How are NRAS properties managed?
As with any property investment it is essential that the dwelling be managed in a professional manner to ensure your investment’s value is preserved and returns are maximized. In addition, for a property to remain eligible for the NRAS incentive, there are certain specific requirements that must be fulfilled. The on-going management of the property is the responsibility of the NRAS Approved Participant who organised the NRAS pre-approval.
As the owner of an NRAS property, you will enter into a management agreement with the NRAS Approved Participant. The agreement between the NRAS Approved Participant and the investor is documented with a letter of engagement indicating what work the NRAS Approved Participant will undertake and the fees payable clearly identified.
Once the dwelling has been constructed and is ready for occupancy an eligible tenant is sought to rent the property. To comply with Government requirements the property must be leased at 20% below the market rental. Using a dwelling that would normally rent for $350 per week as an example, a discount of $70 per week would be expected which would return the investor $280 per week.
In order to qualify for the incentive, NRAS Approved Participants must ensure that only eligible tenants are renting NRAS dwellings. NRAS Approved Participants investigate and establish the income of the tenancy applicant, prepare and submit a new tenancy file, provide an end of year NRAS summary and repeat the eligibility testing on an annual basis. Each year the NRAS Approved Participant must complete a compliance check to ensure that eligible tenants are renting and that the appropriate rent is being charged.
Apart from the NRAS specific obligations the property management services are exactly the same as you would expect from local real estate agencies acting for a residential landlord. These activities include the tenant selection process, property maintenance, periodic inspections and rent collection to name a few.
Onyx works with selected NRAS Approved participants that have an understanding of the NRAS program and have undertaken the appropriate training to ensure that the properties remain eligible for the entire 10 years. The agreement between the investor and property manager will be documented on the state specific real estate institutes property management agreement for the term of the incentive.
We advise that 10% of the rental price is a reasonable cost for the management of an NRAS property. This is slightly higher than the normal fee for rental management, however this is offset by the fact that the rent itself is 20% lower than market value. Hence in dollar terms, the management fees are comparable to a non-NRAS property.
What other costs are associated with NRAS property investment?
Like any direct property investment the owner is required to pay the expenses that relate to the property. These expenses vary from property to property and by state. An indication of the expenses that should be allowed for include council rates, water charges, land tax, insurance, interest and bank charges.
There is only one additional cost that is incurred due to the property being a part of NRAS, which is a valuation fee. This is a requirement to allow the rental to be increased periodically. Whilst the rent can be adjusted yearly, three valuations are required over the 10 year period to monitor market rental levels. This will be organized by the rental manager.
Hence the total costs of managing an NRAS property include the property management costs at approximately 10% of the rental value, an annual audit at approximately 7.5% of the incentive value, three valuations over the ten year period and the additional costs such as council rates outlined above.
What if the property is empty?
NRAS dwellings may be vacant for a period of up to 13 weeks cumulatively or continuously in an NRAS year, or continuously across two consecutive NRAS years, and still be entitled to the full amount of the incentive. If the dwelling is vacant for a greater period the incentive will be provided on a pro-rata basis for the number of days in the NRAS year that the approved rental dwelling was available for rent and was compliant.
Who sets the market rent?
NRAS Approved Participants are required to seek an independent valuation of the market rate of rent. This must be lodged with the Federal Government within 30 days of the property becoming available for rent. Further independent valuations must occur at the end of the fourth and seventh year of the incentive period, although the rent can be increased annually.