3 - Choosing the wrong type of dwelling for the intended disability category
The more Participants you can get into a house, the more money you will make - on paper at least.
First, let’s tackle Robust (because it’s the easiest). Robust dwellings are for Participants that can potentially cause damage to the house. Fine, you can build for that eventuality, but Robust Participants could also harm themselves, other Participants and the Carers.
If you take this into consideration, and without going into too much detail, you will be aware that building a 2,3 or even 4 room Robust dwelling is fraught with all sorts of potential problems for everyone in that dwelling. Before you consider investing in a 2 bedroom Robust dwelling ensure that the design has truly taken everyone’s safety into consideration. Do not even consider investing in a 3 or 4 bedroom Robust house!
Now onto SDA in general; in December 2023, the NDIA released a review of the NDIS. Here are a couple of snippets:-
- “While single living arrangements with no sharing of supports are needed in specified circumstances, they can lead to isolation and poor outcomes for participants” (P139)
- “Given that reasonable and necessary funding would typically be based on an average shared support ratio of one support worker to three participants (while ensuring flexibility in line with a needs-based assessment process), there is therefore no longer a need for new SDA dwellings of four bedrooms or above, other than where this is the choice of participants.” (P150)
In short, if you are investing in a single living dwelling, make sure that the supports can be shared, which may also mean that your Participant will not have enough in their package to provide you with the “single room” income.
Group Houses are going to be phased out, so be aware.
The NDIA has made it clear that they want to see an average shared support ratio of 1:3. On the other hand, within the report they also support 2 bedroom dwellings. To further complicate this, Participants typically want to share with as few others as possible.
Whilst all of this needs more clarity by the NDIA, the safest bet at the moment is to either invest in a 3 bedroom dwelling (and count on only getting two Participants), or to build a 2 bedroom dwelling relatively close to other dwellings and thus enabling the SIL to share supports. From my experience, at the moment no-one knows the real answer as to how the NDIA will deal with these competing issues; talk to 3 SDA Providers and you will get 4 different answers.
Have you heard about “Hybrid designs?”
Basically, they are a dumb idea, especially if they are intended to support both Robust as well as FA/ HPS
The reason for this is that they have very different requirements.
Putting aside the fact that you will end up with an expensive home, creating a dwelling that is both “robust” as well as extra large to accommodate wheelchairs etc, the basic design requirements are different. Robust designs should principally be for 1 Participant, whereas the physical disability designs should be for 2 or 3 Participants. Different dwellings for different purposes.
The last issue is Improved Livability.
In short, the recommendation is to phase it out and replace it with another SDA category that offers better value for money.The criteria for I. L. dwellings assume that all I.L. Participants are ambulant and as such will never require wider doors, wider corridors, or larger bathrooms. Feedback from those involved in the disability sector report that this is not always the case. I.L. Participants can and do have bad days where they can’t walk and require a wheelchair, which in effect prevents them from being able to freely move around in their home.
So, it’s not so much that I.L. dwellings do not represent ‘value for money’, but rather they are not entirely fit for purpose. Gold Standard Liveable Housing Australia (L.H.A.) Design guidelines address these shortfalls in design requiring the dwellings to be far more wheelchair friendly.
It has been shown in the past that returns of around 12% for investors were insufficient to entice any significant investment in I.L. dwellings.The Report hopes that it will be “low cost”, but a reasonable bet would be that it will have to be higher than 12%, otherwise it again will be ignored by investors. When the Report states that the I.L. category does not represent value for money, the market has already made it quite clear that neither does a 12% return.
4 - Not allowing for cost overruns
Investing in anything should be as stress free as possible. Knowing your potential “extra” costs will go a long way towards achieving this.
Here are some of the potential risk areas:-
Land - “Latent conditions” are typically things that the builder could not know about when they quoted you the “fixed price”. A couple of examples are, old footings hidden beneath the soil, and rocks that weren’t obvious from a visual inspection. The builder will charge you for a variation. (As a side note on this: read and know your building contract. Don’t wait for a problem to arise before you read it properly for the first time).
Finance - An x% deposit does not include all of your bank fees and stamp duty. Make sure that you fully understand what the total deposit amount will be, including all other fees and charges.
Building variations - Even a fixed price contract can have variations, and sometimes these variations can come about in order to meet the specific needs of a Participant that would like to move into your dwelling. This is particularly relevant to Robust dwellings.
Customisation - Similar to the example above, what if your Participant really wants a vegetable patch or a bookshelf? Will you accommodate and put one in if it means securing a Participant? Customising your dwelling can be a great way of setting your property apart from other dwellings.
Furniture, white goods and curtains - In some locations you will be expected to fit out all of the common areas. Talk to your SDA Provider to see if this applies and needs to be budgeted for. (also, ask who is responsible for organising it.)
Construction delays - This can range from a few weeks, to well over a year. It’s not only the interest cost, but your finance company might have some additional costs associated with any delays, e.g. if you go over the loan ``construction period”, you may go from an interest only repayment structure to principle and interest loan repayments.
SDA Provider costs - Don’t forget to allow for the SDA Provider’s on-boarding costs and advertising costs.
5 - Allow for delayed income
Your income will not start flowing the day after your keys are handed over. The house must receive SDA certification, then the house needs to be registered with the NDIA, then the Participants will start moving in over time and your payments can be delayed by the NDIA (it is a bureaucracy after all). If you don’t allow for at least 3 months before you receive a payment from the NDIA, you could find yourself under financial pressure, or at the least, some frustration.
Possibly the most important advice:
Don’t be greedy.
Remember, unlike with a “normal” investment property where rents can vary and you get what you pay for, with SDA the rent is capped, so no matter whether you build to minimum standard on the cheapest block or you build a luxurious castle the rent is the same. The question is, which dwelling would you choose to live in if it was you? The answer is somewhere in between.
The returns are high enough, so even if you have to sacrifice 1% - 2% of your gross return in order to allow for the better location, block, and/or design, it will probably prove to be worth it in the long run.
Happy Investing.
