How can NRAS deliver positive cash flow profits?

You may know that the National Rental Affordability Scheme (NRAS) delivers affordable housing options to those in need, but did you know that those renters are usually quality tenants, like nurses, teachers and police officers?

You may also be interested to learn that NRAS property investors receive very attractive tax incentives that amount to around $100,000 over 10 years…

The NRAS was created in response to the severity of Australia’s housing shortage. The aim of NRAS is to provide affordable rental accommodation to tens of thousands of families across the country.

In order to achieve this, the government has come up with a scheme that encourages investors to provide more affordable rental housing, by offering super-charged tax incentives.

Currently, NRAS investors will receive an annual income-tax free incentive of $9,524 per dwelling, indexed each year to the rental component of the CPI.

The annual incentive comprises an Australian Government contribution of $7,143, as a refundable tax offset or payment, and a State/Territory government contribution of $2,381.

According to Flynn De Freitas, principal of Omega Investments, NRAS can help you add a cash flow positive property investment to your portfolio.

Many people are confused by the scheme, mistakenly believing that NRAS properties are provided to no income or low-income earners, but NRAS homes are most commonly rented out to three broad classes of tenants, De Freitas clarifies.

“First, it’s the so-called ‘critical infrastructure workers’ such as teachers, nurses, fire fighters and police who had been priced out by rents in many areas they worked,” he confirms. “Indeed, being cynical, it is actually the Australian Labor Party seeking to appeal to the Howard Battlers – aspirational voters who have otherwise being priced out of areas they want or need to live.”

Secondly, students who make up about 25% of tenants – usually in one bedroom studios associated with universities.

Finally, approximately 20% of tenants are on government pensions, allowances or unemployed.

The NRAS scheme kicked off in 2008 and to date, over 39,000 NRAS properties have been approved, with construction well underway and over 7,500 tenants Australia wide. The scheme has been a great success – following significant teething problems initially when the banks were hesitant to provide high loan to value funding.

So how does it work, how do investors obtain positive cash flow, and how can you get in on the action?

NRAS incentives are available only on select properties that meet its qualifying criteria, being:

  • New property only (including off-the-plan)
  • Rented to ‘approved tenants’ for at least 20% below market value
  • Managed by an ‘approved manager’, which is required to select tenants, set rents and manage the property
  • Property is rented in NRAS for 10 years (but can generally removed from the scheme earlier)

The government intends to issue 50,000 NRAS licenses (39,000 have been issued to date) for properties that meet these criteria, meaning there will be a finite number of properties available to investors with NRAS incentives.

“While Australian investors enjoy the benefits of depreciation and negative gearing, which is offsetting property losses against other income, these pale at an individual investor level in comparison to the government’s NRAS incentives,” De Freitas says.

“Investors holding NRAS qualifying properties are entitled to 10 years of annual ‘tax free’ incentives. Each year, the incentive increases according to the rental component of official inflation… In total, an NRAS investor will receive a total of approximately $109,000 in tax-free incentives over 10 years.”

Interesting, Flynn makes the comment that, “given the generally poor prospects for capital growth across Australia (except for mining town regions), NRAS is a fantastic investment alternative to the traditional negative cash flow property.”

“You get to enjoy positive cash flows for ten years and once the property market recovers and values start to climb again, you can always remove the house from NRAS (however once out of the scheme, you cannot come back in) and sell the house as a regular investment property or even move into it. In a market with no capital growth for extended periods, it does not make sense to have a negatively geared property, as you are just losing money.”

“For the average investor (earning less than $80,000), purchasing an NRAS property will provide (see example below) them with about $100 a week in positive cash flow (after all expenses). For investors with higher tax rates, NRAS is even better with those on the top marginal tax rate receiving about $165 a week in positive cash flow.”

“Importantly, as the NRAS incentive is fixed regardless of the purchase price of the NRAS property but the rental discount you need to provide generally increases for more expensive properties, it is generally best to buy a cheaper NRAS as this will mean you will receive a larger positive cash flow.”

House and land purchase price $380,000
Deposit $38,000
Interest only loan of $342,000 (90%) at 6.5% $22,230 pa
Ownership costs (council rates, property management fees etc) $4,511 pa
Depreciation and Loan Costs $11,267 pa
Market rent $380/week; $19,760 pa
Reduced NRAS rent (-20%) $304/week; $15,010 pa
Vacancy 608 (two weeks)
Pre-tax cash flow ($15,200) – Outgoings ($38,008) -$22,808
Negative gearing tax refund @ 31.5% tax rate $7,184
Total actual expenses $26,741 pa
Total income (Rental income $15,200 + negative
gearing tax refund $7,184+ NRAS tax incentive $9,524)
$31,908 pa
After tax positive cash flow $5,168 pa (or $99/week)

For further information on the NRAS scheme and to decide whether it fits your investment strategy, visit

Flynn De Freitas is a property investment analysis specialising in residential property investment in regional mining towns. Utilising his training and experience as a former management consultant and investment banker, he’s developed an extensive knowledge and understanding of towns exposed to the commodities boom.

This article provides general information only and does not constitute financial advice. Investors are advised to do their own due diligence prior to making any investment decisions based on the information provided in this article.