NRAS Property Investment

Fact Sheet – NRAS
Property

Summary of investment type	NRAS = National Rent Affordability Scheme   This is a scheme of the Australian Federal Government described as a long-term commitment to invest in affordable housing. The scheme involves an annual tax free Incentive (currently $9,524) per dwelling, and is indexed each year to the rental component of the CPI. NRAS properties must be brand new and they must be rented to low – moderate income earners for at least 20% below the market rate.
Benefits	Tax-free incentive: Investors can potentially benefit from capital gains, rental returns and the tax-free incentive payment. Gearing: While other investments can also be funded by borrowed funds, many people are comfortable borrowing to invest in property, where they may not be comfortable borrowing to invest in other asset classes like shares. Depreciation: As the buildings are new, you will be able to claim 2.5% of the building cost as a ‘capital allowance’ each year and you will also be able to claim depreciation on fixtures and fittings, which will improve the cash flow of the investment.
Historical Returns	Rental yield on a $480,000 property rented at $395/week is 4.2%p.a. (before expenses) Capital Growth (last 30 years) has been 7.8%p.a. average
Future Returns	Rental yield on a $480,000 property rented at $395/week is 4.2%p.a. (before expenses) Capital Growth in the future will depend on many factors, the major ones being: - Wages growth (which will intern be affected by economic factors – local and international) - Interest rates - Supply of new land The normal range of 10 year returns (from capital growth) would be 0% on the low side and 15%pa on the high side with an average of 7 – 8% p.a. but returns outside this range are still possible (though unlikely)
Risks	Property (like all other growth investments) has an element of risk The major risks are: Tenancy risk; you could have bad tenants, or you could have a period without tenants, which could give you a cash flow crisis if you are not well prepared Risk to capital; while the property market (Perth) has done very well for the last 30 years, there is no guarantee that this will continue into the future. Over the next ten years, property may outperform or underperform other investments and the inflation rate. Realise that property markets can and do crash (think USA 2008) on occasion Interest rate risk; this is one of the major factors. If interest rates doubled from their current level, then house prices would struggle to rise in that environment (all other things being equal)
Opportunity	NRAS property (like all property) in Perth may benefit from the resources boom, but booms can also bust, so it is important to be realistic. The NRAS tax-free incentive (TFI) payment can mean that a property which is negatively geared (i.e. the rental income is lower than the interest expense) can still be cash flow positive due to the TFI. Cash flow positive investments do not put a strain on your ordinary income as you do not need to fund a deficit create by negative gearing.
Location	NRAS property credits are provided to developers. The properties (with NRAS attached) are available all around the country. Specific advice regarding location to buy etc, can be provided by a property expert (a buyer’s advocate). Let me know if you would like to be introduced to such an expert.
Getting Invested	I can put you in touch with a property buyer’s advocate. These people are similar to real estate agents, but unlike real estate agents, they work for you (the investor), not for the seller. They will be paid an commission by the developer, so you do not have to pay them separately for their service.
Getting Advice	As with all investments, you can go down the DIY route, or you can ask a Financial Adviser for assistance. If you would like further advice as to the suitability of an NRAS property investment to helping you reach your financial and lifestyle goals (among your other alternatives) please let me know and I will be happy to help. The buyer’s advocate may pay me an introduction bonus, so my services may also not cost you anything as I am happy to offset my fee against any payment I receive from the buyer’s advocate.

 

 

For more
information or to discuss further, call Paul Hodson (08)6102-6532.

Spectacular Investment Collapses

In the past 10 years, there have been some spectacular investment failures.
The common thread would appear to be investments promising the 'safety' of fixed interest, but the returns more typical of 'growth' type investments (such as shares and real property).
See the image below for a summary of the failures. Moral of the story - if it seems to good to be true, it probably is!

Life Insurance for Mining and Oil and Gas workers

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Yesterday I attended a ONEPATH presentation regarding their new Life Insurance offer for those who work in Mining and Oil & Gas. Historically Mining and Oil & Gas workers had a real struggle getting the cover they need as most insurers are not interested in covering their risks. Onepath has made a firm commitment to be in that market. If you know of anyone who works in Mining or Oil & Gas in WA, feel free to let them know that I can help them secure comprehensive Life and Income Insurance. First consultation is Free and my fees are paid by the insurer.

Australian Share Market Performance

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Written by Paul Hodson, October 5, 2011.

The Australian share market is currently in a slump, having fallen 21% since April (6 months ago at the time of writing this post) see Figure 1.

Figure 1 – Source Incredible Charts

This is obviously not a good thing (for those already invested) but how does this recent slump stack up against other market corrections?

If we look at the worst period for Australian shares in history, the severe bear market of the early 1970s, you can see from Figure 2, that the recent correction pales by comparison. You will notice that the All Ordinaries fall by over 50% at that time and importantly the peak to trough fall took over 18 months. Another thing you will notice is the price index only returned to its pre-crash level in mid 1976 over three years from when the fall began.

Figure 2 – Source Finametrica (www.riskprofiling.com)

Financial Planners often recommend their clients invest a ‘diversified’ portfolio, rather than in one asset class or another – why is that? Figure 2 illustrates the very reason why. If you look at the blue line, this is the performance of a 50/50 portfolio (a portfolio which is 50% shares and 50% defensive assets such as bonds and cash) and you can see that the peak to trough fall is around 20%, which is less than half of the fall suffered by an investor who only held shares.

Figure 3 – Source Finametrica (www.riskprofiling.com)

Figure 3 illustrates the point even better around the time of the ’87 crash. A shares only investor took over 6 years to recover the losses of the crash, while an investor in a 50/50 portfolio took less than 2 years to get back to break-even.

The pain of the recent rout in the market is more acute as the Global Financial Crisis is still fresh in all of our minds and investors have not yet fully recovered from that set back. Looking back at Figure 1, you can see that the All Ordinaries price index (ignoring dividends) is approximately 33% above the low point of March 2009, but still well below the peak of 2007 (in fact 40% down) in 4 years. This makes the bear market somewhere between the crash of ’72 and the crash of ’87.

Figure 4 – Source Finametrica (www.riskprofiling.com)

A summary appears below, which shows the recent market weakness (but only up until April this year and as we know things have worsened since then). The All Ords is currently 41% down, 35 months since the fall began, so this is the second longest period (so far) the index has been below a previous high since 1972 (the longest was after the crash of ’87 where the recovery took 63 months).

Figure 5 – Source Finametrica (www.riskprofiling.com)

In this post, I do not intend to go into the future outlook; there are plenty of opinions (both for recovery and against) to be found if you look around. My purpose here is simply to put the recent movements into context with other bear markets and to highlight the relative safety offered by having diversification (spread) of investments, rather than trying to pick ‘the’ one to invest in.

AXA Point of View - October

 Permalink: http://financialadviceperth.com.au/axa-point-of-view-october

Our Licensee

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Your Money Your Future is a franchise business operating under the AFSL (Australian Financial Services License) of Sentry Financial Planning Pty Ltd which is located at 190 Stirling Street, Perth WA 6000.
YMYF Osborne Park Pty. Ltd. (T/As Your Money Your Future - North West Metro ) ABN 47134261073 is a Corporate Authorised Representative (341084) of Sentry Financial Planning AFSL (247 105) ABN 74099029526.

Paul Hodson CFP® is a sub-Authorised Representative of YMYF Osborne Park Pty. Ltd.

Our People

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Paul Hodson CFP, B Ec. Grad Dip App Fin.
CERTIFIED FINANCIAL PLANNER(TM)
Paul has been providing individuals and business owners with financial advice since 1994.
Paul can be contacted on 0405 732 450 or (08) 6102 - 6532.