value to the same property without NRAS rental agreement.  Some NRAS models are better favored by lenders than others.

The returns: NRAS operates based around discount to market rents, not guaranteed rents.

If the rent discount amount is less than $199 per week, then you are ahead.  Most rental discounts amounts are less than $100 per week, meaning with $199 per week from NRAS tax free, investors are going to be better off by at least $99 per week or $5,148 per annum tax free.

Guaranteed rents are sometimes used to ‘prop up’ non-NRAS investments, which mean the investor will have paid for it somewhere.

Lastly, people have often been totally misinformed and say NRAS is designed for the developers to get concessions and financial benefits for delivering NRAS. The fact is that’s simply not true.

Developers are not getting any financial benefit from NRAS. In fact if anything, having to hold the land whilst making the application submissions and having to waiting to see if the proposal satisfies the NRAS stringent guidelines and the local social requirements, can only bee seen as an additional cost-risk, not a financial benefit.

NRAS simply makes the property investment far more attractive and therefore easier to sell.

Prevention is the cure

The cost of acting before being fully informed can be disastrous.

To make smart investments, understanding what you are doing is critical.  The cost of finding out facts is nothing but investing your time.

Adrian Jenkins is director of NRAS Australia.

NRAS Australia is a private company that specialises in listing and providing information about NRAS properties and walks investors through the purchasing process.