Loan pre-approvals by banks can be confusing. They aren't a rubber stamp to buy whatever you want, but some buyers are being a little too cautious.
Paul on ABC's The Business. Defence Housing. Avoid at all costs.
In November 2012, Paul Nugent discussed the dangers of investing in Defence Housing with ABC's The Business Show.
Here is the transcript:
TICKY FULLERTON, PRESENTER: 10-year leases, zero vacancy rates with the best tenants that the military has to offer: that's the promise of Defence housing for property investors.
Many Australians see it as a key part of their portfolio attracted by guaranteed rental income and tax advantages.
But some advisors say it has significant downsides, lacking control and flexibility for the canny investor.
Emily Stewart reports.
EMILY STEWART, REPORTER: It's being spruiked in glossy real estate magazines as a sure thing. A long lease, Government-backed, it's as safe as houses.
TONY WINTERBOTTOM, GM, DEFENCE HOUSING AUSTRALIA: The backing behind it is as strong as our Government, so our Government is a pretty strong Government by all accounts in the world today.
EMILY STEWART: Defence Housing manages 18,000 properties across Australia. More than 60 per cent of these are owned by private investors and leased back to the Defence Force. The average lease runs between nine and 12 years, after which investors are handed the front door keys. It sounds too good to be true, but property adviser Paul Nugent is warning investors to stay away.
PAUL NUGENT, WAKELIN PROPERTY INVESTOR: Avoid at all costs. Don't go anywhere near these properties. Buy something in the mainstream market, buy something that is readily rentable, buy something that you have some degree of control over.
EMILY STEWART: Defence has its own management team, charging investors more than double the average price: around 16.5 per cent. But Defence is making no apologies.
Update: Is Defence Housing for you? Watch our May 2016 video
TONY WINTERBOTTOM: Are the fees high? We do all the property management, we provide zero vacancy for up to, you know, 15 years; you know, if the hot water system blows up we're going to replace it and fix it.
PAUL NUGENT: When you look at it, that's actually been created in order to provide a fairly seamless management of the property and lifestyle enjoyment for Defence Force personnel.
EMILY STEWART: Another selling point is a long lease, but that also means less flexibility; if you change your mind you can&#39;t move in, rent it out privately or onsell it to an owner/occupier. And Cairns real estate agent Ross Moller says in the last five years Defence houses have taken longer than others to sell.
ROSS MOLLER, PRINCIPAL, LJ HOOKER CAIRNS: People wanted flexibility that ensures their jobs and things like that.
EMILY STEWART: Defence Housing says it's not an issue with few properties coming on to the market each year while still under lease.
TONY WINTERBOTTOM: As long as you engage a real estate agent who is familiar with selling investment properties, we don't find owners have any trouble selling during the lease.
EMILY STEWART: Once the lease is up, Defence houses in good areas sell well. Buyers are attracted by well-maintained properties. And recently there's evidence the market for investors is picking up.
ROSS MOLLER: With rents starting to move back up, vacancy rates very low, interest rates low on cash, stock market not as strong an investment tool as what it was, bricks and mortar are becoming the thing again.
EMILY STEWART: But critics say capital gains can be a problem. Many of the houses are near military bases on the less desirable suburban fringes.
PAUL NUGENT: The sorts of properties that they're encouraging people to buy tend to be in a very low land value area where Defence Force is probably the primary user of the end property.
TONY WINTERBOTTOM: Capital gains are going to be at market. We took a sample of properties ... I took a sample of 5,000 properties 10 years ago and looked at those same set of properties that we still owned this year, and by our own measures - that is doing a capital market valuation each year - that portfolio, which was diverse across Australia, grew by 7.24 per cent and had an average rental yield of 5 per cent.
EMILY STEWART: And buyers would have to be happy with that. But like any longterm strategy, investors must be sure to do their sums or they could find themselves in the firing line.
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Next steps: Talk to Wakelin Property Advisory about selecting a property that will perform as a property investment. Click here to read the process we undertake. Note, for those thinking of investing outside Victoria, we have interstate associates we can recommend.