Hi all. Just wondering, do banks like DHA properties as an IP? Long, guaranteed rent for the life of lease. I am assuming this will greatly help with servicing too? Any pros and cons with this type of properties? Cheers.
Our First IP is DHA property. Nothing against it. Banks dont care what you buy as long as you pass their criteria. Downside of DHA property is if you want to sell Mid - lease you are limited with Buyer's that are also willing to tie themselves with the Lease agreement. Another downside is most DHA properties are located in an area where its not always great in terms of Capital Growth, they usually are near the Military Base which is CG Poor most of the time. If you can afford the expensive ones where the location is great, Go for it but I wouldnt be buying anything just because ' guaranteed rent '
I think it can adversely affect them in regards to needing to sell the property in the event of foreclosure as it limits the buying pool. Brokers would have a better idea.
============================= In my experience, a DHA property like any investment can potentially be very rewarding and lucrative. But it is not without risks and requires effort and know-how to get the most out of it. I've been investing in property since the 90's and have personally put money into a number of DHA properties in the past and currently still own one in my portfolio. Since owning it I've increased the yield on it by over 18% per annum. If that sounds interesting, I am able to offer coaching to DHA investors on how to get the most out of your investment. Message me for more information. Cheers, Frank
DHA is well regarded. Its doesnt tend to produce concerns or major benefits either. One issue can be the property is tied to DHA and its use. eg It locks it in as a investment property and the contract period is lengthy. DHA properties are typically costly and the yield isnt terrific and the makegood clauses sound good but after XX years they can also ditch the property and hand it back.Many are in areas that are tied to bases. That said, not all DHA property is used by ADF members. One positive is MOST ADF members are pretty stable people and may be less inclined to be a tenant concern. It harms their role.
Better off parking your $ elsewhere. Typically DHA are in area's which arent the most ideal areas for Capital Growth. High Manangement fees + locked in mid / long term leases are a deal breaker for many aswell. Guarenteed rent not as important in current market conditions where vacancy rates are extremely low across the board.
The property management fees are like 12+%, so 18% yield would make it the best RESI IP option out there.
Property liquidity on sale is a key reason some lenders arent keen. Some others also throw in lower LVRs. IMO selling DHA can be like timeshares. Probably not quite that bad but you know what I mean....Its specific use property and contractually tied up. You can break it but it costs. And sometimes DHA can walk away too. Usually building age triggers it. Without warning. Its like a road widening. I had them dump a client and the rent fell substantially on relet. They got the make-good but so did all others in the block. All were vacated and yes all got rent under guarantee. Repaint, new flooring etc.... ALL units were all the same budget makeover didnt help I often consider DHA as for the safe investor who has zero idea. Their seminars are a bit spruikerish. But the buyers keep buying. Look now maybe a handful in the country are free. They go to it for safety and give up a bit. They like its well managed and see a guarantee as safety when it may be irrelevant. Its a bit of sales job. I usually warn people about new builds with guarantees. I have always wondered why public housing departments dont sell off property this way. Possibly cause they like to keep old property so it recoups use over 4-5 decades where any other owner wouldnt keep it. It seems only a new trend to sell off old public housing to developers and reinvest the cash into better newer builds. And public partnerships eg NRAS and new schemes..But in areas that are way out west, long term tenants arent always happy to be told they are going from Sydney harbour views or inner city integrated housing to Marsden Park or Penrith. They get more choice than your avg public housing tenant but its still limited.
Trying to refinance a PPOR recently and St George/Westpac were unable to process the re-fi because an IP of mine is with DHA. The reasoning was absolutely ridiculous and simply came down to what I can only describe as 'Computer says no'. The broker from St G/Westpac I worked with was OK, seemed to understand why I was frustrated, but said the policy team wouldn't budge. Here's an excerpt from an email with the St G/Westpace broker: ---- As standard and to verify the rental income with a statement, the credit narrative must include which property it is related to. The statements you have sent make sense as to what the payments are for, but does not comply with policy. I’ve gone back and forth with our credit team mitigating and providing the other supporting docs you have sent, but they are not accepting. The only supporting document in addition to this we can use to verify this rental income is a executed lease agreement (you have sent one, but a blank copy. And not sure if you had an executed copy?) *We would usually leave this rental income out if we run into these issues, but are needing this for servicing. ------- For those who know how DHA works, DHA stay on the title of the property while they have a lease in play. If you did a title search on this property you would find my name, DHA's name, and my current bank's name. So this property in WA was purchased by a previous owner circa 2012. I purchased the property in 2021. I didn't sign a new lease with DHA as I simply took over the lease they had in place (That expires soon). I provided ownership paperwork that included: 1. Original lease showing DHA will lease the property until November 2023 with a 3 year extension option for DHA. 2. Annual and monthly DHA statements showing I am listed as the owner and the rental income. 3. January 2022 rental appraisal showing the rent that DHA will pay (backed up by above statements) 4. Suncorp have the title of the property in my name, hence the refinance. This wasn't enough for St George/Westpac. It was quite infuriating as the irony is DHA is one of, if not the, tightest rental lease you can get.
The challenge for some lenders is the solid long term leases. Means the resale market for these properties is investor only, hence a limited market if the loan goes bad Having said that STG policy for DHA income is to take 85 % of gross rent minus actual expenses aside from the 15 % management fee, and the monthly statement in your name should be fine, especially where backed by Bank Statements. ta rolf
I hear you Rolf, it wasn't that they only accepted 85% gross, they refused to accept the rental income at all due to the wording DHA use when they put $ in my account each month. Because it doesn't have the property address in the blurb. Quite frustrating when you think about how petty that part is. On the lease side, DHA have a unique way of doing things by staying on the lease, but the original lease + fact I can easily prove I now have ownership I assumed would be enough. To put this in even more context, second IP I have is month-to-month with a tenant that pays below market rent, could leave with 6 weeks notice at any time. However, because he puts the home address in his fortnightly payment to me, St George accept that as rental income. Heaven forbid he just xfered me $ which said 'rent', but not the house address! If they refused due to the length of the lease or difficulty selling a DHA home if I had to foreclose the loan, I would understand. This is more of a dig on St George/Westpac than DHA, but a consideration for DHA investors is that because they are rare, some banks struggle to comprehend how they work.
