Information provided by DHA Australia.
Most people invest in property because it’s uncomplicated. You buy something you can see and touch, and aim to make money from rental income and capital growth (i.e. the value of the property you’ve purchased increasing over time). As an added bonus, the interest on the bank loan can be offset against the rental income thanks to negative gearing; lowering your overall tax bill.
The costs of an investment property
Once you have purchased an investment property, you may appoint a real estate agent to manage your property and any tenants inhabiting it. The property manager finds you a tenant and acts as a first point-of-contact for handling any issues involving that tenant. But, while having a third party act as a property manager undoubtedly has some benefits, it doesn’t eliminate the potential downsides of the investment.
After liaising with the tenant, the property manager will still need you, as the property owner, to sign off on, and pay for, any repairs. If the property manager allows an irresponsible tenant to rent the property, it is you who bears the cost of fixing any subsequent damage. If the property manager fails to rent the property, or fails to collect the rent, you will be left wondering how you are going to make your loan repayments with no rental income.
Mitigating your risk
If you buy a Defence Housing Australia (DHA) investment property, you won’t need to worry about dealing with a real estate agent or the tenants they are overseeing. There are no calls about fixing holes in the walls or emails informing you of tenants late on payments.
Why? As part of your DHA lease agreement, DHA is responsible for managing the property. This involves carrying out inspections, managing repairs and making sure your property is returned in good order at the end of the lease. In the event of an emergency, DHA immediately arranges any necessary repairs. Plus, DHA makes sure you get your rental income like clockwork, even if your property is unoccupied1.
What you're really paying your middleman
For freestanding houses, which comprise the majority of DHA property stock, the management fee is 16.5 per cent (including GST) of the gross rent. This may initially seem high when compared to typical real estate agent management fees, which are usually in the range of 6.6 to 11 per cent. However, DHA’s fee is all-inclusive which means the overall cost of managing a DHA investment property is usually lower.
Independent research by BIS Shrapnel (December 2014) shows the cost of managing comparable properties over a nine-year period—a common DHA lease length—is typically lower under DHA’s fee structure than a traditional real estate agent. What’s more, this is the case at three rental price points: $300, $450 and $600 per week.
The study divided likely rental expenses into three categories and, even under the highest rent and lowest expenses scenario, costs associated with a traditional real estate agent totalled 18.1 per cent of the gross rent, compared to 16.5 per cent for a DHA lease agreement.
This is because under a traditional real estate agent management agreement there are fees, costs and charges in addition to the percentage taken out of the rent. Under this sort of agreement, you, the property owner, will need to replace the carpets, paint the walls or replace broken tiles in the bathroom. You’ll need to pay for these repairs on top of the fee you are already paying your property manager.
With DHA-managed properties, these kind of repairs and maintenance are included in the management fee. At the end of the lease they will make sure the property is returned to you, professionally cleaned and with appliances in good working order. Plus, a lease exceeding six years covers repainting at the end of the lease, while a lease exceeding nine years covers re-carpeting, replacing floor coverings or repolishing floors, and both internal and external painting at lease end2.
This means there are no surprises when it comes to the expenses required to run your DHA investment property. The rental price of your property won’t fall below the commencing rent for the term of the lease3. And because you’re guaranteed an uninterrupted rental income, you can structure your loan repayments and plan your finances with a high degree of certainty.
As with any investment decision, be sure to get independent financial advice to make sure you make the best decision to suit your specific needs.
Learn more about investing with Defence Housing Australia or enquire online.
Attention: This article is intended to provide general information only. DHA does not accept responsibility for any inaccuracy or actions taken in reliance upon this information. Investment is subject to DHA’s lease terms and conditions of sale. Investors retain some responsibilities and risks, including property market fluctuations.1Rent is subject to abatement under limited circumstances. 2Restoration service subject to the duration of the lease term and the obligations of a Body Corporate. 3Rental floor applies to DHA properties leased under DHA’s Lease Edition 6C, which will not cover all DHA properties.
While due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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