20% Below Market Rent - Not The Best Property Deals for SMSF (NRAS)

Another dodgy SMSF property deal has recently been highlighted by ASIC. This time SMSF promoters have advertised a 'tax-free' $100,000 incentive if an SMSF invests in residential properties through the National Rental Affordability Scheme (NRAS).
  
See ASIC's warning about the advertising claims here
   
The NRAS is run by the Commonwealth and state and territory governments as a scheme to promote investment in affordable housing for low and middle-income earners. The upside is that the scheme rewards investors with payments and offsets if they build and lease housing to low and moderate income earners.
The downside is that the investor must charge rent on the property at a rate that is at least 20% below market value.
  
The only way that an SMSF or individual investor can invest in a NRAS project is through an approved participant. That participant is under no obligation to pass on any of the incentives offered to that individual or SMSF. In fact, the participant will only receive those incentives themselves if they meet certain criteria.
 
Those incentives are also only available if the investor stays in the scheme for a minimum of 10 years.
 
ASIC has also warned that the purchase, tenanting and management of properties under the scheme can also involve fees and costs for the end investor that may make them even less attractive.
  
The Australian Department of Social Services, which runs the scheme, followed up the ASIC warning by recommending that, if approached by anyone promoting the NRAS, you shouldn't give any personal details and certainly shouldn't consider an SMSF investment.
  
If anybody is approached in this manner, the DSS also encourages the reporting fraud of such activity.
 
We believe there are many instances when direct property investment, including acquisitions made using limited recourse borrowing or internal borrowing, can have excellent outcomes for SMSF investors. However, it is essential to deal with real experts in this area.
 
Posted By David Orth