What does an army home really look like?

This is the first of a three-part sponsored series on investing in DHA homes. The content is produced by Fairfax in commercial partnership with DHA Housing.The advice contained in this article is for general information only and prospective investors should seek independent advice. Some terms and conditions apply.

A lot of people invest in property because they enjoy the comfort of being able to see and touch their assets, unlike shares for example.

But real-world assets also bring real-world problems such as unexpected maintenance bills, vacancies between rental contracts or difficult tenants.

These and other hiccups demand time and money. Paying a property manager can help smooth out these bumps but property managers vary considerably in the fees they charge and the time and attention they pay to the home.

If you are worried about nasty surprises, one option worth considering is buying an investment property from Defence Housing Australia - a government business enterprise that provides housing to Australian Defence Force members and their families.

These properties are leased back to DHA, which does all the managing for you, for an all-inclusive management fee.

DHA is one of Australia's largest residential property and tenancy managers, with more than 13,000 properties managed on behalf of private investors according to its 2015-16 annual report. It is also a major residential land developer with more than a billion dollars committed to projects in most capital cities and many regional centres.

What does a military home really look like?

Most DHA properties are newly built and suited for families, with three or four bedrooms, lounge and dining areas, en suite, garage, storage spaces, entertaining areas and landscaping. Two and three-bedroom apartments and townhouses are also available, with increased amenity above a typical apartment.

Contrary to popular perception the homes are not all on military bases. They are well located in most capital cities and many regional areas. They are within close proximity to schools, shops, transport and other amenities, so should retain desirability after the defence rental agreement is up.

New developments include Wirraway community in Thornton in the Lower Hunter, which will be home to more than 500 families, half of them the families of ADF members. It is on an elevated site with acres of parkland and views of the surrounding area. The first stage has sold out already and the second stage was released in February. Work has started on stage three.

Another is the Breezes Muirhead development of 1151 lots in the Darwin suburb of Muirhead, a short drive to the Casuarina Coastal Reserve. It was planned with five kilometres of shared walking paths and bike tracks and an innovative Breezeway and Greenway principle to capture prevailing breezes in the tropical heat, helping it win the 2015 UDIA NT award for best masterplanned development.

Properties in DHA developments tend to house the broader community as well as defence families, as some properties are sold to retail investors while the others are retained by DHA.

Zero hiccups

DHA is as steady a tenant as they come. When an investor buys a property from DHA, it comes with a long lease in place - typically nine or 12 years - with options to continue this after the rent period expires. When the lease ends, full control of the property is handed to the landlord.

During the lease, DHA guarantees the rent, meaning the investor is paid even if the property is vacant. If the market rises, annual independent rent valuations ensure the rent rises as well. If the market falls, the rent never falls below its initial starting point.

And while such long-term leases make the property less flexible than regular property investments, the house can still be sold to another investor mid-term with the lease still in place.

Beyond eliminating the problem of vacancies, DHA runs an enormous property maintenance operation that handles almost everything its investors need to worry about. It organises and covers the cost of most non-structural repair and maintenance issues that come up, carries out regular inspections and provides reports to the landlord.

Of course there are costs DHA does not cover as well, including council rates, strata and sinking fund levies, provision of service charges by utility companies, pest inspections and building insurance.

In addition to maintenance, DHA restores the home at the end of the lease term. When the term is six years or longer, this includes painting the property internally. Beyond nine years it is re-carpeted and painted externally.

Costs and taxes

DHA charges a flat management fee of 16.5 per cent for freestanding houses and 13 per cent for properties where there is a Body Corporate. This is higher than most property managers charge, but DHA argues its properties are still cheaper to hold than regular investment homes when you factor in maintenance and vacancies between tenancies.

The ability to know exactly what their minimum rent will be and ensure against ugly surprises means investors can predict the outcome of their investment with a greater degree of surety than a standard housing play.

There are also tax benefits such as depreciation on new buildings.

And for those concerned about ethical investment issues like environmental protection and workplace diversity, DHA sets a good example. Since July 2010 all new houses have been built to a minimum six-star energy rating. Among its employees, 64 per cent are women.

Who can invest

Anyone can invest in a DHA property.

DHA sells and leases back from a range of private investors and sometimes that includes defence personnel themselves.

Naval officer Scott Palmer and his wife Monica wanted to be in on the deal after they moved into their first DHA home in 2004 in Bomaderry NSW. They later made the decision to become DHA investors themselves.

"I think our experience as tenants was a factor in making that decision to invest," Scott Palmer says. "To know that your property will be maintained to that level for the period of its lease, that was definitely a positive for me."

The story What does an army home really look like? first appeared on The Sydney Morning Herald.