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Paying off your home loan faster through property

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 could 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.

With thanks to: Hibernian Wealth NRAS   MADE   EASY! Tell Ultan you were sent by

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 tax man, 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 increase 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)

Non NRAS 350K NRAS 350K
Rental Income $18,200 $14,560 (1)
Total Income $18,200 $14,560
Interest on 375K @   5.8% $21,750 $21,750
Miscellaneous   Expenses $5000 $5800
Total Costs $26,750 $27,550
Loss (Costs –   Income) $8550(hold costs) $12,990 (hold   costs)
Depreciation $10,000 $10,000
Total Allowable   Deduction $18,550 $22,990 (2)
Estimated Tax   Refund @ Marginal Tax Rate 38.5% $7141.75 $8851.15
After Tax Estimated   Net Cash Flow (Tax Refund – Holding   Costs) -$1408.25 -$4138.85
NRAS Incentive $0 $9,981 (3)
Net Taxable Outcome -$1408.25 +$5842.15 TAX FREE (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 reduces 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 onto a non deductible P & I mortgage.

Loan @   5.80% Principle and Interest Interest Saved @ 5.80% Time saved   30 Year Loan @ 5.80%
200K Save $121,919.56 Save 14 years and 11 months
250K Save $137,632.78 Save 13 years and 4 months
300K Save $150,675.62 Save 12 years and 1 month
350K Save $161,692.03 Save 11 years and 1 month
400K Save $171,129.92 Save 10 years and 2 months
450K Save $179,311.85 Save 9 years and 5 months
500K Save $186,476.70 Save 8 years and 10 months

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 mo0rtgage 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.   Rebecca @ Two Red Shoes will show you how that works.

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 = 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, thjis entire strategy can be achieved with absoliutely ZERO out of pocket costs to you!   Rebecca @ Two Red Shoes will make sure this is done right, first time, every time.

How?   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 fast.  Save hundreds of thousands in interest.  Save Tax.  Increase your after tax income. Build a property portfolio faster. Do it all with ZERO out of pocket costs

This article supplied by: Hibernian Wealth, the NRAS experts!  NRAS   MADE   EASY! Tell Ultan you were sent by

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