Defence Housing Authority

From: Greg Loucos


Has anyone brought IP from the Defence Housing Authority?

The property management fees are anywhere from 12% to 16.55%, these are high but as they factor in the cost of repairs on the property and restoration of paint and carpets
are they reasonable as the fees are tax deductible?

The comfort factor of having 100% tenancy is tempting for a new investor.

Can the purchase price of the properties be negotiated or are they fixed?

Any response gratefully accepted.
 
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Reply: 1
From: J Parker


I used to live in Defence Housing houses so I know how strict they are about cleaning upon vacation (practically run a white glove over the place!!).

My aunt just sold her DH townhouse and made a fairly good capital gain on it. However, the rent was not high as it guaranteed no problems with vacancy, after all. Don't expect these properties to be positively geared for quite a long time!

Their fees are high- you are spot on there, but then again you're not paying for maintenance etc. I guess, in the end, you have to take the numbers and see how you fare.

If you're not a renovater, you prefer not to have so much control over your property and you are happy to leave everything in the hands of the Defence Housing Authority, then go for it. It's not for me, but that doesn't mean it's not for you.
Vacancy rates are a bonus of course, but then again, if you do your research and pick the right property anyway (one that will always appeal to tenants) your vacancy rates will be low regardless.

Good luck! Cheers, Jacque :)
 
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Reply: 1.1
From: Greg Loucos


Jacque

Thanks for the reply, as you might tell we are new to IP and am venturing on the conservative side for the first leap.

Will be in for the long ride once we leap, and will be happy to be negatively geared for a while.

Are there any things of notice we should be addressing when dealing with the Authority?

Regards

Greg
 
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Reply: 1.1.1
From: Robert Forward


Just one point I'd like to make here.

The DHA adjust the rents on an annual basis to match the current market. It has been known at times that your rent will actually decrease to the current market levels.

So just something to be observant about and to read in the small print.

Cheers
Robert

The Sydney "Freestylers" Group Leader.

PS: "Be Not Afraid Of Growing Slowly, Be Afraid Of Only Standing Still."
 
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Reply: 1.1.2
From: Joo Joo


hi greg,

I am waiting on settlement for my first IP, this is my first time on the forum and I lack experience, Im only 20. But the Ip I purchased is a DH town house, my loan is Interest Only and is positively geared. Also, I negotiated 10,000 off my purchase price, so it is possible.

There are drawbacks, i am told that they are sometimes overpriced so be sure to know the true value of the area and do not forget that Capital gains is the no. 1 thing to look for.

Good Luck, wish me luck too

joo joo
 
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Reply: 1.1.1.1
From: Joo Joo


Rob,

Im pretty sure that they do not do so, they have a fixed price for the term of lease, the only variation is with inflation, the CPI index, they cannot change any more than this. (well that is as far as I know which isnt much)

joojoo
 
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Reply: 1.1.2.1
From: The Wife


Capital Growth is king!

unless your a cashflow person, in that case,

Cashflow is King!


welcome to the forum George

TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 1.1.2.1.1
From: Anonymous


The Wife
Brilliant - I love it.
Capital growth is king, unless you're a cashflow person, in which case cashflow is king.
There's a deep message there, I know it. I just need to figure out what it is.
Steve
 
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Reply: 1.1.2.1.1.1
From: Nigel W


maybe that should be:

Capital Growth is King (until you need your property to buy the groceries, in which case Cashflow is King). Its all a question of what you need.
 
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Reply: 1.1.2.1.1.1.1
From: Terry W


Nigel

You can also buy groceries with your capital growth by using the equity.

Terry

>>> listmanager@bne003w.webcentral.com.au 12/11/01 04:03pm >>>
From: "Nigel W" <nigel.ward@msj.com.au>

maybe that should be:

Capital Growth is King (until you need your property to buy the groceries, =in which case Cashflow is King). Its all a question of what you need.



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Reply: 2
From: Diane -


As with any purchase do your homework, make sure you know the prices of similar homes in the area in which you are purchasing a DHA home. Do not get carried away with the thought of Defence Housing being different from any other developer as this is what they are - developers and property managers. Their tenants vary from excellent to absolutely the other end of the scale. Pets are allowed into their properties. Make sure if you do purchase a property from DHA you take photos of the condition of the property when you take over. It is not unusual to have two large Rottweilers running around a yard about the size of a postage stamp and then inside the rest of the house as well. Check for pet damage to glass doors and windows, framework of security doors, wooden poles or framework on pergolas. Do not be fooled by the "blue chip tenant" spiel, they are the same as the rest of the community - good and bad - but there is no check on how they look after a property. Do your homework just as thoroughly as if you were purchasing on the open market.

Good Luck
Diane
 
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Reply: 2.1
From: Jas




>Do not be fooled by the "blue chip tenant" spiel, they are
> the same as the rest of the community - good and bad - but there is no
> check on how they look after a property. Do your homework just as
> thoroughly as if you were purchasing on the open market.

In talking with a property manager from DHA, she said that she had a
tenant who would refuse to open the door to let her in for an
inspection... on getting orders from his superiors, she found the place
a mess. She told him to clean it up, or get the cost deducted from his
pay.
They have a list of things and the cost to clean/replace them... and it
seems to be very high. For example, it costs $75 to clean a shower, and
$100 to clean an oven. As you'd imagine, most tenants clean the place
up themselves.

Type-wise, she said the worst tenants where those who had just come from
camp where they where used to having someone else clean up for them...
18 and 19 yr olds.

One comment made in another post was that the repairs are all covered...
this is the full story. Repairs up to a certain amount are covered, and
then the landlord has to pay for the rest. The amount (I think) changes
with each property (a % of the value or something).

Jas
 
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Reply: 2.1.1
From: Asy .


My comment to do with DHA's are that you really need to do your due diligence on the purchase price, and make sure that this is in line with the market value in the area, notwithstanding the rental benefits.

I say this, because I have been called in to appraise many DHA-leased properties, only to find that they had been sold to interstate purchasers who often did not know the local market, and were sold the properties at (the worst I saw was) about $45k over the market value at the time, but being from the NT, as this purchaser was, she had no idea. Bought it based on the rental income.

This can be not a problem if you are looking at it from a hold-forever basis, and are happy with the rental return. But it can be heartbreaking if you want to sell it 2 years down the track and the property is still worth 20k less than your loan...

Remember, the profit is in the buying, not the selling, and never was it truer than in this case.

I reiterate, do your due diligence on the purchase separately to the rental in these cases. Then look at the package as a whole to determine whether it is worth doing.

Just my rambling...

asy

There are no problems, only solutions which have not yet been discovered.
 
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Reply: 2.1.2
From: B F


I have a few DHA properties, so here are my thoughts.

According to the DHA website they make a huge profit. Not surprising when they take 16.5% to manage a property.

My guess is they add at least 5% to the valuation for the sale price, for the 9 year lease. I assume about 5% is added to the rental valuation for the initial period of rent to make it more attractive also.

If you know your area well you can still buy for market value, but don't expect a bargain. Do your research.

They have the market rent valued each year in December and the valuer will give you around $20 a week less than the market as the house isn't air conditioned. You are able to have your own valuation carried out if you aren't happy.

The tenants - Whilst I'm sure that there are a range of people in the houses, the tenants I have seen are terrific. (I have been leasing to the DHA for 6.5 years) You will never be faced with a tenant that trash's a place and leaves without paying rent.

I live overseas also, so the DHA are convenient managers in my case. I would advise you to weigh up all the pro's and cons and do what is right for you.
 
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Reply: 2.1.2.1
From: Diane -


Your house can be trashed by a tenant it is purely that he will have to pay for any damage out of his wages. I have seen many DHA houses trashed by tenants.
Diane
 
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Reply: 2.1.2.1.1
From: Trina Blum


Hi,

I was a defence member until about four years ago and lived in a few DHA leased houses. My experience was that no inspections of any of the properties we lived in was carried out whilst we were actually living there. So I guess if we had trashed the place or lived like animals DHA would have been unaware of this. However, upon leaving the place it was very thoroughly inspected in some regards - the inside.

I had put a very small hole in the front flyscreen door as we were moving out. They discovered it and we had to pay. On the other hand whilst living in Adelaide my husband used too much roundup trying to kill weeds and killed off a majority of the grass in the backyard (it was a villa so the grassed area wasn't very big). He successfully concealed the fact when we had our inspection upon leaving by covering the dead area with lawn clippings. The inspection was very thorough inside but they didn't even go out the back door.

I also considered buying a DHA property for our IP but the high management fees put me off.

Regards

Trina
 
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Reply: 2.1.2.1.2
From: Greg Loucos


Ladies and Gentlemen

Thank you all for your comments, be assured all are taken on board.

Being new to IP I am conservative in my actions and have checked some of their listed properties against median prices and the highest prices in the area and have found that the DHA pricing is set above the median but not above the maximum price.

My aim is to target housing to be used for officers and not for enlisted personnel so I should avoid the young tenants with their associated risks. (I might be stereotyping here but will play it safe!)

Just a parting question that someone might answer, how do you know when to buy the next IP? Does it rely on the figures or a personal comfort factor or a combination of both?

Again thank you all, as I have seen written in this forum many times it is good to get the opinions and experiences of people who have been there and done that. Better than re inventing the wheel again.

Regards

Greg
 
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Reply: 2.1.2.1.3
From: Terry Avery


Just to add my 2.2 cents worth. There are now three types of lease with DHA.

1. Pre -96 leases, commission of 5% you pay for repairs and rent is adjusted
according to the housing component of the CPI for the capital city where the
property is located (and that takes a little digging in the ABS website to
find)

2. Post - 96 leases, commission of 15%, all repairs and maintenance are
covered and rent is assessed to market value by an independent valuer. If
the place is trashed then they can deduct it from the tenant's salary.
However, if the problem is structural then you have to pay for it, for
example paving sinking and creating a possible hazard to tenants tripping
over then you are liable. Also the house is recarpeted and internal repaint
after 9 years. Be very careful with this as DHA can hand it back at 8 years
and not have to pay. Get an undertaking in writing that they will recarpet
and repaint.

3. Currently, commission of 16.5% and all repairs and maintenance covered,
market rent paid so yes it can go down.

So final comments, know the prices in the area. Don't assume that because it
is DHA that it will be in a growth area. How many military bases do you know
of in the CBD? Generally they are in the sticks, Puckapunyal, Kapooka
(outside Wagga Wagga), Townsville, Palmerston NT. Recently there has been a
relocation from areas that are prime real estate to more remote areas as
Defence needs to access the equity in their property to supplement their
budget.

The high commission may cover recarpet and repaint but when you do the sums
you will find they have money left over and that is your money that they
have.

You can buy DHA houses on the pre - 96 leases from the owners at market
prices but at this stage may only have a year or two left of the lease to
run. You need to do the sums carefully here as well.

DHA tend to market their properties to people out of state and add a large
premium, they tend not to lower their asking price because they will sell to
a novice interstate. They put a lot of effort into their marketing!

Apart from all that I would endorse Asy's comments about doing your due
diligence.

Cheers

Terry
 
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Reply: 3
From: Joo Joo


The property management fees are anywhere from 12% to 16.55%, these are high but as they factor in the cost of repairs on the property and restoration of paint and carpets
are they reasonable as the fees are tax deductible?




hi greg,
me again, i'm just reading over your message, the property I'm buying from them is 5% management fee

are we talking about the same thing
 
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Reply: 1.1.2.1.2
From: Joo Joo


Capital Growth is king!

unless your a cashflow person, in that case,

Cashflow is King!


welcome to the forum joojoo
........................................
thanks TW, I think A bit of both is King

joojoo
 
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