Why you should not invest in SDA Property
Keep in mind that the SDA Property Investment opportunity is relatively new to investors just like you. When it was launched several years back, it was aimed at Super Funds and Corporations to provide accommodations for people with disability, for which these investors would receive higher than average investment returns.
What resulted was definitely not the type of accommodations the NDIS envisaged they wanted.
With the ultimate purpose of a SDA Dwelling being for people with disability to be able to live in and amongst our own communities, and live as normal a life as possible, in what you and I would happily call home, close to required infrastructure.
What was built were ‘hospital type’ accommodations, or micro units with kitchenette and bathroom with 8 to 12 residents under one roof …. basically not the types of accommodations wanted by the NDIS nor care givers.
NDIS Property is a scam
It sure is, when offered to you by a scammer. It is also a scam if your mate told you or you read it on an online platform and you choose to believe it.
Anything no matter how legit, offered to you by a scammer is a scam.
So do you avoid the ‘stories’, do you avoid the scammers and invest OR will you look for the reasons not to invest in one of the most rewarding, risk mitigated investment opportunities, linked to CPI for 20 years?
The only scam is the story you are telling yourself when you choose to believe that SDA property is a scam!
Current Situation around the Market
With this background in mind, there are a lot of untruths around SDA Property and how everyone should avoid them.
Right now, there is very little market information around the preferred type of dwellings the NDIS are requesting to be built, meaning very little reliable information off which you the investor can make an informed decision.
Yes there are apartments and houses being purposefully built, yet to be completed or tenanted, so no date here. Of the new property supply, they are spread nationwide, so very little reliable date here too.
Current Situation around SDA Rental Management
Whenever the Australian Government come up with an initiative and there are $’s to be had, it brings out the greedy folk wanting to make a quick dollar at someone else’s expense! Sad but oh so true.
What is occurring in the market right now is that SDA Rental Managers
- Are either charging very high fees to find you a SDA approved participant to be your tenant. Fees from $6,000 to even $30,000 we have heard.
- And / Or very high rental management fees
- And / Or only passing on a smaller percentage of the NDIS funding available over to you the investor
Further to this, we have seen SDA builders reaching out to investors offering to build an approved dwelling and providing a Rental Guarantee back to the investor. Meaning that they are using your money or your risk of borrowing funds from the bank to line their own pockets. Whenever you see a rental guarantee offered, remember you are paying for it.
- Very Low Yields as low as 6% to 8% being offered under this arrangement
Acquiring Tenants (Participants)
It is a risky investment when you do not have an end to end solution on hand. What we mean by this is that sure anyone can go and buy a SDA property or build one on their existing block of land, but without a NIDIS participant (SDA tenant) your asset is dead in the water and becomes a rather expensive purchase.
You would want to work with a professional firm who on getting an understanding of all of your requirements and purpose for the investment, match the NDIS property to your goals and outcomes you are wanting.
Right dwelling, in right location, who have sound relationships with Care Givers in that location who are open to providing you with tenants (participants), managed by an approved SDA Rental Manager.
Are you aware that only an approved and licensed SDA Rental Manager is able to manage your SDA Property?
Meaning that you cannot do it nor can your local agent.
The risk mitigated way of investing in a SDA Investment Property is working with a professional firm who has these relationships firmly in place. Acquiring participants is a vital element to the success of your investment.
As is having a SDA approved rental manager who incurs an incredible amount of ongoing compliance just so that you can receive your NDIS Funding for your SDA Property. Their higher than average fees are worthwhile to ensure your investment is a success.
SDA Rental Management Fees are high
SDA Rental Management Fees should be around 10% to 15%, as per above there is an unusual amount of regular compliance required to ensure you get your regular high rental yields.
As mentioned earlier, be wary of fees higher than 15%
Be very wary of fees onto of rental management fees such as : charges to secure a tenant, incidentals, other management fees, etc which will push up the fees way higher. This would be tantamount to greed
Which States in Australia is it best to invest in a SDA Property?
Our experience is proving that Queensland SDA Investment Property is the most mature and least greedy market. Queensland SDA Property is set up to provide investor with an end to end all encompassing service from finding the preferred location, best fit dwelling, sourcing SDA participants and managing your investment for you.
Meaning they are more professional and you experience a lot less stress, save time and make more money.
In Victoria there is a lot of greed in the high fees you will be charged just to get you a tenant and or the high rental management fees. We have not come across a viable solution to provide you our client with an end to end solution either
NSW at this time seems a mix between QLD and Vic, but without the end to end solution. Meaning you can secure the property part but finding a reliable approved SDA Rental Manager and participants is still somewhat of a challenge
Which Category of SDA should I invest in?
This question is the penultimate!
You will hear so many stories (and if you dug deep they will merely be just a second hand story) and far from the truth about the different SDA Categories. Which to invest in and which to avoid. Do so at your peril they will tell you.
So what is the truth?
The truth is what the market evidence and statistics tell you, if you are open to that truth over a second hand scary story?
It is said in the industry that the demand for Robust is exceptionally high and supply tragically low as investors remain fearful of tenants destroying their home and resultant repair bills. BUT what is not mentioned is that yes in older properties (a standard home converted) it is easy for you or your own kid to put a whole in your dry wall or break a window; yet new Robust dwellings are built with materials purposefully designed to withstand ‘typical’ damage. What this means to you is damage is minimal, and you can claim damages anyway.
What is also not shared is that a Robust Participant will probably be your tenant for life, giving you some certainty,
The other popular category is High Physical Support dwellings. The supply in this category is way higher than Robust homes, meaning more rental competition for you in attracting participants. Logic tells us that with 28,000 participants around and supply so far under 4,000 there is still plenty of room for more High Physical Support dwellings.
These are the two more popular categories for Investors building a new SDA dwelling
The Improved Livability and the Fully Accessible categories seem to be taken up by investors who already own a dwelling and want to convert it to offer it to the SDA rental pool. Be mindful when doing this that your property complies. Also, for the exact same dollars invested in this property, could you perhaps not achieve a far higher yield and save more income tax rather investing in a brand new build?
In summary and who to believe?
Be mindful of greed!
Your greed in wanting to get the highest yield versus already getting high yields which are realistic and achievable.
The industry providers greed/SDA builders greet of over promising and under delivering. Also of offering you a rental guarantee, using your money and borrowings to make him a serious amount of money, perhaps more than you will be making.
SDA Rental Managers greed of offering you yields below 10%.
Remain realistic, match the Investment Vehicle to your investment goals and requirements.
Who to believe?
It is guaranteed that you will believe either yourself or accurate market information and statistics.
If you are greedy, you will look for all the reasons why to justify your greed. You will be open and susceptible to being told exactly what you are wanting to hear. And you will make your decision off this basis, as it matches your thinking and your belief.
If you are realistic you will undertake your own due diligence by reviewing factual market evidence, by talking to industry professionals who have your interest at heart and by coming to an informed investment decision.
What will you choose?