Looking at the Numbers on a DHA Investment Property

For property investors, it’s all about the numbers so if you’re thinking about buying a DHA property it is important to understand if they are going to stack up.

There are a lot of benefits to buying a DHA property but the things that appeal to most investors are the long-leases, zero vacancies and a property maintenance team to take care of everything.

On top of that, the yields on DHA houses can be very strong - as much as 6.5% in some cases, meaning they are well and truly positively geared in the current interest rate environment. However, it’s worth looking at the numbers a bit more closely and seeing what they look like.

Given the fact that there are zero vacancies, no costs associated with letting properties and no maintenance this can certainly make DHA properties an appealing investment proposition.

But to compensate for those additional benefits, property management fees are generally going to be higher than what you’d be paying to a standard residential property manager. This is something that might put investors off at first glance. But that’s not where the story ends.

DHA charges 16.5% of gross rent as a property management fee and that covers virtually everything. Those fees are around 13% for properties that have a body corporate. Contrast that to 8-9% charged by average property managers and there is only a small increase in costs.

However, standard residential property managers, charge a host of other fees that are often overlooked by property investors at first glance.

Property managers will charge a letting fee which is often two weeks rent. Marketing costs are on top of the standard fees as are things like property condition reports, inspections, re-lease negotiation fees, photography and carpet cleaning just to name a few.

The fees you end up paying on a standard investment property can quickly mount up, especially if you experience high renter turnover.

Those costs are in addition to any period of vacancy. If a property is vacant for a month while you try and find a tenant, that significantly adds to the income shortfall.

In an ideal world, you find a great long-term tenant who loves the property like it’s their own and always pays the rent on time. In reality, that’s not always that easy to find and most renters move on ever 1-2 years. Meaning that these costs keep on recurring.

 

Case Study - DHA Costs

If you’re receiving a gross rental income of $15,000 per year how do the numbers stack up?

	DHA	Standard Rental
Gross Rental Income	$15,000	$15,000
PM fees	$2,050	$1,350
Letting Fee	0	$600
Marketing Costs	0	$400
Property Condition Report	0	$250
Vacancy Allowance	0	$600
Maintenance	0	$500
Total Costs	$2,475	$3,700
Profit to Owner	$12,525	$11,300

As you can see, when you take into consideration what the true costs a property manager charges, a DHA leased property can stack up well even after taking into consideration the higher management fees.

In fact, BIS Shrapnel recently surveyed property managers in the same areas as DHA houses and found they were charging around 31.4% of gross income in fees combined with vacancies and other costs.

Almost double a DHA leased property.

It’s important to weigh up any investment decision, but just make sure you’re taking everything into account when assessing your true costs of owning an investment property.

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