Over 55's Complex – Deal or no deal

We sure did Kengw022. We purchased for $86K (220/w rent). It has been great, the tenants are great (we self manage), it was positive geared in the first FY as expected (we made $1,500 above all costs, including financing, rate, body corp etc).

The last two units in the complex have sold for $95K each, so that represents a 13% capital growth in 12 months, but we aren’t selling so that’s only a paper profit.

A positive side of this investment has been the tenants. When my wife met them, the first question was can we stay here until we die. When my wife said yes, of course, the tenants cried with joy. They have had 3 rentals in a little over 18 months (none due to their actions), two due to sales of the houses and one due to the council enforcing a usage rule (the houses were approved for short-term stays only). Having tenants this motivated to keep their tenure is pretty awesome, and there is a level of intrinsic happiness as the owner, knowing that this investment is providing such a great outcome to the tenants.

A little update on the over 55’s investment. We have now purchased a 2nd unit, again for $86k, it is also tenanted for $220/w. Both of our tenants are very happy with the complex.

On the topic of tenants, both units have tenants over the age of 80 in them (a single in one unit and a couple in the other).

At this age the expected tenancy period is 3 years (according to the productivity report – https://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians.pdf)

This report has been very interesting and helped me further develop a business plan for this type of investment, for example:
– The primary reason people 65-79 move is to get a smaller/less expensive place
– Older home owners are more likely to move into less expensive accommodation (our single tenant sold his home and moved into our unit – he is ‘rightsizing’ for his life (and moving closer to his kids).
– Average tenure post the age of 80 is 3 years (the next move is either aged care facility or the funeral home!)
– Around 10% of over 75 year old’s rent (my earlier analysis found that if only 3% of the population (over the age of 55) in this area required rentals that would be over 500 individuals.
– The use of residential aged care is declining (This is very interesting, as the aged population is increasing. This suggests that older Aussies are staying healthy… leading to a demand for appropriate housing)
– An increasing proportion of older Australians are choosing to move into age-specific housing (music to my investment ears)
– A substantial proportion of older Australians are in the private market
– 4.5% of older Australians live in Retirement villages and 7.3% in private rental

And the biggest contributor to our investment confidence…
– Older Australians who rent have low security of tenure
– We offer 100% security of tenure, we are not going to move into the units (I’m only 40, so I am 15 years off even being able to move in!)

This tenure issue is huge for our tenants, it is their number one question when they move in “Can we stay here for the rest of our lives?”

My checklist for investment in over 55’s is based on findings like the following…

As people age, their housing needs and preferences may change, both in respect to a
dwelling’s location and its amenity. Generally, older people require dwellings that are suitable
for their changing physical needs, with even surfaces, passages wide enough for wheelchairs,
and appropriately designed bathrooms, toilets and kitchens. It is also important for the dwelling
to be located close to services and facilities, such as medical clinics and public spaces, to allow
residents to continue to participate actively in their community. Older people, particularly those
living alone, are often concerned for their safety, and look for dwellings and communities that
offer them a sense of security.

My checklist is:
– Hobless shower
– No steps
– Mixer tap at all sinks
– Wheelchair accessable
– Located near doctors
– Located near shops
– Surrounded by wide public pathways
– No pool (I don’t want the extra cost)
– Self contained
– Well maintained and appointed common room (for family gatherings)

On a side note, we have settled on a traditional 3 bedroom investment house this week ($230K – rents for 340/week), so we are getting some diversification in the portfolio.

It is a great market at the moment, and we have purchased 3 investment properties in the past 18 months.

I am looking at another opportunity at lunch today (3 bedroom – $200K – rents for 260/w), lots of opportunities.

Thanks Ian, having now purchased 2 of these units (over 55’s), a 3 bedroom house and a 2 bedroom unit (in a little complex of 12 units) over the past 2 years, I think it is important to diversify one’s real estate portfolio. The over 55’s get a higher rental yield, and these older tenants pay on time and are really the best tenants, they really value the units and the lifestyle they get. The 3 bedroom house is rented to a single lady with three kids, and she occasionally finds it hard to get the rent paid on time, but so far she’s been good for it, and she always lets us know what is going on (late payments etc).

When it comes to capital appreciation, well time will tell. I believe a good over 55’s complex (one with no management business ‘stealing’ from owners with ridiculous contracts etc will have significant demand over the coming 20 years as the baby boomers start to reach over the age of 75, so I think these little 1 bedder’s may be good little capital earners as well, we’ll just have to wait and see.