Drawing on 120-130K of your available equity to purchase 2 x NRAS properties to the value of @ 400K each is one option worth considering.
Step 1
Borrow @65K from equity, to use towards NRAS 1, to the value of 400K.
The 60-65K borrowed from equity specifically covers a 10% deposit ( 40K ) Stamp Duty (@15K ) and a 10K Cash Flow Buffer for the Year 1 cash flow shortfall ( 10K is typically the difference between all expenses, and the 20% lower rental income received under NRAS, although it can be a little more or a little less depending on market rent,the interest rate you borrowed at, etc.. but 10K is "about" right in 90% of cases. )
Step 2
Borrow the balance ( 90% + LMI ) of approx 370K against the NRAS property.
The Cash Flow
So you've borrowed 435K @ 5% (ish) , meaning you have Interest Only Repayments of @ $21,750. Add about 5K for other miscellaneous expenses such as council rates, water, property management, insurances or strata ( if you purchase a unit or townhouse or villa) and it's fair to say you'd have total expenses of around $26,750. Lets call it 27K
The prevailing market rent for a $400K property might be $400 per week. Under NRAS, you'll be electing to reduce that by 20%, so you'll receive $320 per week, for a total of $16,640 per year.
The result? An "operating loss" or "cash flow loss" of just over 10K for the year. With an additional depreciation amount of 10-12 K for a brand new property, that equates to a total deduction of around 21-22K.
Even allowing for NANE apportioning , $2587.50 ( the state component- 25% of the $10,350) represents 15.55% of the $16640 of total income, so even if that percentage of your 21-22K deduction may not be claimable, you will still have generated a deductible loss of somewhere approaching 17-18K, resulting in an ATO refund of $5525 if you pay 32.5% Tax, or $6290 if you pay 37% tax, PLUS $10,350 from NRAS.
So your total combined refund (ATO + NRAS) will be in the vicinity of 16-16.5K . Your "operating loss" was just a touch over 10K, so you should pocket about 6K Tax free after the first year.
Obviously, with 2 x NRAS ( assuming the price point, interest rate, rental yields are pretty similar) you'll generate double that, for a result of approx 12K tax free. And you'll have used about 130K of equity ( 2 x 65K) to achieve it.
Redeploying the surplus tax free money to generate a multiplier effect
If you take the 12K, redeploy it onto your 190K non deductible PPOR Homeside/NAB debt, here's what you may be able to achieve... see PDF
What have you achieved over 10 years? Not bad... 20 years of interest saved. PPOR Mortgage paid off. Over 125K of accelerated equity created (plus whatever equity that was created through growth - nice... both ends of the candle are burning!) And little or no money contributed by you because the initial 65K investment of equity included 10K extra buffer and has done all the work to get you through year 1.
Beyond Year 1- it washes its own face. Remember, you just got a total refund of about 16-16.5K from the ATO and NRAS - see above. So now you set aside 10K for the 2nd years expenses, and take the 6 that's left over and redeploy it. Do it again at the end of Year 2. Rinse. repeat. Rinse. repeat, for 10 years. Totally self replenishing each year, and requires little or no monetary input from you.
What else have you achieved over 10 years? Borrowing capacity has also been significantly boosted because your non deductible debt has been aggressively reduced, which means you will have both the equity AND the borrowing capacity to continue to grow your portfolio.... and if your portfolio of properties have also shown some nice growth along the way, there's even more equity with which to fund the next deposit, stamp duty and seed costs for your next purchase....
The multiplier effect that the tax free cash flow can create is what it's about. redeployed towards debt reduction, a small amount of money ( 6K, 7K, 8K etc) can make a VERY big dent. The 125K of interest you saved is CGT free profit by the way, if you ever sell your PPOR. And with pretty much $0 out of pocket, that means you've pretty much doubled your 130K investment in 10 years, tax free- before $1 of growth has even been calculated. No supposing, assuming, speculating, promising or guesstimating what the markets will or wont do, what growth will or wont occur, etc. Just simple cash flow redeployment. take your equity. Deploy it. Generates a tax free cash flow. Reinvest the surplus funds into paying down non deductible debt FAST, and double your money tax free, even if the economy goes belly up and property doesnt move for 10 years.
Of course, growth will come. Im not suggesting it wont. Time almost always equates to growth, and NRAS buys you a LOT of time- 10 years and beyond... free. Im just pointing out that you dont need growth to survive. You dont need growth to get to the next property. You dont need growth to pay off your mortgage from the profits generated by investment properties growing. You can hold your portfolio longer, you can avoid selling and avoid CGT, and you can reap far bigger rewards over the long term, because you are paying down debt anyway. Most importanly, you can ride out a recession far better than your neighbour, who needs growth to get out alive. Even in a flat, grey, high unemployment, recession laden market... you're still crunching down your non deductible debt, boosting your borrowing capacity and have more than enough excess tax free cash flow to see off any economic calamity - and to take advantage of a depressed market and good buying opportunities. The naysayers with high gearing and completely growth reliant strategies cant say the same. 8% or 9% interest rates, a sharp rise in unemployment or external economic shock will see them in a whole lot deeper trouble than you a whole lot sooner...
Now how about those Seattle Seahawks.......
