Investing in aged care and defence housing
It may be possible to make healthy returns on aged care accommodation and defence force housing. However, these both work quite differently from regular rental properties, and it is critical to understand how each works.
Aged care accommodation
It’s no secret that Australia has an ageing population. Already 15% of Australians are aged 65 and over – a figure that’s expected to rise to 22% by 2057.
Not surprisingly, it is estimated that 76,000 new residential aged care places will be required by 2023-24 in order to meet demand for accommodation.
However, making money on aged care accommodation is not always straightforward.
Aged care is a highly regulated industry, and nursing homes are typically owned by government bodies, non-profit organisations or large companies. It is possible to invest directly as a shareholder in one of these companies, some of which are listed on the Australian sharemarket.
Another option is to invest in a unit complex devoted exclusively to residents aged over-55. These complexes often fall within special zoning requirements. In New South Wales for instance they come under SEPP 5 zoning – housing for seniors.
The market for seniors’ apartments can be small, and like any niche properties, they can be harder to sell, and some lenders are reluctant to accept them as security for a loan.
Even if you’re a cash buyer, be sure to check out the ownership structure carefully – complexes dedicated to seniors are often set up so that ownership is via leasehold or a licence to occupy. This adds to the complexity of your asset, and it calls for plenty of research to understand exactly what you’re buying into, the ongoing costs you could be up for, and how easy it will be to sell the place later on.
It’s also possible to invest in properties that are tenanted exclusively by defence force personnel – even if you’re not in the armed forces yourself.
The government body Defence Housing Australia (DHA), sells homes to private investors with a rental income that is guaranteed throughout the lease term so there is zero vacancy risk (for the lease term at least).
The guaranteed lease terms are generous – usually nine to 12 years, and during that time DHA takes care of the upkeep of the property in return for a service fee. At the end of the lease, DHA will have the property professionally cleaned, and depending on the length of the lease term, paint the interior and/or exterior, and replace carpets.
While a guaranteed return and zero maintenance hassles may sound appealing, there can be downsides. In particular, the DHA service fee is 16.5% of your rent for freestanding houses and 13.0% for other properties. Be sure to check how that cost stacks up against a regular rental property.
If you want to sell the property mid-lease, it must be sold with all the lease conditions in place. This can potentially make it harder to find a buyer who will accept DHA terms and conditions.
DHA properties are sold by ballot rather than by negotiation so there are no guarantees you will secure the property you want. To compete in the ballot, you will need loan pre-approval. That makes it important to speak with your Aussie Broker before putting your hat in the ring. Or, to find out more, head to Defence Housing Australia.
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- Chapter One : Things to consider before investing in property
- Chapter Two : Determining where to invest
- Chapter Three : Investment properties by dwelling types
- Chapter Four : Finance for your investment property purchase
- Chapter Five : How to invest in property
- Chapter Six : Adding value to your investment property
- Chapter Seven : Positive and negative gearing
- Chapter Eight : Getting your loan
- Chapter Nine : Selling your investment property