Investors of anything should only ever buy investments that stand alone as strong and viable propositions not because of tax benefits.
It’s no secret that I am not a fan of NRAS property. I’ve written extensively about it since it was first introduced and watched how an essentially great scheme has been prostituted for gain for greedy developers and their marketers.
In its purest form, NRAS was a scheme designed for large institutional investors, such as public superannuation funds and insurance companies. They would undertake these developments, which were built in lots of 100, and gain the tax credits for the lot. It was a good deal and a good idea, providing discounted rent to para professionals who would, it was claimed, make suitable tenants. The scheme was not designed for individual investors. In fact the NRAS Policy Guidelines stated:
The scheme encourages large-scale investment in affordable housing so it is not directly available to small-scale, private, individual investors in the rental property market.
Somehow, probably due to one of those tax office loopholes, some of the developments were sold to individuals as single lots. The powers that be clearly didn’t sew up the scheme tightly enough, and someone drove a Mack truck through the space. I still remember the day the tax office woke up and realised that it had no method in place to deal with the tax returns of individuals who bought them, and it scurried about with transitional arrangements to cope with the issue. Lo and behold a precedence was created, and before we knew it whole companies were set up to move this latest tax advantaged product. NRAS Policy Guidelines were amended to include:
Individual investors may wish to participate in the scheme as part of a non-entity joint venture or another joint venture arrangement or by purchasing NRAS dwellings from an approved participant.
It’s pretty easy to counter the flippant claims of NRAS marketers when they use simplistic three line statements espousing the benefits of buying one – just buy it, discount the rent and get tax benefits–with a plethora of dangers;
- The middlemen do make big commissions – I’ve not seen one less than $20,000, and you’d have to be very dull to be convinced that this isn’t built somewhere into the price.
- They are released in lots of 100 – that’s a very large influx of competition all at the one time – affecting both the capital value and the potential rent return. Your 20% discount may end up being a 20% discount to a rent that has already dropped by 30% because of oversupply!
- They are rarely built in hotspots, and when they are, well, refer to point 2!