There is no such thing as a risk-free investment. But there are investment options that can reduce risk well below what any investor would find acceptable. Investing in National Rental Affordability Scheme (NRAS) property is arguably the lowest risk property strategy currently available in Australia.
Reduced risk profile
- With rents 20% below market value and a large pool of suitable tenants, investors can count on a reduced risk of vacancy.
- With rents 20% below market value and tenants with qualifying income levels of up to $100,000, investors can be more selective in their tenant choices.
- Security of Australian and state government contributions for a period of 10 years. Improved rental yields
- The annual National Rental Incentive of $9,140 on each rental unit, combined with actual rent, will improve rental returns over traditional gated community properties.
- The national rental incentive is income tax-free, linked to the rental component of the Consumer Price Index (CPI) and is granted on top of existing tax regimes including depreciation.
- NRAS is a government-subsidized real estate investment
- Secured source of income (10 years)
- Potential cash flow positive investment
- $90,000 plus tax credits over 10 years. These are tax credits, not to be confused with tax deductions. Tax credits are practically money in your pocket. If your tax liability is lower than the credit, the difference will be paid out to you tax-free.
NRAS real estate investments can offset the risk and volatility of stock markets and help provide a balanced portfolio. The location of the properties and the attractive rents ensure stable and reliable sources of income, regardless of economic fluctuations.
With more than 1.5 million households eligible to rent NRAS properties, the risk of vacancy is negligible. Properties must meet strict criteria for location, available facilities including public transport, schools, shopping malls, etc., and a balance between rented and owner-occupied housing. All of this means strong tenant demand and potentially strong capital growth.
Investors can choose any tenant for NRAS properties as long as those tenants do not exceed a certain income threshold. Income levels for eligible NRAS tenants are generous, allowing for rent increases of 25 percent above the entry-level income limit.
For example, a couple with three children earning a gross income of $100,768 per year is eligible to rent an NRAS condo. With the 25 percent income increase allowance, this family could earn up to $125,960 over two years before they are no longer eligible to remain in an NRAS property.
So, investing in a property covered by the National Rental Affordability Scheme means:
- Better rental returns
- High demand from tenants means more choice for owners
- Negligible vacancy rates
- Strong potential for capital gains
That might not be risk-free, but it might be the closest thing to it.