It's important to know what's involved if you're thinking about investing in aged care or defence housing.
It may be possible to make healthy returns on aged care accommodation and defence force housing. Both work differently to regular rental properties.
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. To meet demand for accommodation, it’s estimated 76,000 new residential aged care places will be needed by 2023-24. But it’s not always straightforward to make money on aged care.
Aged care is a highly regulated industry. Nursing homes are typically owned by government bodies, non-profit organisations or large companies. You can directly invest in these companies, some of which are listed on the share market.
Another option is to invest in a unit complex devoted to residents aged over 55. These complexes often fall within special zoning requirements. In New South Wales, they come under SEPP 5 zoning – housing for seniors.
Like any niche property, aged care properties may be harder to sell than regular properties. And some lenders may be reluctant to accept them as security for a loan.
It’s important to check out the ownership structure, which may be a leasehold or licence to occupy. This adds to the asset’s complexity. Make sure you understand exactly what you’re buying, any ongoing costs and how easy or difficult it may be to sell.
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.
The government body Defence Housing Australia (DHA), sells homes to private investors with rental income guaranteed throughout the lease term so there is no vacancy risk.
The guaranteed lease terms are generous, standard terms being 9 to 12 years. During that time, DHA takes care of the property’s upkeep in return for a service fee. DHA will professionally clean the property at the end of the lease. Depending on the lease term it might also paint the interior and exterior and replace carpets.
A guaranteed return and zero maintenance sounds appealing. But there can be downsides. DHA’s service fee is 16.5% of your rent for freestanding houses and 13.0% for other properties. So check how those cost stacks up against other investment property types.
The property must be sold with all the lease conditions in place if you want to sell mid lease. And it may be hard to find a buyer who will accept DHA terms and conditions.
DHA properties are sold by ballot rather than by negotiation, with no guarantees you will secure the property you want. You need loan pre-approval to compete in the ballot, so speak to your Aussie mortgage broker before putting your hat in the ring, or head to Defence Housing Australia to find out more.