The NRAS opportunity
Investors often approach new initiatives with a degree of caution – rightly so. Launched in 2008, the federal government’s National Rental Affordability Scheme (NRAS) was, until recently, no different.
The lack of promotion the scheme has received, especially in comparison with the First Home Owners Grant, has not helped to dispel the confusion that has surrounded the program.
As time has gone by, however, and NRAS has become better understood within property circles, the misgivings investors have had are quickly being dismissed. Many now realise $100,000 worth of opportunities lie behind a NRAS property’s doors.
Hailed by some as the answer to Australia’s housing shortage, NRAS was developed by the Australian government in an attempt to increase the supply of new, affordable rental dwellings nationwide.
The scheme aims to boost the number of reasonably-priced rental properties by offering financial incentives to both approved participants and investors alike.
The proviso is that to get their hands on the incentives, investors must buy a NRAS property from an approved participant and must rent it out to eligible low-to-moderate income households for a period of ten years at 20 per cent below the prevailing market rate.
For those who are willing to play ball with the government and charge discounted rents to occupants under a certain income, the incentives can equate to more than $100, 000.
But investors won’t see the incentives as one lump sum; rather, the government will supply them in annual payments for ten years starting at $9,524 this year and indexed each year against the rental Consumer Price Index (CPI).
The incentives are further broken down and paid in two parts. Seventy-five per cent is paid as a refundable tax offset from the federal government of $7,143, while the other 25 per cent is paid as direct financial support of $2,381 from the state government.
The way in which each component is paid also differs. The state incentive is paid as cash into a designated bank account, while the federal incentive needs to be claimed on the investor’s tax return.
While reducing rental yield may not seem like the wisest investment move, what these incentives add up to in the long run can make purchasing a NRAS property well worth it should this particular strategy meet your property investment goals.