Recently, I published an article about 7 Common Misconceptions About NDIS SDA Property Investment and What Investors Often Get Wrong.
Since then, one particular misconception has stood out to me more than ever. So much that it deserves its own article.
Investors are obsessing over participant lease length.
I understand why. In traditional residential property, a longer lease can feel like greater security.
But in SDA, the length of a participant’s lease is not necessarily the measure of security that many investors think it is.
A lease expiry date does not tell you when a participant will leave
One of the biggest misunderstandings I see is the assumption that if a participant has two years remaining on their lease, they are effectively guaranteed to stay for two years.
That isn’t necessarily the case.
Depending on the particular tenancy and circumstances, a participant may be able to leave with as little as seven days’ notice.
At the same time, a participant whose current agreement has only a few months remaining may have lived in the property for years, be extremely happy there and have every intention of staying.
The expiry date does not tell you which of these situations you are dealing with.
A lease is a contractual arrangement. It is not a crystal ball.
There is also an important distinction between the agreement involving the property owner and SDA provider and the tenancy arrangement involving the participant. These are not simply the same thing.
Yet I regularly see investors treat a participant’s lease expiry date as though it is a guaranteed occupancy date.
That is where the thinking starts to go wrong.
Sometimes we are asked to create certainty that doesn’t exist
We have had situations where participants have lived in a property for years. They are happy, settled and have no plans to leave.
Yet a prospective buyer wants additional clauses requiring participants to sign new leases months before their existing agreements expire.
The buyer wants to feel safe.
But ask yourself what has actually changed.
If the participant is already happy living in the property and intends to remain there, forcing an earlier lease renewal does not necessarily make the investment safer.
If that participant later decides they want to leave, signing another agreement months earlier does not magically make them a permanent resident.
Sometimes it is a little like watering the plants while it is already raining.
You are doing something. It feels like you are reducing the risk. But you may not have changed the underlying risk at all.
Stop asking how to make participants stay. Ask why they would want to stay.
This is where I think the focus needs to change.
If you want to make an SDA investment more resilient, the question should not simply be:
“How can I make sure the participant stays?”
A much better question is:
“Why would the participant want to stay?”
Participants are people, not occupancy numbers on a spreadsheet.
If you constantly interfere with their living arrangements, treat them primarily as a source of income and focus on getting them to sign longer agreements, you can end up making the situation less stable rather than more stable.
The safest situation is often one where the people living in the property are genuinely happy with their home.
Sometimes fewer participants can create a better outcome
Consider a three-bedroom, three-participant SDA property plus OOA/carer accommodation.
You have two participants living there who are happy together and have established a good living arrangement.
The natural reaction from some investors is:
“We need a third participant. The property is approved for three.”
But that is not necessarily the best approach.
If the circumstances allow it, the property could potentially be re-enrolled for two participants plus OOA, with the additional bedroom available for other purposes.
Now the two existing participants may have more flexibility in how they use their home. They may be able to have friends or family stay with them, and the property may better suit their lives.
Instead of trying to maximise the number of participants, you are improving the living arrangement for the people already there.
That can make the situation more stable.
There can also be a financial benefit.
If the property is correctly re-enrolled for two participants and the participants’ plans and funding support that arrangement, the SDA income is assessed according to the new participant configuration.
In the right circumstances, two participants can generate more income per participant than three participants.
So three participants are not automatically better than two.
Sometimes two happy participants in a well-structured arrangement can be a better investment than three participants in an arrangement that does not work as well for the people living there.
You cannot eliminate every “what if”
The same principle applies to other SDA arrangements.
For example, an Appendix H arrangement that allows a participant to live with a loved one can potentially create a very stable, long-term home.
But someone will always ask:
“What if they decide to leave anyway?”
They might.
And that is part of the risk you take when investing in SDA property.
You cannot guarantee that a participant will never leave. You cannot guarantee that a provider will never change. You cannot guarantee that demand will never change.
What you can do is make the underlying investment as strong as possible.
Risk mitigation is not risk elimination
Good SDA investing involves understanding the location, SDA category, property, demand, participant situation and overall arrangement.
You consider what happens if a participant leaves and how easily the property could accommodate a suitable replacement.
That is sensible risk management.
Trying to guarantee every possible outcome is something else.
At some point, investors need to accept that there is no lease renewal or additional contract clause that can protect them from every possible “what if”.
If you need a guarantee that a participant cannot leave, SDA may not be the right investment for you.
There are lower-risk investments available. Generally, lower risk also means lower potential returns.
Higher-yield property exists because investors are accepting a different combination of risk, complexity and uncertainty.
You cannot expect the returns associated with higher-risk investments while demanding the certainty of a low-risk investment.
Stop obsessing over the lease
When looking at an SDA property, there is nothing wrong with asking about the participant’s current lease.
It is relevant information.
But it should not become an obsession.
Instead, ask:
Are the participants happy?
Does the living arrangement work for them?
Is the property genuinely suitable for the people living there?
Is there genuine demand for this type of SDA in this location?
What happens if a participant leaves?
How easily could the property accommodate a suitable replacement?
These questions tell you considerably more about the strength of an SDA investment than simply looking at how many months are left on a participant’s lease.
The goal is not to create an SDA property where nobody can ever leave.
The goal is to create an SDA property where people have good reasons to stay.
That is a much healthier way to think about SDA property investment.
Written by Asle Kommedal
Topstone Property Invest
