Acquiring an Investment Property through DHA

DHA Property as an Investment

Nothing polarises professionals in the property industry quite like the topic of ‘DHA Investment’. Everyone seems to have their own opinion on the topic and with the continuing growth of social media – everyone can have their own soapbox to yell that opinion from too! 

Like all investments, buying a property to be leased to DHA has it’s pro’s and cons. These will be explored below but it’s important that you realise the items discussed truly just align to your risk profile. There is no denying it – DHA Investment does afford a relatively safe low-risk investment, but you may sacrifice in other areas as a result. 

Benefits of Leasing to DHA

Without a doubt, the first-second-third-fourth and fifth benefit of leasing a property to DHA is income stability. Actually scratch that. The ONLY benefit can be considered income stability. This is broken down into a few parts:

  • Income is guaranteed** even when the property is vacant. 
  • Outgoings are predictable** because DHA covers cost of most non-structural repairs.

It is important to note the ‘**’. One of the common myths is that all repairs are covered, however, DHA even state on their website that “Where repairs and maintenance fall under your responsibility (as the landlord), we will contact you to discuss the work and options available to you”. In the event that the property is no longer habitable, you may also no longer receive that guaranteed rent. 

Lots of investor want the stability in their property portfolio. It is for the same reason that some home owners opt for a fixed-rate loan, it benefits them by providing surety of monthly repayments. That surety allows them to push their investment to the back of their mind and focus on other priorities. 

Negatives of Leasing to DHA

Contrary to expectations, we’re not going to follow the traditional route here of saying that locations are restrictive or not conducive to capital growth … you only need to look at the likes of Canberra or Newcastle or Amberley over the last 3-5 years to know that there is LOTS of potential for capital growth with the right property. However, you need to make sure you choose the right spot to buy. 

I will flag the excessive property management fees (16.5% flat fee for a standard house & land). This is 10% more than what you would expect to see from regular property management fees. On a $500pw property that is giving the property management $82.50 per week or $4,300 per year. That is a huge chunk of your total property income. 

Another challenge that is less spoken about is the exit-strategy for DHA investments. If you want to sell your DHA investment mid-lease, you may have to sacrifice some capital value in order to achieve a timely sale. 

Having your cake & eating it too

DHA Investments certainly afford absolute surety of income & expenses for the period of the lease. However, that is somewhat paid for by the high property management fees. 

At Strike Property, we believe that there is probably a middle ground that with sound processes you are likely to get all the benefit of the DHA Investment property without the expenses. Do you accept slightly more risk? Yes. But will you be better off financially by using this process? Almost certainly yes! 

Find your own ADF Tenants

Since there is a significant undersupply of DHA homes in every location there should be no shortage of members looking to rent privately (through one of those property managers who only charge 6-7%) and use their Rent Allowance (RA). 

Once you have a property in an ADF centred community, you will only usually need to attract an ADF tenant once – to get in alignment with the posting cycles. From there, the process is relatively simple – when your tenant moves in they will be able to advise when they are due to post out & you can then confirm that remains accurate throughout the tenancy – the property manager has plenty of time to ask these questions during their routine inspections or general engagement with the tenant. 

In the event that your tenant is leaving, usually they will have someone to backfill their position or will know lots of people posting into the area. IF you have been a reasonable landlord and your property manager has maintained good relationships with your tenant, no doubt they would be willing to recommend your property to their replacements. 

Do I need ADF tenants?

If you acknowledge that one of the biggest appeals for DHA Investment is to have a consistent income, you can start to understand that it doesn’t matter who lives in your property. The real thing that matters is that they pay the rent reliably and in some cases – that they stay in your property for an extended period of time. 

Given you may actually have relatively frequent changes of tenants (due to posting) while in a DHA lease, you’re likely actually seeing a lot more tenants and possibly a disproportionately high level of removals through the house. Couple that with the ‘gentle’ removalists that support a posting order and one could say that having long-term, non ADF tenants is arguably a better solution than DHA. 

Solving the outgoings problem

The second part to knowing expenses for a property is being able to gauge outgoings. In the DHA investment world, they will cover the costs of minor repairs to the property. Seems generous on paper but if you buy a new property you get 12 months worth of builders warranties, warranty periods for appliances, air conditioners and garage doors; along with structural guarantees. 

So the question is – if you are getting warranties and guarantees with a brand new property anyway, are there really any huge repair outlays you need to make during the first five to ten years of the property life? Probably not. So if you are planning to buy a property that has minimal maintenance costs, you’re not going to really benefit from DHA investment’s agreement to “cover the costs of most non-structural repairs”.

The verdict – Are DHA Investments worthwhile?

Leasing your investment or buying a DHA Investment property will be the perfect fit for some people. There are people out there who gain benefit from minimising the risk of tenant vacancy and knowing their fixed expenses. 

To figure out whether it is the right fit for you, you’ll need to assess whether you are willing to part with an extra $3,000 per year for a property that yields $500pw (up to $45,000 over the maximum 15 year lease term) to minimise that risk. 

If you still don’t know or you’re sitting on the fence – maybe it’s time to speak with a professional about your options. At Strike Property, all of our Qualified Property Investment Advisors are well versed on the DHA Investment options. They will assess your circumstances and consider your risk profile before looking at the optimal type of property for you and whether you should offer it to DHA to lease.  

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