The Value of Secure Tenants During COVID-19

On the back of the unprecedented COVID-19 social distancing measures that have ground many parts of the economy to a halt, the tenant-landlord relationship has been thrust into the spotlight.

With many workers from a range of industries losing their jobs or at best seeing a sharp reduction in their income, the ability of these tenants to pay their rent on a weekly basis has been a big issue for both state and federal governments.

We’ve already seen changes to rental laws that prevent tenants from being evicted, even if they can’t pay the rent. While it’s important to make sure that we all work together to get through this crisis, there are many landlords who are equally being put in a difficult situation.

We are also seeing the same sorts of issues for landlords play out with a surge in rental listings across Australia. As tourism and hospitality grind to a halt in many prime locations, listings have surged as properties that have previously been short-term holiday accommodation through platforms such as Airbnb, are being thrust back into the rental pool. While many homes that were slated to be sold are being held back and rented out as owners bide their time.

According to Domain, rental listings have jumped by 12 and 15 per cent compared to this time last year, with some tourist destinations such as Hobart seeing rental listings increase by more than 41 per cent in 2020 alone.

With listings surging and prices likely to fall in those areas as a result, it proves just how valuable a long-term, stable tenant truly is.

The Benefits of Investing in DHA leased Homes

At Hudson Property, one of our focuses is on investment properties that are leased to Defence Housing Australia.

What this means is, after you buy the property, it’s rented to Defence Housing Australia on behalf of the Australian Defence Force to house military personnel and their families.

For the most part, the process is very similar to owning a regular investment property, but there are some key benefits to investing in DHA leased homes. These benefits are becoming even more evident during the current COVID-19 crisis.

DHA leased housing is leased in such a way that you will not be financially disadvantaged by vacancies. DHA will pay you the rent every week, regardless of whether or not there is someone in the property.

For many other investors, there can be weeks or even months between tenants, which not only means lost income but also a reduced yield compared to what it might first appear. For owners of DHA leased properties, with a yield typically above 4% and some as high as 6.5%, you won’t be seeing a reduction because of weeks of lost rent between tenants.

At the same time, DHA properties come with a long-term lease, generally nine to 12 years. At Hudson Property we offer DHA mid-lease sales, which means you are buying at some point during a current lease. This means you’ll have the long-term security of knowing exactly where your income will be coming from.

Investors will also generally receive a minimum rental guarantee, while independent rent reviews mean rates are set according to the market. DHA also covers most ongoing maintenance costs and there are no re-letting fees. So the actual return you get is both transparent and competitive.

Clearly, the current environment is making it all the more important to vet your tenants closely and to make sure they have a secure job that will allow them to pay the rent over the next 6-12 months.

While landlords do have some options out there, such as mortgage holidays if they fall into financial difficulty, they do appear to be disproportionally impacted by the current situation. So a DHA rental guarantee is a very powerful advantage to investors seeking stable yield.

As of 30 June 2017, DHA managed 18,841 properties worth $11 billion across all capital cities and major regional centres. Around two-thirds of these properties are owned by private investors, which shows just how appealing this segment of the market is becoming.

And with the current issues the rental market is experiencing this reflects just how vital having a steady, long-term tenant is when buying an investment property - making DHA properties all the more appealing.

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