Interested in building a portfolio of NDIS SDA investment properties?
Want to see the different ways to establish a portfolio of ‘turbo charged’ positive cashflow properties bringing in millions of dollars of gross rental income as a ‘build & hold’ strategy for the next 20 years?
Welcome to NDIS PROPERTY AUSTRALIA
STRATEGIES TO BUILD A NDIS PROPERTY PORTFOLIO
As an emerging market, SDA has enormous potential to provide both long-term stable returns to investors, while also meeting the housing needs of people with disability. The emerging SDA market is well suited to sophisticated investors with a substantial portfolio looking to diversify and interested in a long-term investment with stable returns and a social impact. However, like any investment opportunity, there are a range of risks that require careful due diligence. Risks include property vacancy, certainty on pricing and government regulation, and the quality and experience of counter-parties. Rigorous research is needed on any SDA investment opportunity with additional focus on counter-parties, vacancy risk management and the operating model.
HIGH YIELD STRATEGY
Investing in a new SDA property in the NDIS can be difficult and taxing for most people who have no clue about the necessary steps to take. What if we can help you invest in not one, but two or even three properties over the next few years? It might seem daunting for people at first. However, with the help of our acquisitions team in NPA, you can possibly create a high yielding portfolio and have a substantial cash flow in the later years, earning circa $200,000 to $300,000 per annum gross rental income from several SDA properties in an investment property portfolio.
The first purchase is always the hardest, and that’s why you need to have a minimum capital outlay to start with (circa $250,000), and also the average entry price (circa $650,000-$700,000) to begin your NDIS property journey. Achieving a ‘turbo charged’ cash flow property portfolio of several SDA homes is possible over the next 5 to 7 years. This can be achieved by buying your first SDA property, then paying it down quickly with the the positive cash flow received as an investor, and then acquiring the second SDA property within 2-3 years afterwards.
To acquire more SDA properties in your portfolio, a fast method would be to seek a lender to refinance your facility as a commercial finance loan in the later years, and release equity out ‘if or once’ valuation comes back higher given the existing rental lease is in place and is showing, for example, yields of circa 15-20% pa. Having the right lender and right builder can activate acquisition #2 after 24-36 months of your initial purchase. Alternatively you can sell of your completed new home (after two or three years) at a higher price than what you bought it for, because there are always investors looking for a high rental return on an investment property with strong rental yields of 7-10% pa, and yours would be 15-20% pa. Thus, would you really say “no” if someone else offered you $200,000 more than you paid for your investment property?
On a side note, if you are forecasting 15-20% pa gross rental returns, you might be wondering what are the net returns before tax? Whatever the gross yields that are forecast, always shave off 3%-4% to calculate the net return. Therefore, for example, if the gross rental yield was 17% pa, one would expect the net return to fall between 13%-14% pa based off the initial purchase price.
An alternative method, or additional strategy, of acquiring an NDIS investment property might be as an investment within superannuation (SMSF). If there is sufficient funds in superannuation for yourself or family members (4 people combined) and excess of $250,000 total funds, this could be an additional means to explore as well, assuming all the necessary factors are ticked off. These requirements are that being financial advice is sought from a financial planner, and independent legal advice is sought from a solicitor, and taxation advice is sought from an accountant, which will then allow the lender to consider the application. The financials of the super balance must be sufficient to be considered by the appropriate lender, and also important is that there is a lending product which is suitable for the NDIS property acquisition within SMSF, as completed or construction finance.
UNIT TRUST STRATEGY
Lastly, if all else fails i.e. you cannot get finance for an individual purchase of a SDA property, or don’t have sufficient balance in super to buy a SDA property, you can always invest together with 3 or 4 other individuals who contribute circa $150,000 cash each, to then buy one SDA property for $600,000, earning circa 15-20%pa gross rental returns. This could be done via a Unit Trust, and setup by an accountant or lawyer. However, in theory, there is nothing stopping you as an investor from acquiring a third property doing it this way as a Unit Trust ‘joint venture’ at the same time as buying one for yourself, and one inside SMSF. Doing two SDA property purchases (x2 from the 3 options above) in 2021, if that makes sense, or not! This would obviously mean you are putting all your eggs in one basket at the very start, and your financial advisor or accountant would argue that its seen as a high risk strategy.
To counter the ‘high risk concern’ one might argue, “where is the risk in the Federal Government paying me 15-20%pa for 20 years, where I am earning gross rental income of $100,000-$150,000 pa, per property?” The only risk is vacancy, and that would be due to oversupply of SDA homes in an area. The way to mitigate that is to build in areas of high demand and low supply, and to get the tenant (participant) lined up and ready to sign a lease before or at construction completion. If the home is ‘fit for purpose’, and is built for ‘tenant retention’, which delivers everything that the participants could want in a lifestyle environment, why would a happy tenant break their lease and move out? Provide them what they want and they will remain for many years to come. This is our view from the team at NPA.
LONG TERM STRATEGY
In theory, if fully occupied at 100%, each SDA property should yield around $1.8M to $2.4M (assuming a 4 bedroom home HPS incl. OOA) over its lifetime of 17 to 20 years. Also, it’s best not to assume you will get x3 HPS participants, but rather a cross selection diverse mix of participants from different categories. Thus, if an investor can acquire 3 SDA homes in total, that would produce circa $6.0M ($2.3M + $2.0M + $1.7M) rental income over a 20 year period (for example, no.1 in year 1 + no.2 in year 3 + no.3 in year 6 etc, thus ending 19 years after no.1 started). These forecasts are based off an assumption of x3 HPS homes (4B/4B/2C) inclusive of an OOA, and leased to all HPS participants, and are fully occupied for the duration of these years mentioned. Obviously when we say “up to” this implies the maximum possibility. No investment strategy should even assume the maximum outcome. Therefore, to take a conservative approach, an investor might even assume a 50% vacancy rate (current vacancy rate is around 4% from one Provider statement) on these figures, which then drop the forecast down to $3.0M of gross income over the lifetime of the portfolio (20 years). At $3.0M gross return, this is still a greater outcome compared to a traditional residential property portfolio of 3 houses. Please note, the likelihood of having all HPS Participants in a HPS designed home is unlikely, and each investor should always assume a mix of different categories for each property acquired.
Our acquisitions team and specialist advisors within NPA can help clients overcome the challenges of sourcing land, vetting builders, and helping figure out which provider(s) are suitable to provide SDA funded participants for an SDA home. If your struggling with finance approval with your lender, give us a buzz and we might give you some direction (not advice!) as to where to head to. No promises of course!
What might possibly help with finance is if an SDA provider were to obtain a EOI from participants showing their willingness to sign a lease at completion, for accommodation in a brand new home. The best way to mitigate risk is to provide a SDA accommodation which is “fit for purpose” for participants, and thus create a long term accommodation solution in which they will want to remain in the home for many years to come. This would certainly help the financial pre-approval process before entering into a signed contract of purchase. Please note, you cannot sign a lease prior to completion, especially with people with disabilities.
As with any investment, real estate has its good, bad and average performing assets and if you’re not careful, you could easily end up with a property investment lemon. The problem is, owning a dud property means: (a) You could be losing money because your holding costs may exceed your income (rent and capital growth); (b) You lose the opportunity to make better returns elsewhere; and (c) The lack of equity and rental growth will compromise your ability to keep growing your portfolio. If you are reading this article, you are probably sitting there and thinking “I’m a category (b)”, and if that is the case, you might as well might the bullet and offload the property you currently have which is not performing.
What’s the old saying? ‘A Bird in the Hand is Worth Two in the Bush’ is used for saying that it’s better to hold onto something that is certain, that trying to get something that may or may not happen. If your holding on a ‘apartment’ or ‘house’ somewhere which is negatively geared and costing you money by holding onto it, and may not give you certainty of any growth or positive cashflow return, then why hold onto it? Grab onto what is certain, or as close to certain as certain can be, here with SDA property. Is it time to offload the dud properties you currently own have and look at other options? If so, let us help you answer that question, and see if SDA is appropriate for your portfolio.
What is the right SDA property in the right area? Is it a house, or a townhouse, or a villa, or an apartment? The answer is, it depends on the Participants needs and wants, as its all about ‘choice’ for them. Firstly, it must be explained, that the approach to SDA funding has been to make investing in accommodation designed for NDIS participants both commercially viable and attractive for investors. However, at the same time the Provider bears some risk, in that ensuring that the property has tenants is their responsibility rather than that of the NDIA. Essentially, this means that the normal rules of property investment apply when it comes to the location, the provision of local amenities and infrastructure, and the potential for growth in an area, if you are investing in NDIS accommodation. As such, it is in our service offering from NPA to strive to deliver to Investors a variety of product offerings by way of: new houses, new townhouses, new villas, and new apartments, all of which will need to be SDA compliant and ‘fit for purpose’ for the diverse range of Participants which will ultimately need accommodation in all the locations in SE QLD. In addition, for the SIL & SDA Providers and Participants who require immediate accommodation, we will soon rollout a modifications and renovations solution to existing and new property (if needed) to provide support to the community in order to facilitate the provision of delivering SDA compliance to existing townhouses, apartments and houses. In addition, we are providing SDA consulting advice on development sites with developers with DA sites, to have potential to be re-designed as brand new apartments for Participants. WATCH THIS SPACE!
By purchasing off market and ‘hopefully’ below market value (rare we know!) in different areas, you should be able to diversify risk and maximise income potential. Here is a bit of old school advice to all you so-called ‘pro’ property investors – “YOU ONLY MAKE MONEY WHEN YOU BUY, NOT SELL, PROPERTY”. The same applies to investing in SDA property.
NPA can help you to become an SDA investor as a means of effectively growing your property portfolio and benefiting from high rental yields, while at the same time helping to improve the lives of fellow Australians who have not been well catered for in terms of adequate or appropriate housing. We provide you with a choice of investment options based on properties that are being developed and built specifically to be SDA compliant, for instance, or connect you with relevant industry professionals to guide you through the process of applying for NDIS investment finance and completing a purchase. Our extensive industry knowledge and experience also means that we can take care not only of finding tenants for your property, but also the ongoing maintenance and upkeep through appointing a well qualified property manager.
By getting in touch with our team, we can get you underway doing it the right and compliant way. Work with a professional team of consultants that can professionally negotiate prices and access opportunities for land to design and build a SDA home, to ensure you get maximum value for money. This is what we do best! Lastly, if getting into developments are more your cuppa tea, then talk to us about sourcing sites and exploring NDIS projects, which are also good opportunities for sophisticated investors too!
For more information on how we can be of assistance, please contact us on email@example.com
DISCLAIMER – The information above is for general information only, and not to be taken as financial advice. Please seek independent financial & legal & taxation & lending advice, before investing in any NDIS SDA property, as it is a complex transaction with many variables. The team of consultants in NDIS PROPERTY AUSTRALIA & BUILD NEW HOMES AUSTRALIA are not licensed financial advisors.
- High Yield (10-20%+ Yields)
- Lower Risk / Government Funded
- Ethical Investing
- Fully Managed by Disability Specialists
- Multiple Building Designs / Price Points
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