Are there any disadvantages to DHA Investment Properties?
"A quick online search for ""disadvantages of defence housing australia investment properties"" turns up a several articles that list a few possible disadvantages. I can't vouch for these personally because I'm not familiar with the Australian rental market, but they may all be things to keep in mind. I quote verbatim where indicated." I think the strongest reason against DHA purchases (I don't consider them investments) is points 3 and 5 mentioned above. The resale market is only to other investors that are convinced its a good investment.If you can't sell to owner occupiers, you've just removed the MAJORITY of your potential pool of people to resell to - this has a devastating effect on your ability to make any capital gain from your investment - if you're not chasing capital gain...be sure to understand why! (see article below)The marketing people will have you believe that DHA is a great investment from a yield perspective...maybe so, I haven't crunched the numbers. But in my opinion, I would wonder - who cares?Yield is important to ensure you can hold the property, but if there is no capital growth and you can't sell it for a profit or release some equity to buy the next investment, then you've just put a massive road block in your wealth building path.I am at the asset accumulation phase of my investing journey, so my opinion is skewed towards capital growth investments. Unless you have a sizable equity base already, in my opinion $4-5 Million in debt free assets, then you should be looking for capital growth assets...not high yield.This article from Your Investment Property magazine, although now dated, gives a good example to illustrate my point on why capital growth is the sensible strategy during the asset building phase of your wealth creation journey: Why capital growth is still king  I think the strongest reason against DHA purchases (I don't consider them investments) is points 3 and 5 mentioned above.  The resale market is only to other investors that are convinced its a good investment. If you can't sell to owner occupiers, you've just removed the MAJORITY of your potential pool of people to resell to - this has a devastating effect on your ability to make any capital gain from your investment - if you're not chasing capital gain...be sure to understand why! (see article below) The marketing people will have you believe that DHA is a great investment from a yield perspective...maybe so, I haven't crunched the numbers. But in my opinion, I would wonder - who cares? Yield is important to ensure you can hold the property, but if there is no capital growth and you can't sell it for a profit or release some equity to buy the next investment, then you've just put a massive road block in your wealth building path. I am at the asset accumulation phase of my investing journey, so my opinion is skewed towards capital growth investments. Unless you have a sizable equity base already, in my opinion $4-5 Million in debt free assets, then you should be looking for capital growth assets...not high yield. This article from Your Investment Property magazine, although now dated, gives a good example to illustrate my point on why capital growth is the sensible strategy during the asset building phase of your wealth creation journey: Why capital growth is still king Along with the above reasons, the fact that DHA are under investigation by the Federal Police, should be a red flag to any potential investor. The Federal Police aren't called in over parking fines.  The rules that are in place for effective and appropriate management appear to have been compromised. I would like to see DHA's marketing people explain why the Department of Finance called in the Feds. To clarify further, with any investment, the potential investor must satisfy beyond any doubt whether there's a problem with an individual or with the way the organisation is managed as a whole. Look at the Big Four banks. To complete the research I suggest wait until DHA release an appropriate public statement (hopefully a sensible one that is honest- but don't hold your breath). I can see parallels with the recent scandal with HSU. When management is being led away in handcuffs it may be too late to change your mind. Well, I am an investor/ Lessor under DHA properties. Oflate, DHA lost it identity as a Govt agency and try to imitate a worst (not the best) real eastate agent. Every year rental valuation is a drama or waste of time and money to lessor. They pull down the rent by 10 to 22% and ask for a secondary valuation for no reasons. They don't even agree with market evidence and start bullying or black mailing tactics to force you to aceept a below market rent or the threat of third review , a very expensive review shared 50% by lessor and rest the poor tax payers! The thir review also badly influenced by DHA by submitting biased valuations and thereby destroying the independence of valuation. The API appointed valuer neither follow the DHA gudie nor the API guide and also ignore the market reality and take the average rent for the area. You also losse 14 to 18% as management fees paid to DHA. Selling also a problem and its high time the CWG and the Minster in charge of the DHA must institute an independent investigation to expose the potential nexus between the valuers and the DHA and how the lessor (a self funded retiree, pensioners and others). I already lodged a complaint with Ombudsman and waiting for a reply. There are 14 Lessors all in a Private street (Only DHA leased property in that street) near 213 Ray rd Epping 2121 that are leased to DHA for more than 10 years. Please note most of those Lessors almost lost $10000 per year because DHA under cut the rent to them when they paid me the market rent for many years. DHA by mistake send the rent paid to all. We have called for the details of rent paid to all the 14 lessors in that private street from 2008 todate under the Freedom of Information Act and waiting.
"I agree with Joe Taxpayer that a lot of details are missing to really evaluate it as an investment... for context, I own a few investment properties including a 'small'  10+ unit apartment complex. My answer might be more than you really want/need, (it kind of turned into Real Estate Investing 101), but to be fair you're really asking 3 different questions here: your headline asks ""how effective are Condo/Hotel developments as investments?"" An answer to that is... sometimes, very. These are a way for you-the investor-to get higher rents per sq. ft. as an owner, and for the hotel to limit its risks and access additional development funding. By your description, it sounds like this particular company is taking a substantial cut of rents. I don't know this property segment specifically, but I can give you my insight for longer-term apartment rentals... the numbers are the same at heart. The other two questions you're implying are ""How effective is THIS condo/hotel development?"" and ""Should you buy into it?"" If you have the funds and the financial wherewithal to honestly consider this, then I am sure that you don't need your hand held for the investment pros/cons warnings of the last question.  But let me give you some of my insight as far as the way to evaluate an investment property, and a few other questions you might ask yourself before you make the decision to buy or perhaps to invest somewhere else.  The finance side of real estate can be simple, or complicated. It sounds like you have a good start evaluating it, but here's what I would do: Start with figuring out how much revenue you will actually 'see': Gross Potential Income: 365 days x Average Rent for the Room = GPI (minus) Vacancy... you'll have to figure this out... you'll actually do the math as (Vacancy Rate %) x GPI (equals) Effective Potential Income = EPI Then find out how much you will actually pocket at the end of the day as operating income: Take EPI (minus) Operating expenses ... Utilities ... Maintenace ... HOA ... Marketing if you do this yourself (minus) Management Expenses ... 40% of EPI ... any other 'fees' they may charge if you manage it yourself. ... Extra tax help? (minus) Debt Service ... Mortgage payment ... include Insurances (property, PMI, etc) == Net Operating Income (NOI) Now NOI (minus) Taxes == Net Income Net Income (add back) Depreciation (add back) sometimes Mortgage Interest == After-tax Cash Flows There are two ""quickie"" numbers real estate investors can spout off. One is the NOI, the other is the Cap Rate.  In order to answer ""How effective is THIS development?"" you'll have to run the numbers yourself and decide. The NOI will be based on any assumptions you choose to make for vacancy rates, actual revenue from hotel room bookings, etc. But it will show you how much you should bring in before taxes each year. If you divide the NOI by the asking price of your unit (and then multiply by 100), you'll get the ""Cap Rate"". This is a rough estimate of the rate of return you can expect for your unit... if you buy in.  If you come back and say ""well I found out it has a XX% cap rate"", we won't really be qualified to help you out. Well established mega investment properties (think shopping centers, office buildings, etc.) can be as low as 3-5 cap rates, and as high as 10-12. The more risky the property, the higher your return should be. But if it's something you like, and the chance to make a 6% return feels right, then that's your choice. Or if you have something like a 15% cap rate... that's not necessarily outstanding given the level of risk (uncertain vacancies) involved in a hotel.  Some other questions you should ask yourself include:  How much competition is there in the area for short-term lodging? This could drive vacancies up or down... and rents up or down as well How 'liquid' will the property (room) be as an asset? If you can just break even on operating expense, then it might still make sense as an investment if you think that it might appreciate in value AND you would be able to sell the unit to someone else.  How much experience does this property management company have... (a) in general, (b) running hotels, and (c) running these kinds of condo-hotel combination projects? I would be especially interested in what exactly you're getting in return for paying them 40% of every booking. Seasonality? This will play into Joe Taxpayer's question about Vacancy Rates. Your profile says you're from TX... which hints that you probably aren't looking at a condo on ski slopes or anything, but if you're looking at something that's a spring break-esque destination, then you might still have a great run of high o during March/April/May/June, but be nearly empty during October/November/December.  I hope that helps. There is plenty of room to make a more ""exact"" model of what your cash flows might look like, but that will be based on assumptions and research you're probably not making at this time." Not really my field but this is how I see the impact   Disadvantages for banks : not being able to chose where they park assets/cash they have been trusted with which mean lower income from investing those  disadvantage for banks shareholders : less earnings   disadvantage for the economy : harder criteria to lend, lower loan growth   advantage for the economy : (theoretically) less risks of liquidity crunch and financial crisis Note that many funds just track indexes. In that case, you essentially don't have to worry about the fund manager making bad decisions. In general, the statistics are very clear that you want to avoid any actively managed fund. There are many funds that are good all-in-one investments. If you are in Canada, for example, Canadian Couch Potato recommends the Tangerine Investment Funds. The fees are a little high, but if you don't have a huge investment, one of these funds would be a good choice and appropriate for 100% of your investment. If you have a larger investment, to the point that Tangerine's MER scares you a little, you still may well look at a three or four fund (or ETF) portfolio. You may choose to use an actively-managed fund even though you know there's virtually no chance it'll beat a fund that just tracks an index, long-term. In that case, I'd recommend devoting only a small portion of your portfolio to this fund. Many people suggest speculating with no more than 10% of your combined investment. Note that other people are more positive on actively-managed funds. Investing only in one industry may be problematic as it is highly correlated. There are factor outside your (or anyones) knowledge which may affect all the industry: If you are familiar with the industry it may happen that you work in that (ignore rest of paragraph if this is not the case). In such case you are likely to have problems at work (frozen salary, no bonus, position terminated) and you need to liquidate the investments at that point (see many advice regarding ESPP). Depending on your field you may have some inside knowledge so even if you would took a position without it you may need to somehow prove it. On the other hand diversifying the investment might reduce the volatility of investment. Rise in oil will cause problems for air industry but will be a boom for oil industry etc. In this way you smooth the grow of the investments. Investing part of portfolio into specific industry may make more sense. It still possibly worth to avoid it at the beginning investor may have trouble to beat the market (for example according to behavioural economics you are exposed to various biases, or if markets are efficient then prices most likely already take into account any information you may have). (I'm still new to all this so it's mostly based on what I read rather then any personal experience. Also a standard disclaimer that this is not an investment, or any other, advice and I'm not licensed financial advisor in any jurisdiction) I wrote this in another thread but is also applicable here. In general people make some key mistakes with property: Not factoring in depreciation properly. Houses are perpetually falling down, and if you are renting them perpetually being trashed by the tenants as well - particularly in bad areas. Accurate depreciation costs can often run in the 5-20% range per year depending on the property/area. Add insurance to this as well or be prepared to lose the whole thing in a disaster. Related to 1), they take the index price of house price rises as something they can achieve, when in reality a lot of the house price 'rise' is just everyone having to spend a lot of money keeping them standing up. No investor can actually track a house price graph due to 1) so be careful to make reasonable assumptions about actual achievable future growth (in your example, they could well be lagging inflation/barely growing if you are not pricing in upkeep and depreciation properly). Failure to price in the huge transaction costs (often 5%+ per sale) and capital gains/other taxes (depends on the exact tax structure where you are). These add up very fast if you are buying and selling at all frequently. Costs in either time or fees to real estate rental agents. Having to fill, check, evict, fix and maintain rental properties is a lot more work than most people realise, and you either have to pay this in your own time or someone else’s. Again, has to be factored in. Liquidity issues. Selling houses in down markets is very, very hard. They are not like stocks where they can be moved quickly. Houses can often sit on the market for years before sale if you are not prepared to take low prices. As the bank owns your house if you fail to pay the mortgage (rents collapse, loss of job etc) they can force you to fire sale it leaving you in a whole world of pain depending on the exact legal system (negative equity etc). These factors are generally correlated if you work in the same cities you are buying in so quite a lot of potential long tail risk if the regional economy collapses. Finally, if you’re young they can tie you to areas where your earnings potential is limited. Renting can be immensely beneficial early on in a career as it gives you huge freedom to up sticks and leave fast when new opportunities arise. Locking yourself into 20 yr+ contracts/landlord activities when young can be hugely inhibiting to your earnings potential. Without more details on the exact legal framework, area, house type etc it’s hard to give more specific advise, but in general you need a very large margin of safety with property due to all of the above, so if the numbers you’re running are coming out close (and they are here), it’s probably not worth it, and you’re better of sticking with more hands off investments like stocks and bonds. I used to own a few investment properties, so I'm pretty familiar with this.  As MrChrister mentions, lenders see investment mortgages as higher risk. People who fall into financial trouble are much more likely to let their investment properties go than their personal residence.  Consequently, the interest rates and downpayment requirements are generally higher. Typically a mortgage for an investment property will require 20% down, vs. as low as 3-5% down for a personal residence.  With excellent credit and some shopping around, you could probably do 10% down.  Interest rates are typically about a half-percent higher as well. You'll also find that the more investment properties you have, the harder it becomes to finance new ones.  Banks look at debt-to-income ratios to determine if you are over extended.  Typically banks like to see that your housing payments are less than 20% or so of your income.  However, with rental properties, housing payments generally account for far more than 20% of your rental income.  Other income you have can offset that, but after buying 2-3 houses or so, your DTI generally creeps into the range where lenders are uncomfortable lending to you anymore.  This is why you'll find that many rental properties are bought on land contracts with owner financing rather than with mortgages. "No, there are neither advantages nor disadvantages. I'll take on this question from an accounting standpoint.   Financial statements, the tools at which the market determines (amongst other things) the value of a stock, are converted at year end to the home currency (see 1.1.3).If Company A has revenue of 100,000 USD and the conversion to EUR is .89, revenue in the European market will be reported as 89,000 EUR. These valuations, along with ratios, analysis, and ""expert"" opinions determine if a person should own shares in Company A.  Now, if we're talking about comparing markets this is a entirely different question.  Example:  Should I buy stock of Company A, who is in the American market (as an European)?  Should I buy stock of Company B, who is in the European market (as an American)? I would recommend this as additional level of diversification of your portfolio to inlcude possible large inflation of either the currency. The possible gains of this foreign exchange may be greater if one or the other currency becomes weak." Basically there are 2 ways you can make money from an investment, through income (eg: rent or dividends) and through the price of the investment going up (capital growth or gains). Most people associate negative gearing with investment properties but it can be done with shares and other investments where you borrow money to buy the investment and it produces an income of some sort. If the investment does not produce an income then you cannot negative gear it. Using a property as an example (in Australia), if all your expenses each month (loan interest payments, council and water rates, insurance and/or strata, advertising and management fees, depreciation, and maintenance expense) are greater than your income (rent), then you are negative gearing the investment property. This is a monthly loss on your investment which can be used to offset and reduce the amount of tax you pay during the year. So most people negative gearing an investment property will get a nice sum back when they do their tax returns. The problem with negative gearing is that you have to lose money in order to save some tax. So as an example, if you are on a marginal tax rate of 30%, for every $1 you lose from the investment property you will save 30c in tax. If your marginal tax rate is 45% then will save 45c in tax for every $1 lost on the investment property. Thus negative gearing becomes more tax effective the higher your income (and tax bracket). But you are still losing money overall. The problem is that most novice investors buy an investment property for the main purpose of reducing their taxes. This can be dangerous because the main reason to buy any investment should be that you consider it to be a good investment, not to save you tax. Because if the investment is not a good one, then you will not only lose money on the income side but also on the capital side. Negative gearing should be looked at as a bonus or additional benefit when chosing a good investment to buy, not as the reason to buy the investment. Danger. The affidavit is a legal document. Understand the risk of getting caught. If you are planning on using the condo to generate income the chances that you default on the loan are higher than an owner occupied property. That is why they demand more down payment (20%+) and charge a higher rate.  The document isn't about making sure you spend 183+ nights a year in the property, it is making sure that it isn't a business, and you aren't letting a 3rd party live in the property.  If you within the first year tell the mortgage company to send the bill to a new address, or you change how the property is insured, they will suspect that it is now a rental property.  What can they do? Undo the loan; ask for penalty fee; limit your ability to get a mortgage in the future; or a percentage of the profits How likely is it? The exact penalty will be in the packet of documents you receive. It will depend on which government agency is involved in the loan, and the lenders plan to sell it on the secondary market.  It can also depend on the program involved in the sale of the property. HUD and sister agencies lock out investors  during the initial selling period, They don't want somebody to represent themselves as homeowner, but is actually an investor. Note: some local governments are interested not just in non-investors but in properties being occupied. Therefore they may offer tax discounts to residents living in their homes. Then they will be looking at the number of nights that you occupy the house in a year. If they detect that you aren't really a resident living in the house, that has tax penalties. Suggestion: If you don't want to wait a year buy the condo and let the loan officer know what your plan is. You will have to meet the down payment and interest rate requirements for an investment property. Your question implies that you will have enough money to pay the required 20% down payment. Then when you are ready buy the bigger house and move in. If you try and buy the condo with a non-investment loan you will have to wait a year. If you try and pay cash now, and then get a home equity loan later you will have to admit it is a rental. And still have to meet the investor requirements. "For instance he is recommending moving money into HYD which seems to have a higher risk at an average return ( for this asset class )ABHFX seems to have a higher return at a lower risk. Often [his recommendations] are on the lower end of best performing funds in the class. Historical Mutual Fund performance has little to no predictive power for future performance so this shouldn't be an immediate disqualification.  Some good starting questions for you to evaluate a manager:  Does this mean it's a mistake to use UBS (or any bank limited in its fund offerings from other institutions) as the ""wealth management"" institution? All wealth management institutions have restrictions on possible investments.  Obviously, if your relative can't invest in the funds she wants that is an issue. Do these [Morningstar] ratings mean anything at all? This has been studied pretty carefully and the academic consensus appears to be that they have no consistant predictive power.  Kräussl and Sandelowsky wrote a particularly comprehensive paper on the subject." That looks like a portfolio designed to protect against inflation, given the big international presence, the REIT presence and TIPS bonds. Not a bad strategy, but there are a few things that I'd want to look at closely before pulling the trigger. REIT is to property as Mutual Fund is to stock.  In others words, a REIT spreads your risk out over a greater number of properties, making the return safer, at the expense of both upside and downside risk. On average, both would average out to be the same. That said, you have a much wider range of outcomes when investing in a single property. As with stocks, over the long haul, unless you think you can somehow beat the market, divirsification is usually considered the better move.  Technically, your ROI is the same, but your beta is much better in a REIT. I strongly recommend you to invest in either stocks or bonds. Both markets have very strict regulations, and usually follow international standards of governance. Plus, they are closely supervised by local governments, since they look to serve the interests of capital holders in order to attract foreign investment. Real estate investment is not all risky, but regulations tend to be very localized. There are federal, state/county laws and byelaws, the last usually being the most significant in terms of costs (city taxes) and zoning. So if they ever change, that could ruin your investment. Keeping up with them would be hard work, because of language, legal and distance issues (visiting notary's office to sign papers, for example). Another thing to consider is, specially on rural distant areas, the risk of forgers taking your land. In poorer countries you could also face the problem of land invasion, both urban and rural. Solution for that depends on a harsh (fast) or socially populist (slow) local government. Small businesses are out of question for you, frankly. The list of risks (cash stealing, accounting misleading, etc.) is such that you will lose money. Even if you ran the business in your hometown it would not be easy right? Investing in property hoping that it will gain value is usually foolish; real estate increases about 3% a year in the long run.  Investing in property to rent is labor-intensive; you have to deal with tenants, and also have to take care of repairs.  It's essentially getting a second job. I don't know what the word pension implies in Europe; in America, it's an employer-funded retirement plan separate from personally funded retirement.  I'd invest in personally funded retirement well before buying real estate to rent, and diversify my money in that retirement plan widely if I was within 10-20 years of retirement. yeah - the point is why should any foreign investor trust you with their money?  just because Bangladesh might have a hot housing market, doesn't make you a reliable or trustworthy partner.  Maybe if you were an established and reputable real estate investor this post might get traction.