Pitfalls of investing in a SDA Property
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 accommodation’s for people with disability, for which these investors would receive higher than average investment returns in the form of funds received through the NDIS.
What resulted was definitely not the type of accommodation’s the NDIS envisaged or wanted.
With the ultimate purpose of a SDA Dwelling “being purposefully built for people with disability, to be able to live in and amongst our own communities, to live as normal a life as possible, in a dwelling you and I would happily call home, which is also close to required infrastructure.”
What was built were ‘hospital type’ accommodation’s, or micro units with kitchenette and bathroom to house 8 to 12 residents under one roof …. basically not the types of accommodation’s wanted by the NDIS or the care providers.
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 it is, 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. And the opposite is also true where a legitimate product offered by a professional becomes a sound investment.
It is your choice : “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, and when you choose to believe that SDA property is a scam then it is! But when you do your due diligence and all the facts point to it being a risk mitigated investment opportunity promulgated into Australian Federal Law … who would you choose to believe and what decision would you make then?
Current Situation around the Market
There are a lot of untruths around SDA Property and how ‘property mavens’ on social media are espousing that everyone should avoid them by misquoting fact.
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 as to which disability category you should build for and in what locations to build.
Yes there are apartments and houses being purposefully built, yet to be completed or tenanted, so no data here. Of the new property supply, they are pretty much evenly spread nationwide, based on recent feedback by the NDIS.
As early adopters into any new market, the early adopters mitigate their risk, get in early and more often than not come out the other end ahead of the next wave of investors who then follow the early adopters.
Undertake your own due diligence, speak to industry professionals for the purpose of arriving at an informed investment decision and then decide to avoid or decide to Invest.
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, always at someone else’s expense! Sad but oh so true.
This 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 ongoing rental management fees
- And / Or only passing on a smaller percentage of the NDIS funding available over to you the investor by offering you “Rental Guarantees”
To expand on this, we continually see 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. NB : watch video explaining this here
- Very Low Yields as low as 6% to 8% being offered under this arrangement AND “who is guaranteeing the company guaranteeing the Rental Guarantee??
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 licensed SDA Rental Manager, your asset is dead in the water and becomes a rather expensive purchase. Without one, you are unable to access NDIS payments, even if you have participants occupying the dwelling. I hope you understand the importance of this statement. No SDA licensed SDA Rental Manager = no NDIS payments to you, even if you have participants in the dwelling!
What this should mean to you is that “as important as the SDA property is to you, having a licensed SDA Rental Manager (and one who charges reasonable management fees) is just as important.
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, who also provide an end-to-end solution for you and your investment.
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.
For sake of repetition, “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, managing the property and giving you access to NDIS payments, is a vital element to the success of your investment.
So 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 … makes their higher than average fees worthwhile, to ensure the overall success of your investment.
SDA Rental Management Fees are too high
SDA Rental Management Fees should be around 15%, as per above; as there is an unusual amount of ongoing compliance required, to ensure you get your regular high rental yields.
As mentioned earlier, be wary of fees higher than 15% and also those quoting 10%. What you will notice is that where a rental manager is charging 10% they include several other fees, ultimately pushing your costs above 15% annually.
Meaning be very wary of fees on top of quoted rental management fees such as : charges to secure a tenant, annual compliance fees, incidentals, other management fees, etc which will push up the fees way higher. This would be tantamount to greed.
Head Lease Agreements
Avoid Head Lease Agreements, this is tantamount to you signing over your asset to another party for the period stipulated in the Head Lease Agreement. Upfront they look inviting, safe and secure … but dig deeper and you will soon establish that they better serve the person getting you to sign off on one than they do you.
Again, what is the bottom line yield you will achieve with a Head Lease Agreement and what say do you have over your Investment during the agreement period. What if you found another rental manger at lower fees during the term of the Head Lease.
Did you know, if you intend on claiming GST on the construction, you are unable to if you sign a Head Lease.
Which States in Australia is it best to invest in a SDA Property?
Our experience is proving that Queensland and Perth SDA Investment Property Market are the most mature and least greedy markets. They are set up to provide investors 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 at reasonable management fees.
Meaning they are more professional and you experience a lot less stress, save time and make more money.
In Victoria and NSW there is a lot of greed in the high fees you will be charged, just to get you a tenant and or the excessively high ongoing rental management fees. We have not come across SDA Rental Managers who either return our calls or emails or who are not working under Rental Guarantees. Without a licensed SDA Rental Manager, how will you secure participants and how will you get access to the NDIS payments?
Which Category of SDA should I invest in?
This question is the penultimate!
You will hear so many stories (and if you dig 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.
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. This is not so factual, the main problem is having more than one Robust Participant in the dwelling often results in participants just not getting along with each other. Robust participants also are not in control of their own faculties and damage can result.
Building for 3 Robust participants and expecting to accommodate 3 on a regular tenancy could be unrealistic. Some are unable to tolerate noise, some cannot tolerate light, some hate other people nearby. Two participants may work, and one is a far better option. Under Robust, it is unlikely that you will be able to secure a participant under a different disability category to occupy the other rooms, if you cannot secure enough Robust participants.
The other popular category is High Physical Support dwellings which also offer the higher level of NDIS payments. The supply in this category is naturally higher than Robust homes, meaning more rental competition for you in attracting participants. So it is imperative that one chooses a location with low supply and high demand for HPS homes.
Under the HPS model, if you are unable to secure full participation of HPS participants, you are able to source other level of disability participants to fill the home. You will achieve a slightly reduced yield, but at least you will have each room rented out.
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?
As it is easier to build to suit the two lower disability categories, an investor will have a lot more rental competition in this sector. And of course lower NDIS payments. Perhaps not as attractive as HPS or Robust?
In summary and who to believe?
Be mindful of greed!
Unfortunately there are very hasty decisions made around greed of higher yields being touted and the fear of missing out. Your greed in wanting to get the highest yield, versus achieving realistic high yields needs to be checked.
Then there is the greed emanating from the marketing companies offering NDIS properties. Get to know what is realistic and what is greed, avoid those over promising and under delivering. Also you would want to avoid those offering you a rental guarantee (watch video above). Why would you use your money and borrowings to make them a serious amount of money, more often than not, making them more than you will be making and you have taken all the risk.
Avoid SDA Rental Managers greed in offering you yields below 10%. A more realistic yield is 12% to 16%.
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 those telling you what you want to hear.
Why avoid accurate market information and statistics that might not be aligned to your belief?
If you are greedy, you will look for all the reasons ‘why’, in order 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?
