Busting the DHA Myths
In the world of property investment, there is plenty of speculation around what is and what isn’t a good buy.
Like all other investment opportunities, there are a number of myths surrounding DHA properties. There’s plenty of reasons to like DHA properties - they have long-term fixed leases (generally 10-12 years), with no worries about vacancies and all maintenance costs taken care of.
However, there are still a few myths about DHA properties that aren’t all that well understood.
They Are Priced Higher
There is some belief out there that DHA properties are priced higher than other comparable properties. The reality is that ultimately the market sets the price and that’s based on supply and demand in the area.
This is particularly true if you’re purchasing a mid-lease DHA property. Buying mid-lease is generally done through a private sales agent, such as Hudson Property, and the property is sold like any other.
The fact that it has a long lease term makes it an appealing proposition for ‘hand-off’ investors, but the final sale price is based on what the market is prepared to pay for it at that point in time.
If you’re worried about overpaying, but keen to look into a DHA leased property, perhaps looking at mid-lease properties is a way you can do that.
Rental Returns are Lower
While the rental returns are as secure as you can get when you purchase a DHA leased property, there is some belief that rents are lower.
In fact, as a part of the contract with DHA, rents are reviewed annually and adjusted to meet the market. They also don’t fall below where they started from, giving investors an added layer of security.
Management Fees Are High
One of the things that can put people off DHA leased properties is the fact that they charge higher property management fees.
The higher rates are to compensate for the fact the there are no vacancy periods and everything is taken care of. Comparably speaking, other property management fees might be slightly lower.
However, when you take into account other factors such as the fees associated with finding new tenants, periods of vacancy, ongoing maintenance such as lawns and gardens the costs quickly add up. This is something most investors don’t consider when looking at gross yields.
A recent study by BIS Oxford Economics estimates investors can actually save $3,913 a year investing in a DHA house. That’s simply because most investors don’t consider the hidden costs of owning an investment property. Older homes, in particular, have high ongoing costs and they are also less appealing to tenants leading to longer vacancy periods. Fortunately, this is something investors purchasing DHA-leased don’t have to worry about.
Banks Won’t Lend
In some circles, there is a belief that banks won’t lend for DHA leased properties or at the very least require investors to provide a lower LVR.
The truth is that lenders all specialise in certain areas. Some lenders don’t lend for things like construction loans. While some lenders don’t offer lo doc options.
Lending for DHA properties is exactly the same. It’s just a subset of the investment world and there will be particular lenders who understand how a DHA lease works and all the benefits that go with that.
It’s important to speak to a mortgage broker who understands DHA leased properties and they will be able to match you with the right lenders.
There is the potential to borrow up to 95% for a DHA leased property with LMI, or even up to 90% with LMI waived. So clearly there is the appetite from lenders for DHA leased properties.
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