SMSF trustees can expand their outlook and consider different types of residential property offering solid returns to include in their portfolios, such as those associated with the National Disability Insurance Scheme (NDIS), but need to be cautious in doing so, a specialist service provider has said.
Speaking at the SMSF Trustee Empowerment Day 2022 hosted recently in Sydney by smstrusteenews, One Contract Property managing director Raymond Hempstead specifically warned attendees it is crucial they understand the nature of these NDIS properties before making an investment in one.
“In NDIS it’s not the property that is the investment. It’s actually the disabled participants who are going to live in the property,” Hempstead explained.
“That’s where the money comes from. The government attaches the rental income to the individuals and not to the property, he added.
“So if you haven’t got any participants, and you’ve spent $1.1 million on a property, you’ve just got a big white elephant. The NDIS [rules are] specific about the type of property you are building, the location you are going to be putting it in, and all the other ancillary services that are attached to it that the government is funding.”
“So if you’re looking at NDIS find a participant led model that’s actually going to give you the income.”
Investment in a NDIS property is not often made through the purchase of an existing house. Instead individuals looking to participate in the project will most likely have to purchase land and erect a dwelling on it which could cause compliance problems for SMSFs.
“As soon as you start getting into two part contracts, where you’re buying a block of land and then entering into a second contract where you’re doing a build, unless you’re paying cash that’s an illegal transaction in your super fund,” Hempstead explained.
One Contract Property provides a solution to this problem as its service allows the SMSF to enter into a single contract through payment of a 40 per cent deposit to the organisation meaning the super fund can acquire the land and oversee the dwelling’s construction.
When the construction of the house is complete the SMSF then pays the remaining 60 per cent of the value of the property and ownership of the real estate in question is then transferred to the super fund.''