Some of the biggest risks and concerns for landlords everywhere include:
- Will I be able to get a tenant?
- What if I have periods of vacancy?
- Is my property going to be a hassle to manage?
- Will my tenants look after my property?
- How much will the ongoing maintenance of the property cost me?
One scheme that helps investors take away some of these concerns is the Defence Housing Australia program. Many investors have heard of DHA but not as many have actively looked into it. In this article we’ll take a look at DHA and talk about how it works, the pros and the cons so that you can decide if DHA suits your investment profile and your strategy.
Established in 1988, DHA is a government project with a main purpose of providing housing and related services to Defence members and their families—from moving in to maintenance up to the time they decide to leave the property. To do this, DHA builds houses and sells those to private investors, which then will be leased back to them.
How DHA Works
DHA offers investors properties located all over Australia. Typical dwellings consist of 3-4 bedrooms, double garage and usual amenities of a family home like lounge room and dining room, heating and/or air conditioning, etc.
Once an investor decides to purchase a DHA property, he/she agrees to have it leased back. This means the property will be rented to Defence Force tenants (and their families) from as short as 3-6 years or for a standard lease terms of 9 or 12 years. Lease terms can be varied, depending on the Defence housing obligations.
As a result of having the property leased, the owner of the property won’t have to worry about tenanting issues since DHA will be the one to manage the property. The scheme guarantees rental payments—whether or not the property is occupied. Rental rates will also be reviewed every year and will be adjusted according to market value.
Upon expiry of lease, the investor gets full control of ownership—he or she can move in, rent it privately or even sell the property.
DHA’s portfolio offers a variety of dwellings—houses, townhouses and apartments. Let us take a look at this sample property featured on DHA’s website:
Guaranteed rent—with or without tenant—who wouldn’t like that?! As we mentioned in the introduction, one of the major worries every property investor faces is finding a tenant to occupy the property. With DHA scheme, finding a tenant is taken care of. More so, rents are calculated from the date of settlement. This is one of the factors that attract investors to DHA property investing.
Next to finding a tenant is the fear of finding dodgy ones. Since the DHA virtually manages everything about the property, an investor doesn’t have to fear that the property won’t be taken care of or having to spend thousands in maintenance.
Maintenance and upkeep are taken care of (and paid for) by the DHA.
Another factor that drives investor to go the DHA way is the long lease term. The longer the lease, the longer time an investor doesn’t have to worry about tenanting issues and the longer rental payments are guaranteed. Newer styles of housing are also one of the “come-ons” to this type of investing.
One of the drawbacks to the scheme is the high management fees. This hassle-free type of investing comes with a hefty price of 16.5% for independent houses. This is too high compared to the 7% charged in in Victoria and NSW; 9% in Queensland; and 10% in WA.
Two more factors that turn off investors to DHA scheme is that properties are usually negatively geared and the locations may not necessarily be in a location where good growth is found. Naturally, since DHA aims to provide accommodations to members of the Defence Forces and their families, the houses are located near military facilities, so an investor should ensure they analyse the location in which properties are found to ensure that it stacks up as a potential growth location, considering that the property is negatively geared.
Defence Housing provides a great opportunity for those investors who want a low stress property that they can hold onto for a long period without the normal concerns of tenanting and maintenance.
As with all investments though, it’s important to do your research and look at the fundamental attributes of the property and its location to ensure that you are buying a property with good growth potential. You also need to be certain that a negatively geared property is suitable for your investment portfolio.
Even with a low stress option like DHA as a property investment all of the same rules of investing should apply!