- Originally posted by KERNAGHAN:
Are Westpac useing this tactic to try to get a leg in on Defence Loans for housing which are currently done in part by National Bank?
No
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi all
interesting move by the bank to invest here and I agree that the rental returns aren’t enough alone to drive this move.
I own a DHA property myself, have done for a couple of years now and have owned a DHA property in the past also.
To clear up the missconception of saleability; you do own the property outright and have the right to sell to whomever you may but you must sell it with the lease to DHA in tact and if there is an option for extending the lease built into the contract then DHA have the say on whether they will take this option up or not… not you; therefore the term of the lease may be longer than you think.i suppose the real trick is, as always, to invest wisely in areas where there is good growth. Townsville has been my target since getting into bed with DHA and the properties have grown very well; 15% last year alone.
I also never buy properties direct from DHA but buy on the open market [ DHA premium load the property price based on the guarantee of continuous income ] saving 5 -10% on purchase price. Simply look into who is building for DHA and buy from them direct, you often get a home with superior specs and built to the satisfaction of DHA ( they have many requirements )
The 16.5% comission does seem high but consider that at the end of a 9 year lease DHA will paint the proprty inside and out, and fully re-carpet it at not cost to you. This combined with no outgoings for repairs / maintenance for 9yrs is I think a good deal.
And finally, I agree that the sale of these properties with a lease attached does limit the achievable price but the trick is not to sell prior the lease expiring.
Steven Thompson
I think Westpac could be jumping on the Macquarie & B&B bandwagon:
– buy up something which earns income at a good price (negotiate
hard). Toll roads, commercial property, whatever.
– ‘sell’ them into a trust.
– flog units in the trust to the superfunds – earn income from sales.
– finally, earn ongoing management fees fees fees for as long as
the trust is alive.Super funds are just going to keep raking in the money. What if the superannuation minimum goes up to say 12 – 15 % ? Where are they going to put all that money ?
Explains why shares keep doing well ….
High DHA fees + Westpac management fees adds up to a pretty ordinary investment to me.
Just my 2 bobs worth ….Paul.
‘The main thing is to keep the Main Thing, the main thing’
Dear All,
I am only a beginner in investment. Hope my opinions doesn’t sound too stupid.
There are a few things I found interesting from this news:
1. Westpac is crossing boundary into their loan client’s area. Does it mean that there is a new trend for banks? Or they are running short of profit sources?
2. I have checked DHA previously. However, their properties are overpriced and costs are far too high. It would be very difficult to become CF positive. How can Westpac fund attract investors if their investing assets produce negative return? Unless they believe investors have become mad on properties. If this is the case, is this a dangerous signal that the market is heavily overheat?
3. Westpac obtains this portfolio differently from individual investors. They buy in a portfolio that worth $10m. They may buy cheaper (average on each property) than most of us buy directly from DHA. If this is the case, that shows the bargaining power of large corporation.
Finally, it would be much appreciated if anyone can suggest how to make DHA investment CF positive.
Regards,
FrancisHi Guys, well this is right up my alley but what a bunch of misinformed people there are on this forum.
I work for Westpac so I cant say too much or I might get a phone call tomorrow morning asking me to clean out my things!
Westpac purchases and currently owns a large property portfolio, they are always on the lookout for new and exciting purchases to add to the portfolio, so assuming this is their first or largest buy up would be nieve.
You can not purchase Westpac head office becuase they own it…
To assume that Westpac is going to lend money to purchase this would also be nieve – if you buy a $100K property with cash only, would the property be cashflow positive? as long as you get a tenant and its in a reasonable area (with no *problems* needing *solutions*) you could do quite well out of that… now think about that property being worth $100,000,000!!!
Banks put property in unit trusts and have done for years – it does not mean it will only be property in that trust (also domestic shares/cash/international shares etc) Not all unit trusts run by banks are branded as being owned by that bank…
A 6% growth for business cash management investments is a nice return considering the cash rate is 5.5% and at the moment FRN’s arent getting much better.
If you borrowed $100,000,000 from the bank you would not get lunch with the board of directors, but as a consolation you might get lunch with me [biggrin] and beleive me thats far more important.
Defense housing is not too bad to get into if you are into capital gains only, which of course is not going to sit well in most of this forum’s portfolios because generally we are after different things, but my Parents have done well out of their DHA properties previously.
Each to their own I guess, the Westpac property portfolio is nothing like most of ours (if I had $100,000,000 I would not still be working for a bank) so of course their decisions will not be based on the same principles. I’m sure the bank will do well with this purchase, and if not they will get rid of it as soon as they have to. The people who make these decisions are very well informed so they would have worked this deal inside out before going for it.
Plus I work for “The Pac” and who else but me would actually stand up for a bank in this forum????????????
We currently own an 18 month old house in Perth and have just applied to DHA for them to take a lease over the property. We are currently paying 15% commission with our real estate agent which we were told by various agents, is the average WA commission, so paying DHA 16% (or whatever it is) is not a concern especially when maintenance issues are covered in that commission.
During the time of the lease DHA recarpet and repaint when necessary and at the end of the lease they repaint inside and out as well.
My husband has been in the Army for 22+ years and we relocate every 2 years so we deal with DHA all of the time. The houses they provide for defence members are of a high standard and maintenance is normally carried out promptly and efficiently.
Defence members pay a subsidised rent to DHA and DHA pays the investor the “market value” rent and carries out property valuations etc to establish this rental value.
I think for the long term investor looking for capital growth, DHA is something worth looking at.
N Tyson
Anyone thought about this possibility?
Reasons people don’t invest in property: requires a large amount of money, can’t get out of it quickly, everyone else’s horror tenant stories.
Reasons people don’t invest in shares: perceived to be riskier, have to continually monitor, not willing to borrow for ‘riskier’ investment, can’t borrow over 50% (I’m no expert here, just some common perceptions?).Now if you were to offer higher LVRs (80%) for investment in “safe as houses” residential property, that people can feel comfortable about borrowing for, but you don’t have to deal with too many 000s, you can get out of tomorrow, and have model tenants, plus you can save tax which “everyone knows” is A Good Thing….?? [baaa]
I smell a niche marketing opportunity…. [rambo2]
Great thread!
Lots of interesting comments.
The ex neighbour owned a DHA house and has since sold it for a small profit. I remember when he was debating whether to buy or not, he managed to talk himself into it and ‘justify’ the purchase. I recently met up with him and quizzed him about the DHA investment to confirm some of the terms and conditions of the lease, all of which have been mentioned in this thread.
The conclusion I came to is that there ARE passive investors out there who are still working to the neg geared stategy utilising the benefits of tax breaks, depreciation, etc, etc. These types of property are perfect for this type of investor.
The same applies to GEHA and DHW properties in WA. Average yields, and top prices, but they still sell like hot cakes ! Mostly they are also new so this adds to the appeal from a maintenance point of view.In fact we are ourselves packaging up some houses for a corporate mining company tenant on the basis of a 10 year lease, and the tenant is offering to include some incentives such as the refurb/renovate at the end of the lease. We were requested to factor some of these incentives into the equation in working out the rental amount.
The impression I get from this thread is that most of the investors here are more proactive and experienced, hence the DHA equation is too passive and therefore not attractive for them, but there are lots and lots of passive and inexperienced investors out there who can’t get enough of this stuff.
As far as Westpac are concerned, they are not stupid, and you can bet that they will make a return on the investment.
With regard to DHA ??? Smart move…run the housing department like a commerical business and make a commercial return.
kp
Hello,
I bought a DHA property at Holsworthy 3 years ago at, or near, the peak of the Sydney housing boom. Since then the peak has continued up for me. The house is now worth 120K more than what I bought it for (320K-440K). -vely geared at $8,000 per year. Ouch that hurts!!
But I didn’t know any better. I don’t have a penny of my own money in it. So I haven’t done too badly.
We had one interesting episode with the property. It was a real beauty!
One night there was a bad storm and the sewrage built up backwards in the pipes. So much so, that it literally EXPLODED inside the house. It went through 5 rooms! Ceilings, walls, floors, and tenants!! All were covered in the brown stuff! Everything had to be replaced. Kitchen, carpets, walls….u name it.
What did it cost me? One phone call 2 days after they told me.
I rang them up to ask them how things were!
Everthing was done for me, including getting my Insurance costs back from the Water Board!
I bought it for that reason. I am no landlord. It was a way to get in to property for me.
Having since read Steve’s books and listened to his tapes, I realise that there are other “DHA” property managers out there, in the form of some RE agents. I didn’t know that before.
And the -ve gearing does hurt a lot.
But DHA have been the perfect property managers in my books.
HTH,
JBDHA is a balance of risk and return – low risk and low return. But then – no maintenance, prompt payment, a good tenant and a long term lease – but is it worth the double digit management fee?
Steves point about Superfunds is a good one. No real harm having a small exposure to this in a well balanced super fund.
Westpac has obviously seen an opportunity that fits with their goals and they have made a decision and taken action.
Of course there is risk associated with any venture, and time will be the judge of this latest move, but I’m sure Westpac will have all bases covered.
The opportunity to buy such a large property porfolio in the one deal at what can only be assumed as a fair price to them (hey I’d back the Westpac negotiators over the Government’s any day), would have been an attractive proposition.
Now we will have to wait and see how they monetise this latest move into the property market….but if this is a sign of things to come, will the CBA, NAB, etc be making similiar moves in the not too distant future?
Peter Perdikos
Video Email – The new & improved way to communicate
http://www.getworldpassport.com/petersHi Steve
I currently own a DHA house located at Little Bay a suburb of Sydney Eastern suburbs. This was a $500k + property purchase and yes it is negative geared in fact all their properties are. Purchasing DHA would suit the passive investor as there is nothing to do but top up the mortgage each month and pay the rates. It has been a fantastic investment but the question to ask prior to purchasing DHA is will the capital growth exceed the outgoings to put you in front $$$$Cheers
Damodjb
Westpac have decided their is a market for listed REITs in Australia. If they turn out to be right, an instant retirement strategy appears for those with very large portfolios. Perhaps if Steve gets bored with showing the rest of the country how it’s done, he might give Westpac a call. After all, if we positive property proponents buy property at a 10% yield and Westpac are happy with 6…
Steve, I’ve often looked at what ADF were offering but considered the whole thing too expensive. I was looking for something which was more closely positively geared and would pay for itself or nearly so.
When I saw the news about Westpac, the first question I asked myself was what price did they pay for it to be worthwhile as an investment proposition. Must have been a lot better than most of us were being offered. Seems to me that ADF just could’nt offload these houses onto the investment market to one-off buyers simply because the returns were not there. I say to Westpac, “Good luck” Im sure they know what they’re doing.[hope so]. I guess $100M speaks a different language?hi all
couple of things tat after talking to my guys may be another reason that west pac is in volved and its only hypo so don’t read anything into it.
before I mention I would like to say that a board like this is there to inform and dohicky there may be lot (“what a bunch of misinformed people there are on this forum”). people that need to learn and the only way to do that is for the people that understand or now explain it without sending the people that don’t running to a corner and not posting again people like me are very fagile.
but I digress.
the other possiblity is westpac is doing it as 90% lend 15 years to the dha its just they are taking the ownership position.
they give no doc loans so this is a 90% no doc the dha sign long long term and they lend to them selves if this is the case it would show up on there domestic lending ledger and would see a lump
so in essence you would be no doc to yourself.unusual no, done all the time you lend from the back and lend back to your company same as novative leasing.
return isn’t great but neither is lending to mrs smith on the corner.
the deal could have some buy back in it also haven’t seen the contract so hypo.
it is unusal if this is the case that there was such alot of media as its run of the mill lending.does the same media get coverage when a 2000 unit sub division in sydney is a approved and the developer says he’ll give vendor finance for the land whats the difference here if this is the case.
remember banks have a big problem and that is they must lend and if westpac got a discount and they would have on this 100 mil and that discount is around 10 to 15% off retail then no doc is no problem.
my.002here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Hi All,
I think a few of you have hit the nail on the head as far as Westpac is concerned. The rate of return is based on what is paid for the property in the first place and I think Westpac probably got a BIG discount so obviously there return on investment would be higher.
DHA have been trying all sort of free stamp duty offers and similar marketing ploys to offload stock for quite while. I guess whatever Westpac paid was low enough for Westpac and economic enough for the DHA because they were able to do such a high volume offload at once.
It’s all making a bit more sense to me now.
There seems to be two seperate threads in one here. Those talking about private purchase of DHA properties and those talking about the Westpac REIT involving the DHA. The discussion is jumping around a fair bit. [confused2].
BTW> DHA use to offer much better returns on investment but I think they are much less viable these days for the private purchaser.
Todd Burns
http://www.freepropertyhelp.com.auOriginally posted by dohicky:Hi Guys,
You can not purchase Westpac head office becuase they own it…IIRC your head office (Our Great Place) is in fact owned by a property trust and not by Westpac itself …and therefore people can buy it….or at least units in the trust.
Thought so:
http://www.theaustralian.news.com.au/common/story_page/0,5744,18073906%255E25658,00.htmlI think you all give Westpac far too much credit for being smart…….don’t forget that they were mere days away from going broke in the late 80’s.
As for their negotiation skills….don’t kid yourself…anyone smart left the big 4 bansk years ago to either join Macquarie / Allco or Babcock and Brown….other than a few excecptions the people left within the commercial banks are there because they can’t get a job elsewhere.
You also have to look at the way in which they are paid…..there is no monetary incentive for them to really push hard on a deal, only the risk of being fired if it goes wrong…..net outcome “middle of the fairway” deals that will never set the world on fire.
Where do my views come from???? ….18 years of dealing with these guys.
My husband and I bought a dha investment property 5 1/2yerars ago nad we are very happy with our choice. It’s really worry free and we never had any problems. Our rent is always in the bank on the 1st day of the month and there are no worries at all. Our rent went up every year and we are quite pleased with the outcome.
Monica
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.
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