Participants involved with the NDIS are assisted to live independently and plan out their ongoing future, including their home and living goals. The NDIS can provide support to accessing housing for these individuals, but availability is often limited due to high demand.
Using your Self Managed Super Fund to invest in an NDIS property is a mid-to-long-term investment that could supplement your super to fund the retirement you want and deserve.
Having a self-managed superannuation fund gives you the ability to leverage your super by borrowing money from a lender to be able to make more sizable investment purchases, such as NDIS Property.
The rules and regulations around using your SMSF to purchase NDIS property can be quite complicated.
An SMSF can borrow money to purchase a house and land package as long as it is purchased together in one transaction (a one-part contract) as a single acquirable asset where the asset is identified up front as vacant land with a completed house on it.
There are specific considerations to consider to determine whether or not the investment property can be purchased through your SMSF.
Location & Demand
The property must be in an area with high rental demand (typically considered as anywhere within a 50-kilometre radius of an Australian capital city or a 35-kilometre radius of a major city).The areas generally fall into these areas and have a vacancy rate of 1% or below (meaning that the rental demand for investors is there).
The property purchased through your SMSF must be ideally as new as possible as it needs to be approved by the bank. This is because the property must be positively geared (income from the rent should be higher than the outgoings on the property). At the very least it should have a neutral cash flow (meaning the incomings and outgoings are relatively even).
No Personal Gain From The Property
The last criterion is that you can’t see any personal gain from your investment property. This includes:
- Living in the investment property or installing tenants known to you.
- Completing any repair or maintenance work (can only be done by licensed third-party tradespeople).
- Organising the property's rent (must be done by a licenced third-party property management team)
- Developing or improving the property - the property can only be maintained to its current standards. No renovations can be undertaken.
Some risks can accompany using your SMSF (Self-Managed Super Fund) to invest in NDIS property – the number one is cash flow. Your loan repayments will come from your SMSF. Sufficient income into your SMSF (including NDIS Rent from the tenant/s) needs to be ensured to make the repayments.
Some ongoing costs can come with using your SMSF to purchase a property. These may include:
- Property management fees
- Accounting and auditing costs
- Building insurance, council, and water rates of your investment property
- Body Corp, if relevant
- Business registration of your SMSF with ASIC.
When you retire, there will be two options available to you with the property.
- Continue to receive rent on your investment property as your pension-based income, or
- Sell the investment property and, once you’ve paid any potential remaining debt on the property, use those funds as your retirement income. You need to reach the preservation criteria to sell the property and not pay capital gains tax.
In short, using funds from your SMSF to purchase an NDIS investment property is not the same as a regular SMSF property investment loan. Doing so should consider guidance from professional advisers and careful planning.