The rent paid on time and no hassles with finding tenants?
Having a Soldier, Sailor or Fighter Pilot as a tenant and having the Australian Government paying off your mortgage via rent, sound too good to be true?
If you are first time property investor and serious about building wealth by accumulating a residential property portfolio then I urge you to consider the offering from Defence Housing Australia, a Commonwealth Government Business Enterprise.
In my opinion, the Defence Housing Australia (DHA) offering is one of the best ways to break into the rental property market. The DHA offering, gives you what is essentially a Government Guaranteed cash flow. I mean you have enough to worry about with interest rate fluctuations, so not having to worry about the rent coming in to cover your mortgage home loan repayment is a perfect situation.
The following quote is from the Defence Housing Australia website:
“Defence Housing Australia: safe as houses
The primary function of DHA is to provide high-quality housing solutions to members of the Australian Defence Force and their families, to meet the operational needs of the Department of Defence. DHA manages around 17,000 properties throughout Australia, worth approximately $6 billion. New properties are acquired through a mix of construction, acquisition and leasing. The sale of property to investors is DHA’s primary source of capital for funding new housing, and plays a crucial role in helping DHA improve the standard of Defence housing throughout Australia
How the program works
DHA sells a limited number of properties to investors each year. Properties are located throughout Australia, in areas where the Australian Defence Force has a presence. They are of a high standard and feature a comprehensive level of inclusions. Each property is sold with a DHA lease, which means you agree to lease the property to DHA for a specified term, and pay DHA a fee to manage and maintain the property. In return, you receive:
Long term lease with Government Business Enterprise.
Rent paid to your mortgage from date of settlement until end of lease.
Zero vacancy risk for the term of lease.
Property management and maintenance for a single fee.
Restoration provisions at the expiry of most lease terms.
Except for the first and last payment, rent is paid monthly, in advance, direct to your home loan mortgage account if you wish.
DHA even pays rent if the property is vacant, and does not charge any letting or advertising fees.
Rent is reviewed annually to market valuation, by licensed valuers.
To provide greater certainty to investors, DHA’s current lease incorporates a minimum rental guarantee. This means rent will be reviewed annually, but if market rents fall, your rent will never drop below the starting rent.
DHA’s standard lease terms are 9 or 12 years, and include an option for DHA to extend the lease by a fixed term, generally 3 years. This long-term lease, provides security and overcomes many of the risks and worries associated with conventional residential property investment.
Hassle-free property management and maintenance
Possibly two of the biggest worries for property investors are maintenance and tenant damage. Not only can they be potentially expensive, but they can also prove to be a headache for the property owner and manager. The DHA lease incorporates a comprehensive property management and maintenance service to ensure properties meet Department of Defence standards. For a single fee (deducted monthly), DHA undertakes all property management, including inspections and reporting. DHA also takes care of most non-structural repairs and maintenance, including the replacement of fixed appliances when required.
Lease end restoration provisions
DHA’s lease end provisions mean that when the lease expires you can rest assured your property is returned in good order. Where the total lease term (including any option period exercised by DHA) is six years or more, DHA will paint the property internally.
Where the total lease term (including any option period exercised by DHA) is nine years or more, DHA will:
replace floor coverings
polish any timber flooring, and
paint the property internally and externally (except where external painting is the obligation of a body corporate or similar entity).
Taxation benefits
Income producing properties, such as DHA investment properties, can have substantial taxation benefits. You may be able to claim a number of expenses related to your DHA investment property as a tax deduction. You may also be able to claim a deduction for the decline in value of certain items, known as depreciating assets, which you acquired as part of your property. A tax compliant depreciation schedule is provided free-of-charge upon settlement of each investment property. Each depreciation schedule is provided by a professional quantity surveying firm, and will be tailored to the property and purchaser details.”
So what’s the catch?
You need to make your own investigation, but I don’t think there is a catch. If you are a property speculator the program would not be for you. If you were extremely picky the properties seem to be located in outer suburbs of capital cities and regional centres, so potential growth may not match more sort after suburbs. The single fee mentioned for maintenance and management is around 16% whereas most property managers seem to charge around 10%, but you have to provide your own maintenance.
All and all I think it is worth investigating further. Another clue is the major banks and other major lenders seem to love DHA property as security for mortgage’s and home loans. Borrowing over $300,000 may even make you eligible for an interest rate discount.