DHA Rent

Hi,

I've just received notification of new rent levels for my DHA property (well, I did buy it before I knew much about property investing).

DHA's suggested new rent is $285pw.

The (almost identical) rent across the road is let out at $320pw- that appears to be closer to the market level.

To appeal, I need a "licensed valuation"- I thought, previously, that all I needed to appeal was "evidence of higher rents".

A valuation would take a substantial hunk out of any raise- I would expect no more than $300pw even of they did agree- and, at a time when cashflow is poor, a $400 valuation would hurt.

Has anyone had experience with DHA revaluations of rent?

Hi Geoff,

A lot of people tend to equate property value with rental return. I don't know, since I'm only a beginner...

But if you get an extra $15 per week even, that covers the cost of your $400 valuation in around 6 months.

More importantly, that extra $15 per week might also be seen (eg. by a valuer) as meaning your property is worth more than it otherwise is.

Don't know if it helps - I was just trying to offer an alternative perspective.

Kevin.

Originally posted by Kevmeister

But if you get an extra $15 per week even, that covers the cost of your $400 valuation in around 6 months.

More importantly, that extra $15 per week might also be seen (eg. by a valuer) as meaning your property is worth more than it otherwise is.

Kevin.

Click to expand...

Good point Kev - this will also help your DSR (since the extra $15 can be added to Y but they are unlikely to add the cost of the valuation to your expenses)

Although this doesnt help your actual ability to service the debt, it just increases your DSR.

I dont own any DHA property so I cant comment on their rent review process :/ sorry Geoff

hi geoff

my name is tony i am using my fiances link here

To put a little light on your question you have to remember that with DHA you dont pay for any repairs a % of your rent is taken out to cover the cost of repairs if any.

Dha will fully landscape and re-paint your house i think every 5 yrs
all at no cost to you.

I was in the army for 10 yrs and have friends who own Dha house and they dont lift a finger when it comes to repairs

To finish i would like to say for $285 a week were you dont have to raise a finger i think its a good deal.

I hope this helped you out a bit.

Thanks Tony (or Marge... hehe).

I understand that they do "minor" repairs. If a hot water service, for instance, broke down, then I would (I think) have to pay for that.

I do pay 16.5% management fee. That's about double a normal management fee- and I do understand that extras are included, and I do have 100% occupancy (and my bank takes 100% of that rent into account for servicability- that also helps).

However, after paying that management fee, I don't feel I should ALSO be earning a rent of $35 pw below comparable properties. Management plus that $35pw comes to $4000 pa- management on a comparable property would come to perhaps $1300pa- and I'd be allowing $700pa for repairs, so I'm $2000 pa behind.

OK, I get a repaint and recarpet after 9 years. 9 years at $2000- $18,000 would have to pay for an extremely good carpet and paint to be worth it!

The DHA property was my first- and a good safe step for where I was at when I bought it. I'm not knocking it. I've learnt from that, and I've moved on.

My original worry was the valuation. I have to pay $400 in order to prove that it's worth more- and they may not even accept that, so it would then be money down the tube. I was hoping that comparable figures from the area would be enough to get a rent raise.

Hi geoff,

Do you have to prove that the house is worth more or the market rental is potentially more? Usually R.E agents can give rental estimates. Why does the DHA need a val to determine the rent? Do they go off a strict yield formula? ie House valued at $X, market rent is therefore 7% of market value? I can understand in this instance why a new valuation would be in your interest because it means the potential rent would be higher. But wouldnt the higher val. also mean you had more equity in the property to use for future purposes? What has the capital growth been like over the period of time youve owned it?

What was the old rent on the prop, and how long has it been since the last rent rise (is is beating/keeping pace with inflation)

Just a few thoughts,

Jamie.

Have to agree with you, 16.5% manage. fee + potential lost rent seems a bit much to swallow. I just think you give up too much freedom with your property when you sign up with DHA

Jamie,

I have to prove that the market rental is more. I have a RE agent who is giving me a market estimate (he is very good with those).

Cap growth has been 45% in the 5 years since we bought- most of that in the last 18 months. Rental yield on their proposed rent would not be 7.2% on original purchase price- but 4.5% on current valuation, and most new DHA properties in the ACT sit just on 5%.

Rents are reviewed annually. They have been rising every year- but it's only now that I see comparable non-DHA houses at substantially higher rent that I want to puxh for more. I had hoped that the less costly RE agent appraisal would be sufficient, so I was just wondering if any forumites had ever negotiated rent rises. (I guess most forumites would not have DHA anyway).

Another downside of DHA is that valuations are typically 10% below comparable poroperties- because the market is limited to investors. So If I hang on another four years I'll get a good valuation again.

In fact, I was wondering if it was a good strategy to but DHA houses with 2-3 years left, for that reason.

Whilsts the valuations come in at -10% I wonder whether you could buy a property with a DHA lease for 10% less than the house next door without the DHA lease

If so then you've got yourself a free 10% growth when the lease expires, good point Geoff.

Food for thought

Originally posted by geoffw

Rents are reviewed annually. They have been rising every year- but it's only now that I see comparable non-DHA houses at substantially higher rent that I want to puxh for more. I had hoped that the less costly RE agent appraisal would be sufficient, so I was just wondering if any forumites had ever negotiated rent rises. (I guess most forumites would not have DHA anyway).

Geoff, why not start with the less costly proof of higher rent. Write them a nice letter, put in the higher rents. Then get the valueation, and send them the bill for incorrectly estimiating it in the first place.

Another downside of DHA is that valuations are typically 10% below comparable poroperties
Actually, I disagree with you geoff. I've seen many DHA in ACT where the price is higher, not lower. While the market is more limited, there are still the advanteages of 100% occupancy, and the painting/landscaping ect...

Let us know how it al turns up.

Jas

Thanks Jas, I will be sounding them out tomorrow.

As regards values- probably new properties (with nine years lease) are higher in value than comparable properties- but the valuations I'm getting the property I've had for over five years, I'm geing told the property would be worth 10% more if it was available as a residence.

Firstly, when I approached DHA to ask, they sent me the valuation certificate. The description included a study (which the house does not have), but omittedthe large rumpus room.

I've sent the nice letter pointing out the discrepancy, as well as the $10K in landscaping, and received a nice call. The valuer has agreed that the rent should be higher based on the new description, and have agreed to $295pw. If I wish to take it further I will have to notify them.

The original certificate is at work, I'm not quite sure when I'll be able to get back. The revised certificate will be sent out. Normally, January 31 would be my last date- given the situation with the fires, I have been given an extension if I want to proceed.

That's proved quite interesting. Rent has been estimated for five years on the earlier description- when I get the paperwork I might have to question past rent levels and to request some past rent lost.

Did you send them proof of higher rent when you sent the letter explianing reality?

Jas

My letter provided details of five comparable properties. The valuer provided three.

The latest chapter.

I've spoken with DHA, and the have asked me for proof of comparable rents from the real estate agent.

I crawl on my hands and knees asking for yet another favour from the agent.

They fax details of four comparable properties to the DHA valuer. The agent provides street names, a description, and rent. Two have been let out, two are asking prices- they have been rejected by the valuer as they have not been let out. The other two are rejected because they do not provide details- rental dates or a street number. (one of them is a 3 BR townhouse letting at $320- while DHA are offering $295 for my 3br house on a large block, with rumpus).

My ever patient REA then provides further details. She has to ring other agents to find details of properties rented. One slightly superior property isrenting out at $380pw.

But the valuer will not budge. It seems like he never intended to- and that all the favours I called on the REA were for nothing.

I have the option to proceed with a full professional valuation, or to take the rent offered.

A full valuation, at $400 to $500, would probably get me another $10pw at minimum- but it may not. And cashflow is rather tight.

So I've chosen to accept the $295 (under protest). And I've objected to being asked for appraisals which have been ignored cold.

Geoffw

If you truly believe the $295 is under market rent, why would you not proceed for the valuation mentioned?

The $400-500 is tax deductible so I assume effectively costs you half that (~$5/wk). The downside is you mightn’t succeed, however, you know you tried your best. The upside is you may do well better than the $10 minimum mentioned coupled with the satisfaction of “a-win” and a new learning experience.

If you don’t proceed, it would suggest to me that you have doubts yourself?

My thoughts only …….

Joe D

Yes, Valuation fees are tax deductible- but an increase in rent is taxable.

$500 is extremely difficult at the moment, I'm still recovering from expenses from the last property. I'd prefer that money be going towards food on the table.

An update nearly 12 months later.

From the "revised" rent of $295pw from 12 months ago, I've just received notification that the new rent for the coming year will be $350pw.

I'm not unhappy about that

Congratulations Geoff (by the luck of the gods)

Though I'm sure if you hadn't done all that work 12ish months ago, your rent would not have been reviewed so favourably this time around.

Perhaps last year there was some 'face saving' involved, or just authorities being cautious about being pushed and/or fear of having the wool pulled over their eyes, or being done like a dinner.

I am though glad to hear the better outcome, and once again impressed by your attention to detail and realistic approach.

JAM

I live in Oz's largest garrison town, and while I do not have a DHA lease but it is not for want of trying.
It may be a local thing but here the DHA is a full blown property developer.

I built a new house a few yrs ago and it took them at least 10secs to say it wasn't suitable when I showed them the plans. I will admit it was not quite a "project home" (ie better) but it was impossible to get pre-approval for any variation of construction. Here all houses are offered to the punters after construction via a couple of preferred agents and at "full" value.
In the end I put a "for rent" sign on my near completed home, had a tenant before completion and he is still there over 3yrs later.
I can do without DHA (I hope)

So, if your house is worth $35/wk more, vote with your feet. And save a heap on costs.