Not all tenants are created equal

Article supplied by Defence Housing Australia July 2014

Chances are that you wouldn’t hand over your new car to an unknown driver, nor would you give your diamond engagement ring to a stranger to try on… so is it surprising so many investors are apprehensive when it comes to tenanting their property?

The internet is rife with stories about bad tenants and property investors who claim they will ‘never own another investment property’ as a result of their negative tenant experience. So, how do you avoid the trap? How do you choose a suitable tenant for a property you have poured your cash into? One solution is to invest in Defence housing.

Defence Housing Australia (DHA) is one of the country’s most successful Government Business Enterprises, providing housing and related services to Defence members and their families throughout Australia. With approximately 18,500 properties under management, they are also one of the largest property managers in Australia.

With DHA’s property investment program, properties are sold to private investors and are then leased back to DHA for a specified term (typically 9-12 years). For the property investor, that means no tenanting obligations, a rental income that is backed by the Australian Government and an investment that is managed and maintained by property experts throughout the lease term. And, if that’s not enough, your tenant is a member of the Australian Defence Force.

DHA investors Mark and Sue have more than 26 years of residential property investment experience, but bad tenants and poor property management gave them a wake-up call.
 
“The tenants had trashed the place; it was a nightmare,” Mark said. “I don’t feel the agent did their job. It was very disappointing.”
 
Mark and Sue initially chose to self-manage their property because they couldn’t trust a third party. With Mark working interstate, this became increasingly difficult. Then they saw an advertisement for DHA and, after doing a bit of research, their trust was restored. They bought two DHA properties in quick succession.
 
“DHA was a great solution for us because it’s an investment we don’t have to manage daily,” Mark said. “I know that if there isn’t a tenant, it’s for them to sort out. If there is a problem, then they look after it.
 
“And that’s given us the confidence to invest in other parts of Australia,” he added. “We never would have dreamed of that before. For me, it really is a care-free investment.”
 
When you have a high profile career, like Canberra Raiders star Josh McCrone, investing in property is a way to secure his post-football career. But, with a young family and a demanding work schedule, he didn’t want an investment that took up more of his personal time.
 
“I chose DHA over other investments for the security, the biggest factor was the 12-year lease,” Josh said. “Our property would be rented unbroken for a period of 12 years and we knew that money would be coming in every month whether there was tenants in it or not. I haven’t had a drama with it. It’s perfect for us as we can invest and forget.
 
“I’m enjoying the fact that I have this property. I know it’s there but I don’t have to think about it, it’s doing its work for me.”
So what do you get when you buy a DHA property?

  • Guaranteed rent: Unlike conventional residential property investment, DHA calculates your rent from the date of settlement. In addition, with the exception of the first and last month, it pays your rent monthly in advance throughout the lease term. It’s even paid when the property isn’t occupied.
  • Long-term lease: When you buy a DHA property, the standard lease terms are 9 or 12 years. Shorter lease terms of 3 or 6 years may be offered on occasion.
  • DHA Property Care: A distinguishing feature of the lease is DHA Property Care—an extensive range of property related services including property management, market rent review, repair and maintenance and lease-end restoration.

If you’re interested in learning more about the DHA investment product and how it can dispel your tenant fears visit dha.gov.au

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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Comments
  • Charles says on 17/07/2014 11:55:22 AM

    Interested in returns exclusive of tax benefits around 4% - is that achievable?

  • Gregory says on 18/07/2014 10:21:21 AM

    Looked at this 15 years ago. Rental returns we're that great then once you factored in all the costs, but maybe worth a re-visit on the current package/offer is now.

    There are a number of tenants out there I call Land Lord killers. Where Land Lord's simply give up & sell up because of all the non-stop hassles. If the property sells to an owner occupier, rents go up as there is one less property for rent in an area. This makes Land Lord killers bad for all parties.
    The number one subject you need to quiz a new tenant on is, where are you living now. Why are you moving? If the answer is, the Land Lord is selling up, then that's a red flag as far as I'm concerned. Looking back on it, 100% of my bad tenants have all been churn's. Moving from one house to another in the same area & sometimes with the same agent.
    I've been told time from agents a couple of times. "Oh, we can't understand it, we've never had any problems from this tenant before? They've been so up to now".

  • Defence Housing Australia says on 18/07/2014 03:47:40 PM

    Charles, in response to your question, everyone’s personal circumstances are different. You would need to get in touch with your accountant or personal advisor to determine whether those 4% returns would be achievable for you. We can tell you that gross yields on the bulk of our DHA portfolio would range between 4.8% and 5.5%.

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