Defence force housing offers guaranteed rental income for years but is it worth it? What do we think about defence force housing?
Ryan: Cool. All right, next question. How do you feel about buying defense force housing. I remember answering this one in the webinar. I’ll hand it over to you first and then I’ll hand my spiel.
Ben: I don’t like it all personally because I think it’s overpriced. Secondly because the return is very average, like the yields that they give you are super average for that I suppose what you would deem to be reducing your risk in terms you will have a tenant for the next seven to 10 years, but the returns are significantly less and the management fees that those guys charge are horrendous. Like I’ve seen management fees in defense of 20 plus percent.
I know that they do look after the property and clean it up for you once people move out, but for me, again, in terms of this concept around control of my own destiny, I don’t like that product for those reasons.
And more than anything else, they’re generally in regional and remote satellite like areas as opposed to high quality metro markets that I personally like to buy.
Ryan: Yeah, and I think when it comes to defense housing, the thing that draws so many people is that fact that there’s security there, right? That you’re going to have a tenant, that you’ve got that long year contract, that it’s always going to be tenanted.
But I think if you are a smart investor and you do your research, so you do your suburb analysis, you look at whether or not that suburb’s likely to grow or has any red flags, you look at the vacancy rates in that area and you invest in somewhere with low vacancy rates but you’ve got a good property that appeals to the market, like if you tick all the boxes to begin with and you do all your research to begin with, then you’re basically, you’re getting that security anyway.
And obviously there’s always some sort of risk, but I think if you do your research ahead of time you can get a better property with a better return, and with really low vacancy rates, the chances of it not being rented is pretty small.
So I think the fear that people have around is my property going to be rented or not, you know, you can pay over value for like defense housing, and you can pay these extra manager fees, or you can get rid of that fear by just learning how to do research by yourself before you buy it.
Ben: Yeah, and like a good vacancy rate to be targeting is like sub two percent as we both like. And then if you’ve got a good property manager, that pretty much eliminates the two biggest things which the defense is selling.
Hey guys, I hope that you enjoy the answer to this question, which came from our live Q&A episode with Ben on YouTube. We will be doing more of these in the future.
If you want to check out Ben, then he is offering free strategy sessions to On Property listeners. To find out more about that, go to onproperty.com.au/session, and you can see all the details over there.
That’s it for today and until next time, stay positive.