QLD SDA Unit Complex 4 Sale - Fully Tenanted

Hi All

Client is selling 4 x 2 bedroom units in Arana Hills.

The property is almost finished but each of 4 units has been leased to SDA tenants.

IM attached from agent.

Gross Rent of $438k

Estimated net rent of $339K

 

Hi D,

We may be interested in this. Do you mind if I call you, or just deal with the agents?

AB

 

What sort of Brissy resi IP with 4x2 beds returns over $100k Gross/unit? (or am I missing something)

 

You cannot know the return unless there's a price.
And based on the "EOI" it all just seems like spruiking to me.

 

SDA . Not just brisbane . Check out the NDIS forum .

not straight resi . Purpose built .

cliff

 

Then the question goes to the sustainability of the cashflow - if it converts to residential when the leases expire & aren't renewed, they will drop by 60-75% without the subsidisies.

The outgoings need a reality check - $2,800 PA for each cleaning & landscaping would appear low, strata levies + insurance (is there some duplicatation), council rates (possibly high).

It's also OTP - when do you settle?

This is a perfect situation of using a NPV & IRR calculations to determine the cashflows & value post term certain.

 

Always happy to chat to you AB. I normally learn something.

 

Well it is an IM written by Real Estate Agents marketing something.

 

NDISP has a 10+5+5 lease on it. After 20 years the rates drop to, $63,854 if approved for a 1 bedroom and $83,166 if approved for a 2 bedroom in today's money.

Outgoings we were not asked about. $100.88 cleaning a week and $99.60 in gardening a fortnight. The lift costs $131 a year to maintain. There are no common area electricity bills due to the solar and battery system.

It's not quite off the plan as it'll be finished next month. Tenants move in June. Owners would be more than happy to for long settlement to keep some of the income. They are doing multiple of these.

 

SDA Price Calculator attached. This place is Apartment High Physical Support. With OOA. With Fire Sprinklers.

Two of the apartments have been rented to 2 Bed 1 Resident approved participants. The other 2 at 1 Bed 1 Resident.

 

Based on the estimated return it’s a simple calculation to come up with an anticipated price .

cliff

 

If NDIS was a straight forwards investment, you wouldn’t be getting those returns.

New investment structure , new start up companies , whole lot of government regulation .

I started doing my DD when I first heard about in 18 . Very little info available at that stage . Lot
More info in 19

I haven’t posted much about it as IMHO , given the complexity , it’s really for sophisticated investors , but given some of the dodgy stuff out there I have started some posting.

We’ve done one which finished end of last year . Still waiting for the first cheques ( well aware it would take several months so we expected that ) but we had the place fully tenanted within a few weeks . Waiting to finalise the purchase of a second block.

We’ve gone with RPI and we’ve happy with that decision. We’ve talked to a lot of people in the area . Most of them were saying things that had alarm bells ringing for us in terms of their motivations or lack of understanding of the area .

We did talk to a couple of other SDA providers who seemed ok , but the reality is that they already had funds sourced from institutional or private equity sources and weren’t dealing with individual investors .

cliff

 

Exactly - needs to have more than the back of an envelope analysis as well as snow exit strategy defined before putting your hand up.

 

If you're waiting for every little detail to be clarified , every T crossed , every i doted in a new start up industry , by the time that happens , the indexed 20 year government rental guarantee will have expired ...

They want people to commit to this early so they can get disabled young people out of appropriate accommodation and are prepared to pay a premium for it to happen .

We've spent alot of time looking at the pro's and con's before we went ahead and , given our circumstances , we were happy to commit . If it works out as we expect , it will take our retirement income to another level . If it doesn't , we'll still have a comfortable retirement well above what most people have.

Cliff

 

And where is this "estimated return"?
The last sale posted here was significantly less than examples provided and returns quoted by the people linked to the OP.

 

Oops ... My mistake . I assumed that given someone quoted " great returns " that there was a figure quoted ... but not .

Having said that , the whole reason to invest in SDA is the returns . The anticipated gross return on our first one is around 14 % .

Cliff

 

The previous one here sold at 8%. That's a long way from 14%.
And this is a sole use building with a lease locked up for 10 yrs and subject to gov regs and stds that may change.

 

Yep , but we're not buying an almost completed project . We sourced the land , had plans drawn up , had them further modified etc.

If we were selling it , we wouldn't be selling it with a gross return of 14 % ... There would be a decent "developers" mark up on it . A ball park valuation estimation based on similar builds is around 30 % up on what we've paid for ours. When we started , we were told that valuations at the end would be less than the build price because the build price was more than a comparable "normal " house , but that doesn't seem to be the case .

BTW , we're not selling it .

We've taken the risk of starting a development at a time when no comparable developments had been finished . We've funded the whole process ( which care of covid took over a year ) , because you couldn't borrow to build at that stage , and we're carrying the holding costs while we wait for the money to come through .

I've mentioned in other posts that you need deep pockets .

Reality is that we've built up our assets over the last 20 years by standard residential investing . Buy and holds with timing the market and subdivisions ( 3 ) . Now we've got a decent asset base and when we saw NDIS come along we thought it was a good way to increase our cash flow . Other options we've seen in the past such as NRAS just didn't make sense to us .

Yep , Government regs may change and I'm sure they will . NDIS is often in the headlines . Reality is that it costs the government less to fund a disable person in an NDIS accomodation than any alts short of kicking them on the streets...

There is an ongoing need for disability accomodation and I would be stunned if there was a change to the basic funding and it would be the equivalent of taking funding away from the nursing home sector

The government might end negative gearing tomorrow , interests rates might go through the roof . There's a whole range of changes that could impact any form of property investing , all of which are a reason not to invest ... Personally I'm more worried about changes that might impact the rate at which the rest of my portfolio is going up in value . Now that is a clear and present danger ...



cliff

 

Thanks @See Change

I will need to download the IM then run some numbers - it may make sense depending upon a few unknowns and differing scenarios including various LVRs.

• Will need advice on land tax liability
• Various structures for JV ownership
• Will it require commercial funding rather than residential loan
• It could sit quite easily within a SMSF/unit trust scenario.
• Qld land tax for absentee owners or trusts
• Reality check on outgoings (eg lift/sprinkler maintenance in yr 2 onwards)