Head Lease or Traditional Lease for NDIS Investment? Choosing What’s Right For You

When comparing the two it’s a matter of risk versus reward: so how do you know which is right for you?

This article compares head lease Vs traditional lease NDIS, and explains how this decision impacts your investment. We’ll discuss the role of the SDA provider and how to be more involved in your SDA investment.

What is the Difference Between a Head Lease and a Traditional Lease?

Choosing which leasing arrangement to enter into can mean the difference between profit and loss. A knowledgeable financial advisor can inform you of the best actions for your unique situation.

In a traditional lease set up, the SDA provider would take the place of a property manager, finding tenants (NDIS participants) for your property.

You – as the property owner – accept responsibility of all maintenance costs, insurances and council rate payments.

Traditional lease arrangements can benefit the NDIS participant, as they have more flexibility to negotiate lease terms, rent and other conditions directly with the property owner.

In a head leasing arrangement, SDA properties are leased from the owner by a legal body such as a NDIS Services Provider or community housing provider. That legal body becomes the middle man – assuming all property management responsibilities and payments and sourcing suitable tenants – for a cut of the profit.

A headlease arrangement removes vacancy risk and the potential financial consequences of low occupancy: it keeps your rental income consistent. The legal body would pay a fixed rental income to you of around 8% over a pre-determined amount of time and then sublease the SDA property on your behalf.

Why is Leasing an SDA Property Different to the Private Rental Market?

The actual leasing component of SDA accommodation works similarly to that of the private rental market.

The primary difference is that you must go through an SDA Provider, or register to become one yourself.

In order for your property to be registered as an SDA dwelling and claim SDA payments it must meet the SDA Design Standard.

SDA dwellings are intended to house people living with a disability with high support needs. As such, these properties must be built in a particular way with specialised amenities and equipment, which could include items such as ramps and ceiling hoists.

All SDA dwellings must be registered under at least one of the 4 categories of SDA Design:

1. Improved Liveability
2. Robust Construction
3. Fully Accessible
4. High Physical Support

For more information about the SDA Design Standard read the SDA Operational Guideline.

Understanding SDA Providers in Leasing Agreements

With SDA investment property, the lease agreement is between the SDA provider (yourself or a third party) and the tenant.

The SDA providers’ role includes:

• Enrolling the property as an SDA dwelling

• To ensure compliance with NDIS requirements
• Finding an approved and suitable tenant
• Manage maintenance and repairs

It is important to note that SDA dwellings cannot be switched between different SDA providers, should you have any issues. If you wish to change providers, you must cancel the SDA enrolment, and the new SDA provider must submit a new SDA enrolment [1].

What is a Standard Lease Term for NDIS property?

An initial lease will likely be between 12-24 months. Note: SDA participants are carefully selected based on a number of factors, including proximity to family, friends and employment. For these reasons, most tenants choose to remain in the one dwelling indefinitely.

Can You Become an SDA Provider to Lease Out Your Own Investment?

Yes, you can!

You can skip the middle man, and pocket that additional 10% plus of rental income, by becoming an SDA registered provider. In this case you would be accepting additional responsibilities, including ensuring compliance, sourcing and managing tenants, and enrolling the property as an SDA home.

To register as a provider or enrol your SDA dwellings, go to the SDA Registration and Enrolment page on the NDIS website.

What is the Best Leasing Option for NDIS Investment?

That comes down to your own personal circumstances and what you hope to gain from SDA investment property. Choosing a traditional lease or head lease agreement has pros and cons that should be weighed up; it is a good idea to talk to an experienced financial advisor early on to understand your potential outcomes.

Summary

The leasing arrangement plays a big part in potential profits from NDIS housing investment. Understanding the pros and cons of both options will help you make an informed choice.

To summarise: