Forum Replies Created
Thanks to all of those that posted a reply. I suppose the answer is pretty straightforward. If you do participate in a mortgagee sale, you may be helping out the original owner; there is no way of knowing. There’s a fair chance that you are buying at round (and maybe slightly under) market value; only your research and local knowledge will tell. If you try to screw down the deal any further, there’s a very good change that the person getting screwed is the one who needs it the least.
Originally posted by francisl:Finally, it would be much appreciated if anyone can suggest how to make DHA investment CF positive.
Hi Francis,
CF Positive meaning your income is greater than your expenses? Ensure that your deposit is high enough to ensure that your loan repayments and other expenses are covered by your rent. This means however that your ‘cash on cash’ return is low and that you aren’t applying enough leverage.
Stu.
Hi Steve,
I haven’t read all of the responses yet, but can offer the following in regards to your queries.
Do you think Defence Force housing sounds like a good idea? Have you ever owned a defence force house, and if so, what
has been your experience?
I thought the investment sounded good in 2000 when I first invested through DHA. At the time, I could purchase the property with no money down, and attract a 6%+ gross yield. This was my first real estate investment, and with a 9 year lease with no vacancies, this sounded great. It wasn’t bad as a first investment, but with the low risk, there comes a lower return. The property was purchased ‘at market’, but I was lucky enough to enter the market cycle on an upswing, and have some capital gains / equity to work with. Rents have increased and interest rates decreased, so the yield on the original purchase price has improved to a cashflow positive deal. I got lucky on that one!DHA do charge high maintenance fees on the rental (around 15%), which is about double the normal agent’s fee, but the property will be recarpeted and repainted (inside and out) at the end of the lease at their expense (which has a another 3 year option). General wear and tear is paid for, and you generally have reliable, tidy and disciplined tenants. Overall, an OK, ‘set and forget’ investment. Maybe one to start the portfolio with if the numbers make sense.
NB – DHA seem to have a number of properties in the same area, so they may all come onto the market at roughly the same time and could create an over supply. You can sell the property at any time to anyone (not just DHA) as long as the lease remains intact.
What about the merits of Real Estate Investment Trusts?
I suppose like any unit trust, you don’t have control over the asset and you are paying for someone to manage it. A trust allows you access to real estate at a proportion of the upfront costs, but the portfolio is restricted to one asset class and subject to the risk of a single target ‘industry’; if the Government decides to cut defence personnel, there could be quite a few properties becoming vacant at once.I’m not sure how these would be any better than listed investment companies that at least diversify across difference types of properties / locations.
If a bank is going into this area, it is to make money for themselves / their shareholders. Some of that money will come from ‘the product’; the rest will come from the punters!
Stu.
