There has been a lot of differing media commentary over the years about Defence Housing Australia (DHA) as an investment option. Some reports have focused on the positive income returns, while others have speculated on limitations of capital gain based on location. This article explores the common misconceptions about DHA property investments.
Location and capital gain
DHA properties are just like any other property. They are located in most capital cities and regional areas, not on Defence bases. They are within close proximity to schools, shops, transport and other amenities. The properties are typically suited to families, with three or four bedrooms, lounge and dining areas, ensuites, garages, entertaining areas and landscaping; all standard features of most Australian homes. Two and three-bedroom apartments and townhouses are also becoming increasingly available.
An investor in Defence housing is subject to capital gains that are equal to independent investors who are selling a similar property in the same location in the same market. There is no capital gain disadvantage if an Australian Defence Force family has tenanted the property.
Some may say, because the properties have been tenanted by Defence members and restored at the end of the lease, that they are returned to the investor in better condition than private market equivalents. This may lead to higher capital growth than comparable investments in the private market.
One of the main concerns for investors is ensuring that their investment property is tenanted so that a regular income is generated to maintain cash flow and to meet loan repayments. DHA eliminates this fear by offering long term leases of nine or 12 years, or a shorter lease term of three or six years, all with extension options.
At the end of the lease, vacant possession is given, allowing the investor flexibility to move in, rent privately or sell the property.
Some commentators believe that long-term leases limit an investor’s control. However, long term fixed leases provide an investor with stability, security and the knowledge that there will be no tenanting hassles. It’s an attractive option for those investors who prefer a more “hands off” investment in their portfolio.
Should an investor wish to sell their property during the term of the lease, DHA can offer assistance through their mid-lease sales service. This service gives investors access to a dedicated panel of real estate agents that are familiar with the DHA product and who offer lower commission rates.
One of the biggest benefits for an investor with a DHA property is the comfort of knowing that there will be a reliable stream of income for the life of the lease. DHA guarantee to pay rent each month in advance, even if the property is not occupied. The rent will also never fall below the starting rent for the term of the lease regardless of market changes. This means investors benefit from knowing exactly what their minimum rental income will be for the term of the lease.
Reports of high management fees on DHA properties often fail to explore the detail of what the fees cover and the benefits to investors who are not interested in the daily hassles that come with being a landlord. DHA’s 16.5 per cent Property Care service fee is all-inclusive. It covers the day-to-day management of the property; the cost of most non-structural repairs and maintenance; annual market rent review and lease-end restoration, which, depending on the length of the lease, can include re-painting and re-carpeting. DHA benefit too as it allows them to manage and maintain their portfolio to the standard required by the Department of Defence. Read the BIS Shrapnel Service Fee Comparison to get a true understanding of what is included in the DHA management fees.
The truth is that DHA is a suitable investment for a variety of different investors who wish to benefit from the security of a regular income for the length of the lease, “hands-free” property management and market driven capital gain.
If you have questions about DHA as an investment or have read something that has made you doubt the benefits of investing with DHA, do some research, get independent advice and contact DHA directly.
Investment is subject to DHA’s lease terms and conditions. Investors retain some responsibilities and risks, including property market fluctuations. The advice contained in this article is for general information only and prospective investors should seek independent advice.