PAY DOWN YOUR MORTGAGE 10-15 YEARS FASTER

Ultan Mooney

Would you like to pay off your mortgage 10- 15 years faster?


Would you like to save hundreds of thousands in interest?


Would you like to pay less tax?


Would you like to earn extra tax-free income?


Would you like to own multiple investment properties?


You can achieve all of this with ZERO out of pocket costs.  All you need is to put your equity to work. 



If it sounds too good to be true, you haven't heard about NRAS.   NRAS stands for the National Rental Affordability Scheme, a Federal and State Government initiative to deliver 50,000 affordable rental properties to the market.  Rather than building the 50,000 homes, units and townhouses themselves at great expense, the Federal and State Governments designed a tax incentive so that individual investors like you and I would purchase and build the properties and provide them to the market at a discount. Hence, the "National RENTAL AFFORDABILITY Scheme". 


 The concept is quite simple. In return for offering your property to the rental market at a 20% discount for up to ten years, the Federal and State Governments provide you with a tax-free incentive. This year, it's worth $9981!   It means that properties rented under this scheme can be negatively geared AND cash flow positive. 


To explain further; just like all "normal" investment properties, the Australian Taxation Office allows investors to claim deductible losses for the costs incurred whilst holding an NRAS approved property. So all the usual allowable deductions associated with owning an investment property are allowable for NRAS approved properties too; costs such as interest, property management fees, insurance, council rates, strata fees, water bills and depreciation for example. But unlike other investment property, NRAS approved properties also offer significant additional deductions that you can claim as losses, because as the investor, you receive 20% less rental income from the property. This is a cost that you don't incur with non-NRAS investment property being rented at full market rate. The end result is a bigger deductible loss, which means an NRAS property can be a fantastic way to reduce your tax bill  (you should always seek professional tax advice on how this may work for your circumstances).



Now, reducing the amount of tax you pay is fantastic, but buying property just for tax breaks is kind of silly. We all know that. As an investor, you can only ever get a percentage of your " losses" back from the taxman, after all.  But this is where NRAS is so unique!  NRAS properties are both Negatively Geared AND Cash Flow Positive, and it's the NRAS tax-free incentive that makes all the difference!  The tax-free incentive (currently $9981 tax fee) turns negatively geared NRAS property into a cash flow positive property and generates significant amounts of tax-free surplus income.



Step 1 – Understanding the power of NRAS cash flow and how it reduces your taxable income AND increases your tax-free income


Here's an example of how it works; the property on the left is a "normal" investment property.  The property on the right is exactly the same price, rents for exactly the same amount, but is an NRAS approved property. The NRAS property receives 20% less income, as you can see in the table below (1) so it produces a larger loss (2) that you can claim against your taxable income, meaning you pay less tax!  But you also receive the NRAS tax incentive of $9981 (3) so you end up with a tax-free Cash Flow Positive outcome!! (4)



Step 2. Redirecting Surplus NRAS Cash Flow to pay off your mortgage 10-15 years sooner in most cases, and save hundreds of thousands in interest. 


Now that you understand how an NRAS property can reduce your tax bill while simultaneously increasing your tax free income, it's important to understand how NRAS can also help you pay off your mortgage 10-15 years sooner.   This table shows the effect that a surplus of $5842.15 (generated for each of the 10 financial years the property participates in the NRAS) can have by simply redirecting the surplus tax-free funds created by an NRAS property, onto a non-deductible P & I mortgage.


 Step 3. Building a Multiple Investment Property Portfolio using NRAS 



Now that you understand how an NRAS property reduces your tax bill while simultaneously increasing your tax-free income AND while helping you to pay down your mortgage 10-15 years sooner, AND saving you hundreds of thousands in interest, let's discuss how you can also build a multiple property portfolio sooner.



Because you will be paying down the mortgage on your Principle home far more aggressively than you would have otherwise been able to, you will also be creating additional equity far more quickly than you would otherwise have been able to.   This means you will create the next deposit for the next investment property, far sooner.  If you buy another NRAS property, you'll now start to DOUBLE the speed with which you create equity, because you'll be paying DOUBLE the extra payments onto your mortgage.  So you will have even more equity available to purchase additional investment properties.



And each property will be reducing your taxable income AND increasing your after tax income AND saving you years and hundreds of thousands of dollars in interest.



And better still, your borrowing capacity will also be dramatically improved, because you will be reducing your non-deductible debt fast, and replacing it will deductible debt.  Without writing an entire on blog on why this makes a difference, the simple reality is that the banks lend more for borrowers with deductible debt and extra rental incomes than they lend to borrowers with a lot of non deductible debt and less rental incomes.   



So the concept is simple- use NRAS surplus cash flow to create equity fast, while reducing non-deductible debt.  In a few years time, access that equity using deductible debt. You'll be able to build a much bigger property portfolio, much sooner.



Step 4. Doing it with ZERO out of pocket expenses


This is the final thing to understand. By now, you can see how effective NRAS can be in helping transform your wealth position within a decade.  But the loan structure is important, and if you employ it correctly, this entire strategy can be achieved with absolutely ZERO out of pocket costs to you!  Make sure you deal with a broker who knows how to make this work. 



How?  


Again, the concept is pretty straightforward.  The idea is to borrow 100% of the NRAS property purchase price. 90% against the NRAS property and 10% against equity from your home



Also borrow the associated costs (Legals, Stamp Duty, Building and Pest Inspections etc) using equity



Also borrow a small cash buffer of 10-15K using equity against your home,  to pay for the first years holding costs.



Using this structure you do not need to contribute a single cent out of your own pocket. Everything is done using equity 



Using this structure, all of the costs are deductible with the ATO, as they have all been borrowed.



The cash buffer only needs to be borrowed once.  After the first full NRAS year, you will receive enough money from the combined ATO refund and the NRAS tax free incentives to not only pay for all holding costs for the following year, but you will also be left with significant surplus tax free cash flow which can then be redeployed towards paying down your mortgage fast.


The Power of NRAS Cash Flow -  Pay down your mortgage  super fast.  Save hundreds of thousands in interest.  Reduce your Taxable income.   Increase your after tax income. Build a BIGGER property portfolio faster with the equity you have created. Do it all with ZERO out of pocket costs  It only takes 60K of equity to get started.  We can show you and your clients how transform their wealth position in ten years….



www.hibernianwealth.com.au       NRAS MADE EASY      Copyright@ Hibernian Australia Pty Ltd 2012



GENERAL ADVICE DISCLAIMER This document has been prepared for the general information of investors and does not take into account the investment objectives, financial situation and particular needs of any particular person. Persons intending to act on information in this document should seek professional advice to confirm that the investments or strategies mentioned are appropriate in the light of their particular investment needs, objectives and financial circumstances prior to taking any action. While reasonable care has been exercised and the statements contained herein are based on information believed to be accurate and reliable, neither Hibernian Australia Pty Ltd nor its employees, agents or Authorised Representatives shall be liable (unless otherwise required by law) for any loss or damage suffered or caused to any person or corporation resulting from or contributed to by any error or omission from such statements including any loss or damage caused by any fault or negligence on the part of Hibernian Australia Pty Ltd.