Here's another option.
Take out an 80% LVR loan against your 700K PPOR. That gives you 560K
Set up 5 x 100K splits. and 1 x 60 K split - a total of 560K
Purchase 6 x NRAS properties at or below 350K.
Split 1 - The 60K split against your PPOR will provide a 10% deposit for the first NRAS property, and will provide stamp duty to 15K and a cash buffer to 10K to cover Year 1 holding costs. Do this loan first
Splits 2-6 - The 5 x 100K splits against your PPOR will provide a 20% deposit for the 2nd,3rd, 4th, 5th and 6th NRAS property, and will provide stamp duty to 15K and a cash buffer to 10K to cover Year 1 Holding costs. Do these deals after the first loan settles, and use Adelaide Bank or Firstmac so that you can take advantage of their NRAS borrowing capacity policy,which allows for the use of the NRAS Tax incentives up to 80% LVR. Using their products you will be able to get the borrowing capacity necessary to accumulate a 6 x 350K NRAS properties based on just rental income and the NRAS incentives.
You would end up with a 560 K loan against your PPOR, and 1 loan for 315K (90% LVR) and 5 for 280K ( 80% LVR) So a total debt of 2.275Mil and a property portfolio of 2.1 million. All debt would be fully deductible.
Each NRAS property will provide you with approximately 15-20K of deductible losses, when you factor in interest costs, property management fees, rates, insurance, strata, NRAS compliance fees and depreciation. This would mean you have between 90-120K of deductible losses to offset against your existing taxable income each year for the next 10 years. If that results in your taxable income falling below 18,600 you will essentially be earning a tax free income for each of the next 10 years.
This alone should in turn create so much tax free income that you should be able to pay down the initial 560K debt against your PPOR pretty aggressively, but this is not the extent of the income you will have available. Remember that each NRAS property will not just produce 15-20K losses each year to potentially give you a completely tax free income, they will also produce approximately 6-8K CF+ Tax Free each year, and that figure increases each year, in line with rental CPI ( it has averaged 5.69% each year for the past 5 years) for the entire 10 years, so realistically you can expect that by years 5,6 and beyond, each NRAS property will be producing 11-12K CF+ per year tax free.
So you'd have a low or non existent taxable income AND 36-48K of extra tax free income available to you during the first 4 or 5 years. Use the income from the first 6 plus your tax free income and pay down the initial 560K loan on your PPOR by year 4 or 5. Then it starts to really get interesting!
Then you can repeat. Draw the 560K out again ( or more if there's additional equity from growth) and purchase another 6 x NRAS. ( or more if you are able to) You would now own 12 x NRAS properties. the first 6 would still have 5 years to run. The new 6 would have 10 years to run. With 12 properties this would mean you would running deductible lossses of about 240K per year on your taxable income, AND be receiving at least 130-140K in extra Tax Free income from the NRAS incentives. ( they'd each be producing 11-12K tax free per year by year 5)
Now it starts to really snowball. This amount of income, PLUS the tax free income you're earning should allow you to very quickly pay down the 560K debt for a second time, and certainly before year 10.
Fast forward to year 10. You've made it here, paid little or no tax for 10 years , paid off 2 x 560K mortgages against your PPOR and accumulated a dozen properties, and its all been achieved with absolutely ZERO out of pocket costs!
By year 10, the first 6 NRAS properties will be rolling out of their 10 year NRAS tax entitlements and reverting to full market rental. So what now? Starting with a 350K property that generates $350 per week in rent in Year 1 ( $280 under NRAS) even a modest 5% increase to rental income each year should result in those first 6 properties now producing approximately 30K in rental income per year, each. That's 180K per year in income, but its taxable and your losses/deductions are getting less now, as the depreciation is starting to fade by year 10...
But you'll still be offsetting that 180K in rental income PLUS your taxable income, for a further 5 years, because each of the second batch of 6 NRAS properties you purchased in 2016 will still have 5 years to run in the NRAS, so will be continuing to generate 15-20K losses per year AND dont forget that the first 6 will still be generating some decent deductible losses for property management, rates, water, strata, insurance, depreciation etc. So you should still be able to find significant losses to cancel out a good chunk of your taxable income. And dont forget, the 2nd batch of 6 NRAS that you bought in year 5 will now be generating 12-14K Tax free income for the remaining 5 years they are in the NRAS.
So really, for years 10-15 you should still be enjoying significant tax deductions on your salary plus the 180K of rental income you're now receiving, and be generating an additional 70-85K tax free from the NRAS incentives. This should in turn allow you to then pay down at least one or two of the 280K NRAS loans that you have in place for each of your 12 investment properties, or start pumping money into SMSF.
Your PPOR would have already had the the 560K paid down (twice) along the way, by year 5 and again by year 10. ( You used your tax free income PLUS the 6 x NRAS tax incentives to pay it off in 5 years. You repeated the process to pay it off a second time with 12 X NRAS by year 10) You'd also have paid off at least 2 of the NRAS, so that's 60K of income and X amount of property value right there that doesnt have any debt against it. The 4 remaining NRAS properties from the first batch, plus the 6 remaining NRAS properties from the 2nd batch, would still have debt against them totaling 2.8 million, but as the 2nd batch rolls out of NRAS in year 15 ( remember you bought the second batch in year 5. The first 6 were purchased in year 1 ) the rent from the properties would be more than covering repayments ( By year 15, a 5% average annual increase to $350 market rent per year will result in rental income of $727.62 per week. That represents annual rental income of $37,836.28 or a yield of 13.51% for a 280K loan)
So you'd end up with - an unencumbered PPOR worth ??
2 x unencumbered investment properties worth ?? and producing almost 38K of income each.
10 x investment properties with 2,8 mil of debt, but producing almost 380K of income between them
So you'd have a range of choices at this stage - but here's a simple option.
You could sell 6 of the NRAS. Let's assume they're worth 630K by Year 15. That's based on 4% annual capital growth over 15 years, which is a reasonable and conservative (and probably pretty accurate?) estimate I believe. So selling 6 would gross you 3.78 Million. After paying back the loans ( 6 x 280K = 1.68 Million - you would already have paid off the balance of the loan - ie the 20% deposits you used from equity on your PPOR) you'd also have to pay some CGT on your gross profit.
Your GROSS profit would be 1.68Million. (done as a rough figure- 280K profit on each property x 6) Because you owned the properties for more than 12 months you are entitled to a 50% CGT discount, so 1.68 Million x 50% = 840K CGT assessable.
840K would be added to your taxable income for that year, so it would push you to the highest rate of 45%, so you'd be forking out 378K in CGT from your profit of 1.68 Million. That would leave you with a NET profit of 1,302,000.
So, now you'd have an unencumbered PPOR worth ??
You'd have 2 unencumbered investment properties worth 630K each, generating @ 75K (taxable) rental income by year 15.
You'd have another 4 investment properties generating @ 75K (taxable) rental income each, but they'd still be carrying 280K debt each (1.12million)
And you'd have 1.3 million in tax free profit to play with.
You could just stop there- you'd have 6 x 75K in taxable income (450K ) from your investment properties
You'd have millions in equity across the 6 properties and the PPOR. And you could use the 1.3 million to pay down all the remaining debt on the other 4 investment properties. So you'd be debt free with a PPOR and 6 investment properties generating 475K of taxable income- more than sufficient to produce 200K after tax. In fact, at today's tax rates you'd be clearing $273,950 after tax.
Or, I can show you a strategy that would allow you to go well beyond this and also/simultaneously accumulate a few NRAS properties through your SMSF whilst still accumulating the 12 in your own name, and generate another chunk of tax free income through your super - you wont be able to do it as aggressively inside SMSF though because the neg gearing is much weaker due to the lower marginal tax rate of 15%. But even one or two accumulated in super and paid down will add 75K of additional tax free income.
So yes, a very simple plan built around using equity, NRAS and only 4% growth per annum for the next 15 years to produce @ 275K tax free per year for you within 15 years.... much more than you'd hoped for....and all done with ZERO out of pocket costs
You're in a unique position because of your equity, to take advantage of what NRAS can do for you.
Just my 2 cents.... but it really is that powerful if you digest the numbers.
I'll wait for all the baggers now lol