NDIS Loan Experts FAQ
The National Disability Insurance Scheme provides funding for support services needed by Australians with disability. The funding is used on services that improve the lives of participants.
Specialist Disability Accommodation (SDA) are the homes that people with disability live in with funding from the NDIS. SDA funding is one of the supports offered under the NDIS to improve participants’ lives by allowing them to live in an appropriate home.
NDIS property is simply another name for SDA. The NDIS is the scheme run by the Australian Government that provides funding for SDA — otherwise known as NDIS property.
The SDA Design Standard sets out the criteria that the house must satisfy for SDA enrolment. Your dwelling enrolment applications will need to specify the Design Category of the home. The four categories are Improved Liveability, Robust, Fully Accessible, and High Physical Support. The design standard must be followed to achieve one of these Design Categories. Once the house is enrolled, you are ready for NDIS participants to live there.
You can find the full legislation regarding the scheme here. Otherwise, we’re always more than happy to answer any questions you may have.
Determining whether it’s a good investment depends wholly upon your risk profile and investment strategy, and is best discussed with your financial adviser. SDA investment properties offer much higher returns than other types of investment properties because the government is trying to boost the number of houses available with a generous financial incentive. In terms of safety, the funding is backed by the government — you won’t find many safer investments than those that are government-backed.
You can absolutely purchase an NDIS property through an SMSF. The condition of purchase is that the SMSF purchases the NDIS property under a single contract. We can help you sort out the loan and facilitate the process of turning a two-part contract (house and land), into a one-part contract for a compliant SMSF investment.Is there anything special I need to do/set up when purchasing an NDIS SDA investment property?
As with any major financial commitment, it is advisable to consult your accountant or financial adviser prior to proceeding with the purchase of an NDIS SDA investment property, particularly when purchasing through your SMSF.
If you are looking to purchase the NDSI SDA outside the SMSF environment, then you may wish to discuss the viability of a Family Trust given the tax benefits this structure can provide.
As the owner of the property, you will be classed as the SDA provider — meaning you are the landlord of the NDIS participant — or you can opt for this task to be contracted to a disability organisation.
Below are some initial steps to consider when becoming an SDA provider:
- Ensure compliance with the SDA Rules 2020 – The Rules are applicable to all SDA properties — take note of density restrictions and build types.
- Ensure design meets the SDA Design Standard.
You can refer to the SDA registration and dwelling enrolment page of the NDIS website once you are ready to enrol. It will provide details of how to contact the NDIA and step through the process.
Typically, the entire start to finish process of building an SDA home takes between 7 and 8 months. However, the time taken to fully finish the construction process is 24 weeks. The additional time is spent on the necessary council and developer approvals. The reason it takes slightly longer than a regular home build is that NDIS properties are built to unique and exact specifications, resulting in a longer than normal build time.
SDA Management Australia (SDAMA) is a specialist property management firm that works with NDIS Service Providers in assisting their NDIS clients to apply for and be placed in suitable Specialist Disability Accommodation. This process starts as soon as the property has been registered with SDA and the commencement of the build, with the intention of having the property occupied as soon as possible after the property is completed.
You can expect an initial accommodation agreement to be for a period of 12 months. Given that SDA delivers support that caters to NDIS participants unique, individual support needs, it is not unreasonable to expect your NDIS tenant to remain in your SDA property for years, potentially for their entire lifetime.
The NDIS guidelines stipulate that an NDIS tenant may end their agreement at any time by providing 90 days notice.
Despite the shortage of suitable accommodation for Australians living with disabilities, NDIS property owners still bear the risk of losing tenants. The good news is that provided your property has been enrolled and had its first tenant, NDIS contingencies are available to you to help cover the NDIS SDA portion of vacancy payments.
If the SDA property has 2 or 3 participant rooms, there is coverage for up to 60 days. For those properties with 4 or 5 participant rooms, the amounts covered extend to 90 days.
The payments from an NDSI SDA investment property differ slightly from that of a standard rental investment property. SDAMA will pay you rental payments at the end of each calendar month. The way that each tenant’s payment is structured, is broken into three components.
- The fair rent contribution (calculated as 25% of base disability supplement) which is paid fortnightly by the tenant.
- 100% of the participant’s Commonwealth Rent Assistance (which is paid fortnightly by the tenant).
- NDIS SDA Payment which is paid quarterly in arrears.
Other than improving the quality of life for members of communities living with a disability, one of the key drawcards of NDIS property investment is the expected rental yields of between 7%-18% per annum! Of course, the yields are dependant on which type of property you own, the location of the property, which designed category it falls into and the number of tenants in the property, however the yields are not market-linked.
This is possible as the Federal Government has committed $700M (that’s million) annually for payments towards SDA property investors. Not only that, but the payments are also indexed for the next 20 years.
Don’t forget that you also have capital growth potential as well!
The types of dwellings that can be enrolled in the SDA scheme include:
- Apartments
- A villa / duplex / townhouse
- Standard houses
- Group Home
However, the NDIS outlines SDA categories, each with design standards that need to be met in order for the property to be enrolled in the scheme. These categories are:
- Improved Livability
- Fully Accessible
- Robust
- High Physical Support
The NDIS hopes that by improving clarity of design requirements of SDA homes, there will be greater provider confidence and surety of compliance.
SDA Design Category | Description |
Improved Livability | Housing that has been designed to improve liability by incorporating a reasonable level of physical access and enhanced provision for people with sensory, intellectual or cognitive impairment. |
Fully Accessible | Housing that has been designed to incorporate a high level of physical access provision for people with significant physical impairment. |
Robust | Housing that has been designed to incorporate a reasonable level of physical access provision and be very resilient, reducing the likelihood of reactive maintenance and reducing the risk to the participant and the community. |
High Physical Support | Housing that has been designed to incorporate a high level of physical access provision for people with significant physical impairment and requiring very high levels of support. |
Dwellings of all design categories must contain no less than one of the following elements:
- A kitchen
- A bathroom
- A living/dining area
- An entrance/exit
- At least one bedroom per participant
Yes, you can convert your property back to a standard home.
It is anticipated that the SDA framework and pricing model will continue for 20 years, at the end of which, investors have the choice as to whether they sell the property as is, demolish it then develop or continue to rent the property to SDA participants. The rate of rent would be 60 per cent of the rent at that time or you could choose to rent to the open market.
The estimated cost to convert the SDA property to a normal home at the end of the 20 year period is about $7,000 – $10,000 in today’s cost.
A specialist property management firm called SDA Management Australia (SDAMA) has been established to work with NDIS Service Providers in assisting NDIS participants in finding suitable accommodation. They work with participants from application through to placement stage and the process starts as soon as the property has been registered with the SDA and building has commenced. The intention is to have the property occupied as soon as possible once the build is complete and move-in ready!
An SDA home must be managed by a property manager that is a registered service provider under the NDIS. There are very strict practices that have to be adhered to when working with people in the disability sector and only an authorised service provider can manage your property.
The Reasonable Rental Contribution (RRC) is an amount paid by the tenant, capped at 25% of the base rate of the Disability Support Pension and 100% of any Commonwealth Rental Assistance they receive. In fairness, it is the same for the participant no matter where they live and equates to around $9,200 per person per year.
Typically, it can cost anywhere up to $50,000 more to build an NDIS house versus a standard investment property. This is a result of SDA homes needing to meet the stringent NDIS guidelines. This includes meeting all specifications to make the homes suitable under the SDA design categories.
For an entry-level home with more minor modifications, there is less government incentive. However for properties sitting in the high physical support needs category, modifications can include larger rooms, purpose-built bathroom, ramps for access, lowered benchtops, sinks, and vanities and home-automation (for example automatically opening sliding doors).
Also, the cost can come with materials, as more durable materials are often required to withstand damage from wheelchairs and the materials are not able to be bought in bulk as the homes are custom made for participants.
No, due to each dwelling needing to be constructed in compliance with the National Construction Code (NCC) and SDA requirements, builders need to be approved under the NDIS.
Yes, in most situations, your borrowing capacity will be improved. When the property is positively geared, the net positive cash flow improves your ability to service a loan therefore future borrowing capacity is increased.
This is due to the fact that they are commercial specialised valuations, and go into a lot more depth than standard residential valuations. It’s important to get a specialised NDIS valuation, otherwise your borrowing capacity can be greatly reduced.
A standard valuation appraises the property based on non-SDA homes and so will be undervalued. This means that you may not be able to borrow enough to cover the purchase price. For example, consider an SDA home for $700,000. You have a 20% deposit ($140,000) so you need to borrow 80% of the property price ($560,000). If the valuation only comes in at $600,000, the LVR would be 93% — which you would not be approved for. To get around this, you would either need a larger deposit to get the LVR down, or you would need the valuation to come in closer to the price of the home — which an NDIS valuation does!
Major lenders claim they do, however, they do not use commercial valuations nor do they take the actual rental return into account within servicing.
This causes properties to come in $50-100k short, meaning you have to contribute more funds to complete the purchase.
The rental return for an NDIS investment property is generally much higher than rent for a standard property. Major lenders only count expected market rent of regular properties when assessing how much you can afford to repay. Because they think your rental income is lower than it actually would be, they are not happy to lend amounts that specialised NDIS lenders can.
Once lodged and a property is found, it can take up to 3-6 weeks as the valuation takes 2 weeks alone.
This is due to the fact that it is specialised lending. Using a standard property loan could mean you are approved for a much lower LVR or completely rejected.
With specialised NDIS lending, you can borrow up to an LVR of 90% (inclusive of LMI).
