Should I Invest with Defence Housing Australia?

Should I Invest with Defence Housing Australia?
Hey guys, Daimien here again.
Today’s topic… I’ve had a question about Defence Housing Authority.
Should you buy an investment property through Defence Housing Authority?
Short answer: no!
Here’s the reason why…
Look, first of all, what are the positives about Defence Housing Authority? They actually offer pretty conservative, safe investment, and in some ways, it’s actually quite good. They will provide you with a new house and they’ll lease it back for six or nine years and guarantee the rent every week for that time. So, from that perspective, it’s really, really good. And also, when they hand it back to you at the end, they will carpet it and repaint the whole house for you. So, that’s quite appealing.
However, here’s what they won’t tell you.
First thing they won’t tell you is that their management fee to manage that property for you is 16% of your rent. Now, the market standard is about 8% plus GST. So, you’re paying double management fees. So, that guaranteed rent and that painting and carpeting at the end, you’re actually paying for it indirectly by paying your 16% management fee anyway. But rather than pay those carpet and repaint later, you’ve got to pay it up front now.
What that does is on your assess ability with the bank, it actually cuts down on your borrowing capacity and makes it harder for you to borrow money and harder for you to keep growing your portfolio.
So the 16% - something to watch out for.
The other thing that they do, is they fix the rent. They fix the rent and they index it at their own. It’s their decision how it goes up each year. Whereas, you’re not in the free market. In the free market, you can do quite well. When the property market booms, the rents usually boom as well. And you can capitalise on that, but not if you’re with DHA, because they will fix your rent and they will decide what increment it goes up by.
So, two heavy limitations about DHA.
But the number one reason why you shouldn’t go with DHA is because the entire reason we invest in property is to get capital growth. That’s where the big money is. That’s where you make your hundreds of thousands of dollars that are going to secure your future and the future of your children.
Now, the first decision you must make when buying an investment property is where is that property going to be? What’s the one place in the country you’ve got the best chance of getting that capital growth sooner, rather than later.
The problem when you go to DHA is that’s not even a consideration. That consideration is the last thing on their list, because they want the property where they need the property will be to provide housing for defence force members, which is where the major military bases are.
Right now, Darwin and Townsville, for example, are not very good markets to invest in, but DHA would probably steer you there because they need housing stock in that area.

So, in short, should you invest with DHA? I think whilst it’s a very good proposition in many ways, it’s missing out on the number one reason why you’re investing in property, which is to make money. You’re not going to get the capital growth that you expect to make.
Second of all, 16% management fee.
And third of all, they are going to lock in the incremental increase in your rent.
They decide what it is, not you, so you can potentially miss out on a whole heap of dough. So I don’t recommend it.

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