Use your ADF Entitlements to invest

As a member of the ADF, you’re given a huge head start in the property investment space. It is accidental? Probably – because all the entitlements and grants that are on offer have been designed to help members with their own home. 

Nonetheless, your DHA based entitlements (RA, LIA or MQ), HPAS, DHOAS and HPSEA all come together to give every serving member a massive comparative advantage. 

It’s because of this advantage that so many of us (yes, we took this approach while we were serving too) turn to property as our investment asset of choice. And you would have to think property will remain the ADF members investment vehicle of choice for some time, because there doesn’t appear to be subsidies for crypto or shares coming from the government anytime soon.

The Benefits of Investing in Property while in the ADF


There are three major ways that you can use your ADF entitlements to invest. 

  • Rent-vesting – Getting the most out of DHA by receiving RA or living in a MQ. 
  • Buying your own home using. HPAS and DHOAS and then converting it to an investment property on posting.
  • Flipping houses – using HPSEA to cover the transaction costs when posting

Rent-vesting: Getting the most out of DHA

Your greatest entitlement never gets the fanfare that it deserves. That is reserved for DHOAS and HPAS. But your subsidised accommodation allowances – LIA (Living in Accomodation),  MQ (Married Quarter) and RA (Rental Allowance) are the most powerful grants at your disposal.

When you are thinking ‘investing’, these are the subsidies that you will absolutely cash in on. We understand that no-one wants to hear it – but staying in Defence provided or subsidised accomodation is your gateway to investing! 

DHA vs buying your own home

You just need to look at the numbers – even considering the purchase of a modest home in SE-Qld (let’s not get carried away in Sydney), it is dramatically cheaper to use entitlements than buy your own home. We break down the numbers in detail here, but the summary of where money flows is as follows:

Buy Your Own Home

Assumed After Tax Income: $3000/fn

Accomodation: Own home $500K mortgage, 5% Interest = $1,238/fn

Cost of living: $1,100/fn

Discretionary spending = $300/fn

Funds available for investing: $362/fn

Rent-vesting in the ADF

Assumed After Tax Income: $3000/fn

Accomodation: Service Residence = $534/fn

Cost of living: $1,100/fn

Discretionary spending = $300/fn

Funds available for investing: $1,066/fn

Even if you were in receipt $500pm DHOAS on your own home, your accomodation costs are almost double that of RA or Service residence. 

That’s why we look at the concept of using service allowance (renting) while investing. Also known as rent-vesting. If you have got your rent subsidised to only paying $500 per fortnight, you can’t waste that! Your best advantage is to maintain that subsidised rent and buy an investment that looks after itself (a self licking ice cream). Whether you take this approach almost always comes down to two things:

  1. The numbers – how much you have available for your deposit & costs AND your maximum borrowing capacity. So often we encounter clients who desperately want to dive straight into a $1m + home (I’m looking at you Canberra and Sydney markets) – but they just can’t afford to go straight there. Is it disappointing? Yes – but sometimes there are interim steps that need to be taken before you get the major prize at the end. 
  2. Your posting location – The most common location for quickly grabbing your entitlements and regretting it five years later is without a doubt Townsville. However, we have similar stories from people in Darwin and Adelaide. In short, they spot a ‘cheap’ house so they can use their HPAS, FHOG and DHOAS – buy it, live in it for 12 months – then post away. Often, that property value has declined (or stayed flat at best). 

A warning: Don’t waste your HPAS

As a quick word of warning: Don’t be desperate to use your HPAS, DHOAS and FHOG. There are plenty of case studies out there that will show you what not to do and almost all of them include stories of buying in smaller, regional cities (we’re looking at you Townsville and Darwin). 

The access to free money in HPAS is great, but all too often we see that buying a poor property (either in terms of capital growth and rental yield). Some investors may be able to continue buying more assets, even with this poor performer in their portfolio. But for some it will be the only property that they are able to buy.

Turning your own home into an investment

At the end of the day, if you are posted to an optimal location for buying a principal place of residence (PPOR) you will probably go ahead and use your HPAS (Home Purchase Assistance Scheme) and your DHOAS. That’s likely because when you combine those with your state first home owners grant, DHOAS lump sum, stamp duty exemptions and LMI exemptions it can call add up as worthwhile. 

Keep in mind – almost all of the above mentioned grants can be used for a PPOR after you have bought investments previously – it isn’t use it or lose it!

But after you have grabbed all your grants and lived in the property for 12 months, you know that the clock is ticking until your posting order comes and you turn your home into an investment property. Now the real fun starts. First thing first – if you have a DHOAS loan… yes, you can keep receiving your DHOAS subsidy!  But what else do you need to think about now that you have an investment property? 

Particularly for ADF members that have moved away from their property – this is essential. I know that plenty of people balk at the 7% management fees and wonder “why should they get that just for collecting my rent?” And the truthful answer to that question is that they absolutely shouldn’t!! 

If you’re property manager is doing nothing except collecting your rent – get a new one!

They should be your eyes and ears on the ground with your property, conducting quarterly inspections and acting as the master negotiator with your tenant. Your rates, water and other standard billing should be going straight to them for payment so that your property is as hands off as possible – and so it is being managed in accordance with the Real Estate Legislation in your state. 

It has never been disputed that the tax rules around property are very beneficial. However, ‘saving tax’ should never be the strategy for acquiring property; rather it should be the by-product.

For a brand new property you can get a depreciation schedule as soon as you move into the property. You will need this to give to your accountant at the end of the financial year to declare the amount of depreciation can be allocated against the property. 

If you already have a property and you don’t know about depreciation schedules, make sure to reach out to us today! 

Maximising the use of HPSEA

One of the most misunderstood ADF entitlements is the Home Purchase Sales Expenses Allowance. The reason that is likely the case is because there are significant costs associated with exiting and entering the property market that cannot be offset by HPSEA

Therefore, in a large amount of cases it doesn’t end up being worthwhile. Nonetheless, for those who are naturally more ‘hands-on’ there are some options that will allow you to benefit from HPSEA. 

The Renovator

HPSEA is perfect for ADF members who enjoy renovations. Putting additional time and energy into your property has long been proven to be a means for increasing the value of the property. However, we have always found that the real financial gains are only achieved if the owner can conduct most of the improvements themselves (or with their extended network). 

A lot of people are sucked into the excitement of renovation without understanding the reality of the costs. If you are intending to completely outsource your renovation, it is going to be very hard to recoup the expenses that you put into it. 

Risks of the Renovator

The potential trap to this style of investment is that you are accepting far more risk – both in general market risk and also individual property risks. Because of the timelines that are associated with HPSEA, you may be forced to sell a property at a sub-optimal time such as when the market is experiencing a correction. 

In the short run, risk is also increased because despite all the checks you can do before purchasing, there are no guarantees to exactly what the property will be like when you start peeling back the layers during renovations. 

Don't take our word for it...

Don't take our word for it...


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