Property Rented by the Defence Force

Was having a bit of a sniff around, actually can't remember which suburb it was however

it said something along the lines of

"rented by the Defence Force, Long leases, +5 years"

so what does this mean in terms of pros and cons,

would I be correct to assume the following
- will it used like a hotel so short stay accomodation
- 5 year+ leases are good, probably have cpi growth incorporated
- can't increase rates
- CG will be better or worse????

hmm

akumaslair said:

Was having a bit of a sniff around, actually can't remember which suburb it was however

it said something along the lines of

"rented by the Defence Force, Long leases, +5 years"

so what does this mean in terms of pros and cons,

would I be correct to assume the following
- will it used like a hotel so short stay accomodation
- 5 year+ leases are good, probably have cpi growth incorporated
- can't increase rates
- CG will be better or worse????

hmm

Click to expand...

I once investigated this option but, decided not to go for it. Some if the reasons were:

1- PM fees were 16.5%
2- Very difficult to increase rents, specially in current market
3- I felt I gave up control of my property to them. Not that I want but, imagin you need to sell in 2 years or so...

In current rental market don't see the need to secure such a long lease.

I can give you some info from the renters point of view (I am ex-defence). Military personnel are posted to a location for 12 months- 4 years. So it wont be used as hotel type accomodation. And their rent is subsidised, heavily. So, much less chance of rent being late and not paid etc. Defence housing is also very strict on having the place kept clean and cleaning on vacating - much more diligent than your ordinary PM. They have access to the defence member's pay, so if there are problems, pay will be docked.

Regards, Happy

akumaslair said:

can't remember which suburb it was

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Generally speaking....when investing in property, this sometimes has a fairly large bearing on things. You'd probably do well to be a tad more diligent in knowing where you are at any point in time.

akumaslair said:

CG will be better or worse????

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When investing in property, this sometimes has a fairly large bearing on things also, and relies heavily on the first point, along with relying on your own detailed due diligence process. It's pretty much what being an investor is about....answering this one question.

Short leases are generally preferable to long leases in an era of rapidly rising rents.

Look at www.dha.gov.au for defence housing properties.

I was looking a few months back at Defence Housing properties myself. Put in a bid and got accepted after a few rounds of negotiations. But the deal did not settle and I lost my deposit (I remember it was around $1250) as the pest inspection came out bad, tried to re-negotiate but failed.

Now, after getting a 'little more' wiser, I would not go for DHA properties unless it was priced really tight. Generally I realise its not 'my' type of an investment vehicle, but would suit many others.

Goods and Bads of DHA property:

The Goods first:

- Long Lease with Defence Housing (9 years or 12 year leases) with regular & fair rent increases.
- Zero vacancy risk
- Property comes back in great shape - repainted and freshly carpetted
- Have a variety of property to choose from all over Australia (NSW, NT, VIC, QLD atm)

Bads:

- Firstly DHA prices its properties about 10%-15% over the existing market prices. If the fair value is 400K their properties would be around the 450K mark.
- You can't sell easily during the lease period (you can sell only to another DHA investor, and you may not find many)
- Management fees of 16.5% which is a LOT
- Inability to create instant equity on the property by doing a reno, subdivision etc.

sorry, this is the site if you are interested -

http://www.invest.dha.gov.au/dha/home.sok

From my observations I have found DHA properties to be marketed at a slightly inflated asking price to whats comparable at the time on the open market.

I also find that the properties are sometimes in the less than desirable areas.

devo76 said:

I also find that the properties are sometimes in the less than desirable areas.

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Yeah - those rifle ranges and live ordinance bombing areas that those Army folk use tend not to be in the blue ribbon suburbs for some reason.

Dazzling said:

Yeah - those rifle ranges and live ordinance bombing areas that those Army folk use tend not to be in the blue ribbon suburbs for some reason.

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Nice one. My point being that in my area on the south coast we have a large Navy base and the majority of the DHA stock is in the larger estates that are suffering the most at the moment value wise. They tend to sprinkle them through the larger estates. There are some available in the better areas but at a price. If i was going to buy one i would stay away from the larger estates and try to find one in other areas.

Hi All,

I have been to one of their seminars cause I want to find out why are they charging 16.5% mgmt fee.

The 16.5% mgmt fee is for: property management fee, letting fee, repair & maintance fee, etc. All you pay for are only rates and insurance. By the end of the Lease, they will repaint all internal walls and replace the carpet with no extra cost.

So most likely you are not going to hear from them at all during the lease with a guarenteed rental income from day one regardless if it is vacant or not.

Back in May, they have released a comparison article regarding to their management fee, if you are interested, go to http://www.invest.dha.gov.au/dha/home/info/publications/accesseconomics.sok and click on download under Access Economics Report.

I believe the whole idea with pooling all investors management fee together, so others can help you paying any extrodinary costs if you have a bad year.

DHA is mainly for buy and forget investors who prefer hassel free and regular income.

useful thread. I've been having a look around the DHA's website (might consider this for an IP due to its hassle-free nature... hoping to buy 1st IP within next 2 years). There are some places selling for $355k and renting for $355 pw, which seems ok to me...

tess85: well I was having another look at this area and I have noticed that the original property that I looked at 8 or so months on is still on the market...

when I was looking at it the market hadn't quite gone down, so something must be wrong with it..

^^ interesting. have they dropped the price in line with the market?

Probably DHA housing is not for all investors due to the very long lease & high fees?

I have a DHA property and have spoken about my experience and accessing finance to secure proeprties for DHA at some of their seminars back in 07. So take my comments how you like.

Essentially we bought a DHA as IP#5, as we were sick of chasing tenants and agents for rent, we wanted hassle free. We did our research understanding that at the end of the lease we would have a property in an area that we would own and have to rent out ourselves. (I find many I speak to about buying DHA think it is risk free and do not consider what happens after the rental period is over, mistake #1.)

Every Dec they do a rental review, against other 4br houses not as a suburb average - and over the last 5 yrs every yr the rent has gone up ( Bonus #1). Like centrelink they pay every promised pay day even when vacant ( bonus #2)

We pay double what we pay in fees as we do to our other agents ( bummer #1), however when the tiles in the bathroom came off they fixed them, when the top of the cooktop was cracked they replaced I never pay for maintenace - which for all the others I have and do - 3 this month ( leaking DW, wobbly porch and new dryer)! And at the end of the lease they repaint and carpet. In my experience with older proeprties and my maintenance costs the 16.5% starts making me money after yr 3.( bonus #2)

About ten yrs ago I believe there prices were over market - and as a heads up if you have an older valuer sent out they will assume this to be the case - however I have only had 2 vals come in lower than asking price. Today DHA get independant valuations and if the property is not going to see a return for them they do not sell it and keep it under their ownership - so how do they make money and sell at market? - they buy in bulk.

Also if you look at the DHA houses in a development against others, DHA do not have sheets at the window they have blinds, they have a landscaped garden not dirt and they have a covered outside entertaining area - their standards are high - remember they pay for maintenance for the first 12 rys as well. ( bonus #3)

Here is a big heads up - REA rarely understand DHA properties and hence although you will find that they do not negotiate on new stock if a current vendor is selling not through DHA you can negotiate but you have to sell with lease in place.

Anyhow in my experience DHA is similar to any other property purchase - you have to do your research. But the Govt and Aust defence force will still be about for yrs to come and they need somewhere to live.

Hope this helps
Jane

jane, thanks for your considered response. it sounds great for a newbie investor. Regarding your point about what happens when the rental lease runs out - don't DHA tend to renew the lease? I just assumed they'd keep putting ppl in there.

g'day all

an interesting read, especially from Jane.

It hasn't been raised here, but i believe you can purchase a property yourself and if it is in the area near a Defence base and it meets their criteria i believe they will take it on. I remember talking to a serving member of the ADF about this and seeing a list somewhere on their site which detailed what the property required, and even special conditions in certain areas. It was something like double garage, certain amount of bedrooms, no pools, etc. This would make the comment about DHA marketing their places at 15% over market value irrelevant.

DHA is always keen for properties as otherwise personnel will rent nice apartments for often much more. I even know of ADF members asking around in Canberra to see if any of the other ADF members were leaving any DHA homes in Gunghalin, as there weren't any suitable properties available.

Also, i am currently looking at renting my place out in Canberra region and the agents are wanting 9.9% (two agents i have checked out so far), so 16.5% tax deductible is not a huge amount more, especially if you are getting all maintenance paid for, no risk of defaulting tenants and the added bonus of carpets and repainting every so often.

This is my take on it. Perhaps someone knows more info about the previous points.

ADF in most areas of Oz are in short supply of defence housing.
As a defence member you have to move into a defence house (DHA) and if one is not available then you are allowed to rent a 'civilian' property.
It is a requirement to live on base for the first year of your career, although this is changing as there is just not enought accommodation.
The ADF is on a massive pie drive to sign people up as their retention rates are low and if the economy goes south then defence number could swell as it is seen as a stable job, making DHA homes a good long term hold.

tess85 said:

jane, thanks for your considered response. it sounds great for a newbie investor. Regarding your point about what happens when the rental lease runs out - don't DHA tend to renew the lease? I just assumed they'd keep putting ppl in there.

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That will depend on them. The option to renew is entirely theirs, not yours.

I have a property in Jerrabomberra which was on a 9 + 3 year lease. They chose to renew it after 9. The extra three years is nearly up.

Recently I was told it had civilian tenants- which surprised me but did not worry me.

I was even more surprised when they called me recently to ask if I was interested in renewing a lease with them for a further 6+3. As an ageing property, that has some appeal.

Apparently there is now an acute shortage of defence housing in Canberra. One forum member asked about being able to break his lease with them- he was told it was not possible, especially considering the shortage.

I understand that there has been an increase of defence personnel in Canberra increasing the demand.

To me, the problem with DHA is that you have less flexibility with the property. If you want to sell in the middle of a lease you limit yourself to selling to investors. This can limit the price severely- and it is taken into account when refinancing. (OTOH some banks treat DHA rents much more generously than private rents because of the long lease).

They have been discussed frequently in the forum- search on "Defence".