Having been actively researching and buying investment properties for 20 years, there are some set criteria that I have when it comes to investing in residential property.
As many other investors have experienced, trying to build a property portfolio with negatively geared properties brings with it incredible stress as lenders are not likely to keep lending money if the loan doesn’t meet servicing requirements.
Coupled with the fact that your own hard earned income is required to meet the shortfall on the mortgage every month means that if there is an ‘event’ in your life such as a health crisis, loss of employment or an economic downturn due to a pandemic then you might potentially be struggling to hold onto your assets.
The Strategy that does work is acquiring positive cash flow properties that are easy to hold because the rent helps to pay down the debt, providing equity that can be used to borrow money and buy more properties.
In recent times there have been Government led schemes such as the NDIS (National Disability Insurance Scheme) to assist those with a disability in our community to access appropriate housing.
The NDIS properties do offer very high rental yields over a 20 year period and are therefore worth considering from an investment perspective.
These NDIS properties are tailored to the requirements of those who will be living in them so – additional railings, height adjusted bench tops in the kitchens and bathrooms, ramps and a host of other adjustments to make the home truly ‘liveable’.
No one would argue that we are long overdue to have these properties available for people with a disability.
When it comes to investors buying NDIS properties, it’s important to understand a few facts and potential pitfalls when it comes to this style of investment.
- Because there are many additional adjustments made to the property, the base cost is quite a lot higher than a similar sized home in the same suburb.
- The homes are constructed as house and land packages and therefore a construction loan is required (unless someone is purchasing with cash).
- The valuation on the property is done using comparable sales in the suburb or near area. Because there are very few (if any) comparable sales, these properties are compared to regular properties that have not had any adjustments made and therefore the valuations are coming in very low (sometimes up to $100k less).
- This means that the purchaser needs to have an additional $100k of equity in their own property or have an extra $100k in cash to complete the purchase.
As time goes on this low valuation scenario will probably ease as more NDIS properties are sold and comparable sales prices are available.
The tenants of NDIS properties are generally long term tenants which is also worth considering if you are wanting to purchase an NDIS property in the future.