In late 2009, Access Economics released its report comparing Defence Housing Australia's (DHA's) management fee structure with other investments, including an extensive comparison with typical real estate management fees.
Access Economics Director and leading economist, Chris Richardson, discusses the report findings.
'It's a common myth that DHA's management fee is high in comparison with the fees usually charged by real estate agents. However simply comparing those figures on face value is misleading,' Mr Richardson said.
'Put simply, DHA landlords are charged a flat management fee of 16.5% of gross rent, including GST, while real estate agents tend to charge a seemingly lower fee, usually between 7 and 8.5%, plus GST.
'Yet that is like comparing apples with oranges.'
The report found that in some cases, landlords could save more than $2,000 per year on a DHA lease.
Click here to find out more about DHA's lease benefits.
Mr Richardson explains that Access Economics' analysis accounted for both explicit and implicit costs faced by the landlord in each case. He said that this was to produce an 'apples with apples' comparison of the relative cost of the two fee structures, rather than just comparing the advertised percentage fee.
'Management fees are only part of the fees charged to landlords by agents, whereas DHA's fee is all-inclusive—there aren't any extra or hidden costs.
'Our analysis considered and valued the extra costs associated with the usual agent arrangement, and then compared those figures with DHA's costs. We did that for a range of lease lengths and rental values, and DHA came out on top every time.'
The report identified some of the amounts charged by agents in addition to the management fee, including a range of additional costs such as statement fees, advertising charges and leasing fees.
'On top of that, landlords with a traditional agent will incur vacancy costs, reductions in the market rental value of the property, repairs to fixtures and fittings, replacement and repair of floor coverings, painting and any additional time and effort required for maintenance not covered by the agent.'
The report took into account advantages under a DHA lease that are not received with a usual agent arrangement. It noted that under a DHA lease rent is guaranteed throughout the year and landlords are not involved in organising property maintenance or other management.
'These are all accounted for within DHA's lease agreement and flat fee,' Mr Richardson said.
The report highlighted that DHA's management fee was less expensive in all cases studied, with the gap most notable for longer leases.
'For a nine year DHA lease on a three bedroom house, with $450 per week rent, we estimate the savings under the DHA model to be more than $2,000 per year.
'The greatest savings occurred for leases of over nine years, because the DHA lease includes repainting and recarpeting on such longer leases.'
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Attention: Access Economics' report 'Comparing the DHA Management Fee Model with Alternative Investments' was commissioned by Defence Housing Australia. Investment is subject to the terms of the lease. Investors retain some responsibilities and risks. Investors should seek independent advice.
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The above information is supplied by Defence Housing Australia.
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