Keep your RA or use your DHOAS & HPAS

Is it wiser to opt for Rental Assistance (RA) instead of utilizing your entitlements, the Home Purchase Assistance Scheme (HPAS), and the Defence Home Ownership Assistance Scheme (DHOAS)? This question typically arises during two key periods: at the beginning of the year when individuals contemplate purchasing a home after relocating, and in the middle of the year when people receive their posting orders and plan their next steps. The decision ultimately hinges on your goals and the location of your posting.

When faced with a posting to a city like Sydney, the prospect of buying a house may seem appealing. However, the steep price tags, often starting at $2,000,000, can be daunting. In such cases, considering the RA benefits becomes crucial. If, for instance, your rent amounts to $1,500 per week, and RA covers a significant portion of it, reducing your cost to $400 per week, it may seem financially favourable compared to servicing a $2,000,000 mortgage.

If you’re driven by the desire to utilize your entitlements quickly, you might not make the most informed decision. It’s essential to evaluate the actual financial benefits. If RA provides $18,000 annually, and you qualify for $11,000 through HPAS, RA might be the more financially sound choice.

Case Study – Comparing RA and DHOAS/HPAS

I recently calculated the financial implications for a client contemplating purchasing a $600,000 house to live in versus staying in RA accommodation, receiving RA, and investing in a property. Surprisingly, the cash flow was approximately $2,500 better each month by staying in RA rather than purchasing a home to live in. Clearly, this surplus in their pocket made a compelling case for the investment approach, demonstrating that smart financial planning can significantly impact one’s bottom line.

Rent-vesting – Keeping Rental Assistance

That’s why we explore the concept of leveraging a service allowance (renting) for investments, commonly known as rent-vesting. If you’re fortunate enough to have your rent subsidized to just $500 per fortnight, it’s crucial not to squander this opportunity. The optimal strategy is to maintain the subsidized rent and invest in a property that essentially takes care of itself—a self-sustaining investment, like a self-licking ice cream.

The decision to adopt this approach typically boils down to two key factors:

  1. Financial Considerations: The feasibility of this strategy hinges on your financial situation, specifically the amount available for your deposit and associated costs, as well as your maximum borrowing capacity. It’s not uncommon for individuals to aspire to jump into a property valued at over $1 million (hello, Canberra and Sydney markets) but find themselves financially constrained. While it may be disheartening, interim steps might be necessary before reaching the ultimate goal.
  2. Geographical Location: One of the most common pitfalls is rushing to capitalize on entitlements without considering the long-term implications, notably observed in locations like Townsville and Darwin. People often seize the opportunity to purchase a seemingly ‘affordable’ home, utilizing benefits like HPAS, FHOG, and DHOAS, only to regret their decision five years later. In many instances, the property’s value has either declined or remained stagnant.

Don’t waste your entitlements 

A word of caution: Resist the urge to hastily utilize benefits such as HPAS, DHOAS, and FHOG. Numerous case studies highlight the pitfalls of impulsive decisions, particularly in smaller regional cities like Townsville and Darwin. While accessing free funds through HPAS is enticing, it’s essential to avoid investing in subpar properties that lack capital growth and rental yield. While some investors may manage to offset these poor-performing assets with subsequent acquisitions, for others, it might be the only property they can afford to purchase.

book a free session with one of our qualified property investment advisors and DHOAS experts before you pull the trigger on your entitlements.

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