HI Guys,
I suppose its more of the same from me. Looked at DFH and the property prices so far above market not funny. Yes you have 7-10-15 year leases but at what true cost.
Secondly I know people who live in these houses not the majority I must say but as the Defense forse is the tenant and not the staff then more dmage and less respect for the property. The Defense does not do the same checks as the local realestate agent who arent that great anyway.
As everyone else has said if I turned up to a developer with 100m guaranteed cash you bet I would get a discount. They have the tax bill to write the short to medium term losses onto.
What we do not know is the rate of interest that the bank will charge the future investors for this loan is market rates or higher/lower. What sort of fees will Westpac charge to run this so called great investment??
Cheers [withstupid]
Hi all,
Thanks to Nat R for posting the Australian news link. Here’s an interesting quote from it-
Mr McElduff said the purchase was a long-term play counting on capital appreciation, with properties bought on a gross yield of between 3 per cent and 4 per cent.
That yield dropped to “a tad over 3 per cent after the DHA reclaimed 16.5 per cent of rental income in maintenance and management fees. DHA acting managing director Michael Del Gigante said investors – including WFM – also paid a premium of about $10,000 on the purchase price of properties…….
“We are really selling a 10-year cash flow with no risk of vandalism and with the security of a government tenant,” Westpac’s Mr McElduff said…………
He said the internal rate of return for residential properties over 30 years was typically between 10 per cent and 12 per cent.
Mr Del Gigante said the DHA had taken the properties to the institutional market in August last year because demand from retail investors had slowed, in line with the residential property slowdown, and because the DHA has plans to roll out $2billion of new development in the next two years[/red].
Hey !! DHA have had a used car….. I mean….. used property sale to make room for new stock.
By my calculations WBC bought the properties at an average of almost $545000 each with half of the properties being in Sydney. I wonder if they asked for extended warranties. I hope the properties don’t drop too much in value when WBC drive them out of the showroom. [biggrin]
Todd Burns
http://www.freepropertyhelp.com.auOriginally 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.
just randomly , in ingleburn sydney near the glenfield army barrack there are a lot of army personnel properties that have escalated in value over the past few years, shows u the merit of investing in them. they were very cheap 7 years ago like $150k 3-4bd.
sorry i’ve got a shortmemory
Hi Grh,
Just about everyhting rose in value over the time frames you mentioned but not everything is as overpriced to start with and costs so much to hold as DHA property.
I think it is quite likely that an investor may have profited by $400K on a DHA property but a comparative ‘normal’ investment property probably returned $500K (when initial price and holding costs are taken into account). Anyway…. we are in a very different era now with very different rent returns compared to prices.
Todd Burns
http://www.freepropertyhelp.com.auHi all,
When considering the saying that “money follows management” I find the WPAC investment into DHA interesting.
DHA is a bureaucratic government ran organisation. Having seen the ridiculously over inflated contracts paid by DHA for simple maintenance work I would not be surprised if the majority of DHA built houses where purchased at a premium in the first place. Over inflated wholesale price means over-inflated purchase price.
A little surprised by the comments that DHA ‘provide quality housing built to above average specs’. Having experienced DHA housing for the last ten years I have observed that wherever they can penny-pinch on spec they will. An example being that at my last house DHA did not install a pergola because this is not considered ‘community standard’ and was not within spec – even after the builder offered a significant discount on the construction. Air-conditioning anywhere outside Darwin and Townsville is not considered ‘community standard’ and is therefore not installed (try living through an Adelaide summer with thought that air-conditioning is not ‘community standard’!). It could be argued that the above are not deal-breakers when purchasing an IP but I do believe that they add a certain amount of perceived value.
Paying a 16% premium for property management you would expect premium management. The cost of this management offsets the seriously inflated contract prices that DHA pay any contractor for any work. There is no vested interest in looking after the properties by the public servant property managers so why would they seek competitive quotes for repairs and maintenance. That’s why you pay double the market value for property management and a loaded premium for the property purchase.
DHA is universally derided within defence. DHA are also known as ‘Don’t Help Anyone’ because of their general lack of customer service and public service mentality. I could fill pages of this forum with DHA horror stories and I am sure that any defence member reading this would be nodding their head right now. DHA have (currently) only one customer to service and they cannot even get that right.
In stating my points I am putting aside the property purchasing side of the house within DHA; where ever DHA buy it will 9in general) eventually gain no matter how over-inflated the price.
The point I am making is that as an organisation I would not invest one brass penny into DHA; which makes the $100M investment by WPAC even more interesting.
Money follows management? Not in this case.
Hi everybody.
Wondering if anybody can offer any help. Last year I was caught with an put and call option agreement gone wrong on a block of land. I decided instead of letting the land sit idle I was best to put a house on it. I decided to build the exact house that DHA build with the view to a possible quick sale. I am the low income earner in my family so I decide to put it all in my name only with the view to sell it once the building was completed. House and Land style sale. I was in direct contact with DHA, they wanted to buy it, then didn’t. This went on for a few months. I was also caught with another block of land that I needed to settle on before the end of the year, so decided to put my primary residence up for sale. I put a fairly high price on it privately and sold the house within 6 weeks. Then I decided to not persist with DHA as they were trying to get my property I was building at a bargin price and I was unwilling to sell it for a loss. I am now living in the property I built for DHA. I am now also building another house for my family. My question is should I sell the DHA style home after my other house is completed or should I hang onto it as my town is growing fast and is predicted to have a high growth over the next few years. The house would not be a good tax benefit as I am the low income earner. ThanksHi Carina,
I know you said that you are a low income earner but do you still pay tax and if so, do you get ALL of your tax back ? If you don’t get all of you tax back there is still room for deductions.
Todd Burns
http://www.freepropertyhelp.com.auI have a friend who has a Defence force house and he is thrilled with the setup.
Doesn’t stack up to me. When I crunch the numbers he appears to be bleeding from the hip.asabove
asabove
Is this discussion about Westpac buying DHA properties or individuals buying properties? Furthermore, if property investing was a one size fits all, then why is this discussion occuring.
I would like to reiterate my personal experiences with two DHA deals, in that both occasions I did the numbers and both occasions did come out -ve geared, however i am not bleeding or being crushed by impossible loan repayments. Instead I found 2 deals that worked out , with maximum 80% LVR, and got my portfolio off the ground.
Why did I choose DHA, because I am not an Investment master, nor do I have the time to run around for the ideal property to appear and then find a worthy realestate agent and then for maintenance payments not to mention vacanies. The fact that all I had to do was buy the property then sit in faith that every month, my balance of the rent was depositied into my account had me sold.
As far as properties prices go, I had independant valuations on both occasions which confirmed the price as market. If properties are grossly overpriced, how are banks approving loans with std LVRs?
I found DHA staff very easy to work with and communicate well. I am sorry to hear others have had much hardship with their DHA contact. I put the high mgmt fee down to opportunity cost.
My company recently held the cleaning contract for defence homes and during this process I found out: management fees are 8%, homes are kept for 10 years then handed back after a full refurishment at no cost to the owner. Rentals are above the market average. I think this is potentially a good 10 year investment for around $300K investment.[grad]
P. Jewell
i am an investor in a DHA proprty in regional NSW. bought it last year with only 9months left on lease`(dha have an option to renew for up to one year which they exercised)
-The difficulty in on-selling is good for the investor buying it
-16.5% management fee is fair if you factor in- say 3 weeks vacancy per year, rent paid on time etc
-Yields only average but rent is set by a qualified valuer each year (it cannot go down -recent development not for old purchasers)
-If you delve into it you are pleasantly surprised eg say you dont need/want perfectly good carpet replaced can take thje cash equivalent
Garden is attended to, thorough clean etc
I would cost this at say $10,000 -so buying near end of lease can suit. Plus property is a longterm investment so if it is locked up for a year does it matter
[biggrin]Originally posted by philj:My company recently held the cleaning contract for defence homes and during this process I found out: management fees are 8%, homes are kept for 10 years then handed back after a full refurishment at no cost to the owner. Rentals are above the market average. I think this is potentially a good 10 year investment for around $300K investment.[grad]
P. Jewell
This is not the information that DHA provides. Leases are 6 or 9 years and management fees much higher in reality?
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
I have townhouse in Brisbane leased by DHA for last 9 years. Last “Independent “market rent evaluation came at $270 p/w, other townhouses in the same complex are rented for $310. It would cost me $350 to object to their rent valuation. This was going on each year, valuer never included townhouses in this complex in his/her evaluation. I am very happy that lease expires next month. I hope that Westpack will get better return than I got: undervalued rent and 16.5% management fee….Iam looking forward to take my chances on open rent market.
Originally posted by penguinchick:I have townhouse in Brisbane leased by DHA for last 9 years. Last “Independent “market rent evaluation came at $270 p/w, other townhouses in the same complex are rented for $310. It would cost me $350 to object to their rent valuation. This was going on each year, valuer never included townhouses in this complex in his/her evaluation. I am very happy that lease expires next month. I hope that Westpack will get better return than I got: undervalued rent and 16.5% management fee….Iam looking forward to take my chances on open rent market.
This is a common complaint – DHA are slow to adjust rents upwards.
This is why I don’t believe this a great investment for sophisticated investors.
But I do stand by my thoughts that this might suit a person wanting a hands off property investment.
Great post mate
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Can see anything in the replies on this subject so far other than negative sentiment.
It would seem to me that Westpac would have no real interest in the actual properties themselves (unlike direct investors who do) and would focus solely on lending to buy in to the REIT plus earning managment fees to bolster their shareholder returns.
I did an analysis on a single dha property only recently using the steve mcknight financial analysis template and the news was all bad for +CF investors. I then took those numbers and then ran them thru a 10 year IRR model using 2.5% annual growth in income and expense plus 7% capital growth.
This resulted in an ungeared IRR of 9.02%; before tax geared IRR of 13% and after tax geared IRR of 16% at eh end of the 10 yr investment period. However at no time throughout the 10 year investment period did the property return +CF so the IRR was based solely on the capital growth aspects of the property!
This will be one investment I wont look at any further!
Collier international property securities are paying 46.81% 11-4-06 this is a far better return on your money and even better when you margin loan them with commsec at 70% LVR paying 7.9% interest and 1.85% management fee. I am doing very nicely thanks. Cacy
Westpac will have bought this pool of houses to release the REIT. They will make their money by charging about 1% to 3% of the value (not the income) each year as a management fee to administer the trust.
The buyers of this trust may include super funds and clients of financial planners trying to earn a commision by finally having a product that is exposed to the residential property market.
I beleive it will be a poor investment, unless the depreciation and other running costs are able to flow through to the investor. This might make it have some sort of low return (about 5%) but may have an even lower taxable income. (say 2-3%) Might actually be a good investment as a buffer against high volatility, higher return stocks in a portfolio.
Hi All
I looked at DHA after seeing them advertise on the TV and am receiving their emails as new properties come up.
I was somewhat shocked by the 16.5% management fee and queried it.
Unfortunately I deleted the response which was along the lines of…..
quality tenants, guaranteed rent, funds go into a pool for your property and we fix up the property whenever anything goes wrong so no bills come to you.
Lets say for example the amount put aside was $2k per year for repairs, and they only had to do $500 worth, then they pocket an extra $1500.
I decided that this was not the right type of investment for me and have looked elsewhere.
Cheers
Seth
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