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Rental guarantees… too good to be true?

By DHA

Promoted by DHA

Investment gurus and sales managers tout the perks of investing. After all, you can’t sell your product without highlighting its perks. But what if investors are sceptical of these benefits?

What if they look and think “This is too good to be true”? This is a problem that DHA regularly faces.

For some time DHA has highlighted its rental guarantee as a top reason for investing. And while it’s true that rental guarantees aren’t unique to DHA, it’s the structure and conditions of DHA’s rental guarantee that are1.  Here, DHA’s Director of Investor Sales, Chris Perry, explains what sets DHA’s rental guarantee apart from the others.

‘Without fail one of the first thing new investors ask about is our rental guarantee. Often they’ve read about it or have been told about it, and they want to know what the catch is. But honestly there isn’t one. Our rental guarantee means for the length of the lease investors can take comfort knowing they’ll receive rent even if the property is vacant.’

‘While other developers may offer rental guarantees, you’ll have a hard time finding one like DHA that will offer a long-term rental guarantee of six to 12 years,’ Chris said.

Unlike others on offer, DHA do not fix the weekly rent for the lease period. Instead the rent on DHA properties is adjusted annually in line with a market valuation. DHA also offers a rental floor meaning the rent will never fall below the commencing rent2.

‘Each year we engage independent licensed valuers to assess each property’s rent and adjust it to either market rent or commencing rent, whichever is higher. This allows our investors to budget easily knowing the minimum rent they’ll receive each month,’ Chris said.

So how is it DHA can offer investors this level of security?

‘In my role I’ve had to debunk my fair share of myths around DHA’s investment product. We don’t price our properties at a premium to cover the rental guarantee, nor do we pay below market rent. Our agreement allows for investors to seek their own valuation if they disagree with the market valuation, we’re not hiding anything,’ Chris said.

Digging a little deeper into the DHA story you’ll find that the catch is not really a catch at all. DHA are able to offer these lease conditions because of the long-term agreement they have in place with the Department of Defence to house members of the Australian Defence Force and their families.

‘It’s a unique arrangement that was put in place over twenty years ago to improve the quality of housing provided to Defence force members—and it benefits investors too,’ Chris said.

Dispelling the myths around the DHA offering is one of the first conversations that Chris says his team has with potential investors.

‘In today’s market, property investors are sceptical about anything that seems to be too good to be true and frankly I don’t blame them,’ Chris said.

‘Property investment is not an easy choice and it can be risky. So when they hear that with a DHA investment property you get guaranteed rent, as well as a long-term lease which is passive for the term of the lease, I’m not surprised they question its validity.’

One of the more common myths around the DHA investment option is that the management fee, which covers the DHA Property Care, is too high (16.5% for freestanding houses, 13% for properties with a body corporate).

‘DHA’s service fee comes with a range of benefits that are commonly overlooked, or not compared adequately with the real costs of holding a traditional real estate investment,’ Chris explains.

‘All the day-to-day aspects of managing your investment are taken care of, including coordinating and paying for most non-structural repairs and maintenance. Plus, once the lease ends, DHA, in most instances, will restore the property with fresh paint and new carpets.’

BIS Shrapnel published a report comparing DHA’s service fee with the cost of traditional residential investment. It found that DHA investors could be paying around 15% less than those with traditional property investments3, who also risk losing income due to vacancies—something DHA owners are guaranteed against.

So how do you sort the fact from the fiction?

‘Ask us the question,’ Chris said. ‘Ask one of our sales consultants to explain how our investment product works, we’re more than happy to explain it. Arm yourself with as much information as you can, then get some expert advice.’

Learn more about investing with DHA.

Attention: All information contained in this article is for general information only and prospective investors should seek independent advice. Investment is subject to DHA’s lease terms and conditions of sale. Investors retain some responsibilities and risks, i.e. rent, restoration and market fluctuations. See dha.gov.au/lookforward for relevant information. 1. Rent is subject to abatement in limited circumstances. 2. Rental floor applies to DHA properties leased under DHA’s Lease Edition 6C, which will not cover all DHA properties. 3. 15% saving is based on a 2014 independent report comparing DHA’s service fee of 16.5% of rent with the proportion of rent spent on all costs associated with traditionally managed residential investments. Comparison is based on medium cost scenario for a property renting for $450 per week.

 

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1185 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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