Have you ever felt overwhelmed by the abundance of information (and misinformation) surrounding investing in specialist disability accommodation (SDA) housing?
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17min podcast discussing SDA from an investors perspective
Quick summary of this post
- Investing in SDA property offers a unique opportunity to contribute positively to society by providing high-quality accessibly housing for people with disabilities while also potentially securing a stable and attractive return on investment.
- Before diving into NDIS or SDA property investment, it's crucial to understand the NDIS and SDA housing schemes fully, including the benefits they offer and the specific standards and requirements that properties must meet to be eligible.
- Key considerations for investors include assessing the risks, understanding the criteria for selecting suitable properties, and ensuring that any potential investment in homes meets SDA standards to qualify for funding by the SDA participant (Tenant).
- Financing and cost considerations play a significant role in NDIS property investment. It's important to explore different financing models, understand the tax implications, and consider the long-term returns and costs associated with owning an NDIS investment property.
- Engaging with experts in the field, such as SDA investment advisors who specialise in NDIS investments or SDA providers who manage the tenant, can provide valuable insights and help navigate the complexities of investing in it
Specialist Disability Accommodation (SDA) represents a significant opportunity in the Australian property investment landscape for investors to provide a niche product for persons with disability. NDIS Participants (tenants) who have high level needs require a home that caters for these needs. This comprehensive guide will walk you through the key aspects of investing in SDA, from market research through to future-proofing your investment.
1. Introduction to SDA Investment
SDA is a crucial component of the National Disability Insurance Scheme (NDIS), designed to increase the supply of appropriate housing for eligible participants. According to the demand projections produced by the NDIA (in 2022) , the number of Participants will increase from 22,873 in 2022 to 36,874 in 2042.
Currently in mid 2024, there are only 9,718 new compliant SDA rooms constructed, which represents a significant shortfall of over 13,000 rooms and this will grow by a further 14,000 rooms by 2042.
2. SDA Data Research
Reliable data is crucial for making informed investment decisions in the SDA market. Key metrics to analyze include:
- SDA participant numbers in each region and forecast growth
- SDA supply numbers in each region and forecast dwellings under construction
- Property types and design categories
It is important to be able to turn that data into meaningful information to help guide the investment decision.
3. SDA Property Feasibility Analysis and Cashflow
When analyzing potential cashflow, consider:
- Construction costs: The average cost to build an SDA property is over $100,000 more than a comparative non-SDA dwelling
- SDA payments: The average annual SDA payment per participant in a new compliant SDA dwelling is more than 3 x the typical rent received in a comparative non-SDA dwelling.
- Occupancy rates: Initial occupancy rates are lower for SDA properties due to the complexity and time associated with initially residing Participants, and on-going occupancy rates can be in the order of 90% – 95% which is lower than non-SDA dwellings.
4. Build Design Guidelines
SDA design principles focus on:
- Accessibility
- Safety
- Comfort
- Durability
- Integration with smart home technology
In other words, the design guidelines are intended to enable the Participant to live the best life that they possibly can.
5. Categories of SDA Houses
The NDIS recognizes five SDA design categories:
- Basic
- Improved Liveability
- Fully Accessible
- High Physical Support
- Robust
The Basic category refers to non-compliant dwellings that were brought into the NDIA with Participants already in place. It is the intention of the NDIA to “retire” these dwellings as soon as possible.
The next three categories are for Participants with varying levels of physical disabilities that require different levels of supports inbuilt within the design of the dwelling.
Robust is, as the name would suggest, a more “robust” dwelling designed for Participants with mental disabilities.
6. Tenancy Mix Options
SDA properties can accommodate various tenancy arrangements, including:
- Single occupancy
- Shared living arrangements
There are numerous factors that determine the suitability of either of these tenancy arrangements for Participants, including, but not limited to the Participants level of support, their ability to live with other Participants and whether they are caring for children.
Short-term and medium-term accommodation are other financially lucrative alternatives for SDA properties.
7. Design Compliance
Key areas of compliance include:
- Accessibility features
- Fire safety systems
- Structural requirements
- Technology integration
Similar to the design guidelines, these features add to the ‘liveability’ of the homes as well as improve the level of safety for the Participants as well as the care providers.
8. Choosing Locations: Infill vs. New Land Subdivision Estates
There are numerous actors to consider when making a location decision, which include:
- Proximity to services
- Transport options
- Community integration
- Proximity to informal support such as family and friends.
9. Choosing an SDA Provider
Criteria for selecting a reliable provider:
- Experience
- Financial stability
- Reputation
The SDA Provider is the ongoing link between the investor and the disability sector, which include the Participants, the care providers and the NDIA.
10. SDA Funding Levels for Participants
The SDA funding level for new SDA dwellings is dependant upon:-
- The type of dwelling
- The disability category for which the dwelling is registered
- Whether the dwelling has a room set aside for the care provider
- Whether the dwelling has fire sprinklers
- Whether GST was claimed
- The location of the dwelling
All of these factors need to be carefully considered when determining the type and location of an SDA dwelling.
The NDIA provides tools to help investors and providers calculate potential SDA income, taking all of these factors into account.
11. Supply and Demand Data
The level of supply and demand is not uniform across Australia. Understanding the data that is available and then interpreting it in order to make an informed investment decision is vital in ensuring the success of an SDA property.
12. Selecting a Builder
Criteria for choosing an SDA-experienced builder:
- SDA-specific experience
- Understanding of compliance requirements
- Quality of workmanship
An SDA building is in many respects more like a mini-hospital ward, and the design guidelines are quite strict. Adhering to these guidelines is essential to ensuring that the dwelling receives SDA certification upon completion and enrollment into the NDIA.
13. Houses vs. Apartments vs. Villas for SDA
Each dwelling type has its pluses and minuses. What is suitable for inner city Sydney may not suit regional Queensland. Understanding the needs of the local market is important when deciding which dwelling type is most suitable for any given location.
14. Floor Plans and Design
Floor plans and designs continue to evolve as the market matures, and a good design provides a solid base for attracting Participants now and into the future.
15. Future-Proofing SDA Investments
Strategies for long-term sustainability:
- Diversify your SDA portfolio
- Build strong relationships with SDA providers
- Regular property upgrades
- Keeping updated on the level of supply and demand in your investment location
In order to retain and attract new Participants it is important to keep the property well maintained, as up to date as possible, and to be aware of the competitive environment.
16. SIL Funding vs. SDA Funding
Understanding the difference:
- SDA funding covers the cost of physical housing
- SIL funding covers the cost of support services
The SDA rent component is actually a far smaller amount than the cost of providing year round care. Being aware of this and discussing the implications of this with your SDA Provider will help determine which type of dwelling is best suited for any given location.
17. Red Flags When Getting Advice from Marketers
Be wary of:
- Guaranteed returns
- Oversimplification of the SDA market
- Assuming that the Participant(s) will have the maximum level of funding
- Underestimating the potential initial and ongoing vacancy rates.
- Underestimating ongoing management requirements and costs
- Building to the minimum standard and with the cheapest inclusions.
Double check any advice offered via an independent and trusted source.
18. Capital Requirements for Investing in SDA
Initial capital outlay includes:
- Property acquisition costs
- Construction costs
- Additional costs for design, certifications, and compliance
Obtain advice from the builder, finance broker and SDA Provider for all the little (and not so little extras) that may not be included in the “headline” figure.
19. Investing in SDA Through SMSF
Considerations for SMSF investment in SDA:
- Compliance with superannuation laws
- Arms-length transactions
- Limited recourse borrowing arrangements
SDA has the potential to be a very cash flow positive investment, so for many, investing through an SMSF is a great way to minimise tax. Obtain advice from a financial advisor and finance broker to see if this investment vehicle is optimal.
Conclusion
Investing in Specialist Disability Accommodation presents a compelling opportunity for those willing to navigate its complexities. With careful planning, thorough research, and a commitment to providing high-quality housing for individuals with disabilities, investors can potentially achieve attractive returns while contributing to an essential social need.
As the SDA market continues to grow the future outlook for SDA investments remains positive. However, success in this market requires staying informed about NDIS policy changes, market trends, and evolving participant needs.
By leveraging the insights and data provided in this guide, investors can make informed decisions and contribute to the vital goal of providing high-quality, accessible housing for Australians with disabilities.
Frequently Asked Questions
Q1: What is Specialist Disability Accommodation (SDA)?
A: SDA refers to housing designed for NDIS participants with extreme functional impairment or very high support needs.
Q2: How is SDA different from regular property investment?
A: SDA properties must meet specific design standards, cater to participants with disabilities, and are funded through the NDIS, typically offering higher returns than standard residential properties.
Q3: What are the main risks of investing in SDA?
A: Key risks include regulatory changes, vacancy periods, higher upfront costs, and the need for specialized management.
Q4: Can I invest in SDA through my SMSF?
A: Yes, but it must comply with superannuation laws and SMSF regulations. Seek professional advice before proceeding.
Q5: How do I choose the right location for an SDA property?
A: Consider proximity to services, transport options, community integration, and local demand for SDA and above all obtain verifiable data about the strength of any location that you are considering.
Glossary of Important Terms
- NDIS: National Disability Insurance Scheme
- SDA: Specialist Disability Accommodation
- SIL: Supported Independent Living
- NDIA: National Disability Insurance Agency
- Improved Liveability: An SDA design category for participants with sensory, intellectual, or cognitive impairment
- Fully Accessible: An SDA design category for participants with significant physical impairment
- Robust: An SDA design category for participants with complex behaviors
- High Physical Support: An SDA design category for participants with significant physical impairment and very high support needs
Case Studies
Case Study 1: Urban Apartment Complex
An investor developed a 10-unit SDA apartment complex in a metropolitan area, focusing on High Physical Support design. The total investment was AUD 7.5 million. With an 85% occupancy rate and average annual SDA payments of AUD 37,000 per participant, the complex generated a 12% annual return.
Case Study 2: Regional Dual Occupancy Home
A couple invested AUD 900,000 in a dual occupancy SDA property in a regional town, catering to the Fully Accessible category. Despite initial challenges in tenant placement, they achieved full occupancy within six months and a 10.5% annual return.
Checklist for Potential SDA Investors
- Research the SDA market thoroughly, including supply and demand in any target area
- Consult with SDA specialists, including financial advisors and property experts
- Understand the different SDA design categories and their requirements
- Develop a comprehensive business plan, including financial projections
- Identify potential SDA providers to partner with
- Choose a suitable location based on proximity to services and community integration
- Select an experienced SDA builder or developer
- Ensure all designs comply with SDA requirements and building codes
- Arrange appropriate financing, considering SDA-specific lending products if available
- Engage a specialized SDA property manager
- Stay informed about NDIS policy changes and market trends
- Consider long-term strategies for maintaining and potentially expanding your SDA portfolio
By following this checklist and thoroughly understanding the content provided in this guide, potential investors can approach SDA investments with greater confidence and a clearer strategy for success.