Australian Defence Force Property Investment Guide - 2021 EDITION
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Australian Defence Force
Property Investment Guide
2021 EDITION
7/1 Danks St, Waterloo NSW 2017
585 Little Collins St, Melbourne VIC 3000
P: (02) 8387 7948
Thank you!
for downloading this special briefing about property investing for Australian
Defence Force Members.
The team at AssetBase have helped hundreds of ADF Members navigate the
complexities of property investment, ensuring you access the best investments
& utilise all your available entitlements correctly.
We’ve written it to help you master several key concepts that you absolutely
must understand before you spend a dollar on beginning a property portfolio.
Some of this stuff you might be familiar with and other ideas you may not have
considered before. Like whether or not you should consider utilising DHOAS,
HPAS or purchase inside your posting locaility.
We’re going to walk you through everything from choosing which type of
property to buy, to which area you should buy in; and then drill down with
specific examples to help you understand exactly what’s involved with getting
into the property market as an investor.
We advise you read this short report and keep it on hand for reference as you
start your own exciting property investment journey.
And if you have any questions about what you read, don’t hesitate to give the
AssetBase team a call.
You can reach us at 02 8387 7948.
Remember, you don't need to be an expert to make it happen, you just need to
have the right team around you.
2 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION
Capital Growth
vs Rental Return
While there are many different strategies that
Investment you can employ to make money out of property,
there are really only two ways to make a profit:
Principles the first is from rental income, the second from
capital growth. Investors need to consider both
the rental return of their investment property
Thinking of investing but not sure where to as well as the potential capital growth.
start? You’re not alone, most of our ADF clients Seeing as different types of properties veer
all began in the same position. Looking in from towards capital growth or rental return, is one
the outside, most people know they need to do ‘better’ than the other?
something smart with their money but lack the
information, education and understanding to Most market experts recommend pursuing a
get things done. growth strategy, as the higher capital growth
tends to be more effective for investors trying
The problem is that most people end up saying, to build a portfolio of properties. It is this
“I wish I had of done something sooner”. With AssetBase, that will ultimately lead to further
the complexities of researching what grants wealth creation. However, cash flow properties
you can access, how to access them as well as can be suitable for certain investors: beginners
the right property investment for your situation on moderate incomes looking to break into the
- it can be pretty overwhelming. Add setting up market, retirees looking to fund lifestyles and
the correct home loan, organising a property investors with a largely growth-focused
manager that you can trust and securing a portfolio looking to offset the holding costs of
reliable tenant, most people are left scratching their negatively-geared properties.
their heads and doubting they have the time
to take that next step. Wouldn’t it be nice to
have a helping hand to assist you at each step
and answer those questions that are keeping
you from reaching your future goals? Well - the
team at AssetBase have it covered.
Within this guide, we hope to give you a
breakdown on the basic principles of property
investment, your entitlements & considerations
you should make which will give you the
confidence and understanding to take that next
step.
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 3
Positive Cashflow
While all investment properties eventually provide positive cash flow in theory (once you’ve paid
off the debt owing on the property), not all properties produce a positive cash flow to begin with.
Indeed, most do not and investors may have to search hard to find properties that will create an
income from the outset.
Typically, these properties are located in regional areas, so they tend to have lower entry prices
as well as lower stamp duty and land tax. For investors who don’t have much equity or income it is
easier to get started. Moreover, you can use the surplus cash flow to pay down principal to
generate more equity for future investment. However, because you are generating an income
from the positive cash flow, you’ll need to pay income tax along the way. Extra money in the
taxman’s pocket is going to make it harder for you to create serious wealth. A further
consideration is that many cash flow positive properties are in regional or outer areas and can be
quite sensitive to economic cycles; plus, while they do increase in value, their capital growth tends
to be relatively slow. It can also be trickier to obtain finance for regional properties.
4 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION
Capital Growth
The strength of making profits through capital
growth is that you can potentially make
significant gains – particularly where properties Unit, House or
are held for the long term. In fact, this is where
most property investors make the bulk of their
Townhouse?
money.
Most investors have their hearts set on buying a
The main advantage with these types of
house when they first start out. Generally, you
properties is that they are usually close to the
will find that houses offer greater long term
city, with a higher population density which
capital growth because as a land based asset it
generally means higher and consistent capital
is the land that appreciates over time. It is
growth over the longer term. Investors can
however wise to take a look at your budget in
generate more equity in a quicker period of
order to realistically determine what you can
time which can allow them to invest further.
afford as well as what best suits your needs and
The big disadvantage with these properties is
your property investment goals. Townhouses
the fact that, while you eventually make money
and apartments offer a cheaper entry price into
in the long term, they typically cost you more
the market and generally offer a better rental
money to hold in the short term, as the rental
yield, lending themselves to a greater cashflow
income is unlikely to cover holding costs –
for investors. There is generally higher rental
especially if you take on a mortgage at a highly
demand for apartments too, as the price point is
leveraged level.
more attractive for tenants.
To counter this, the government makes it
attractive for investors to purchase these
types of properties by offering tax benefits via
negative gearing – allowing you to claim the
difference between costs and income as a tax
deduction, delaying capital gains tax until you
sell the property, and other benefits such as
depreciation. These properties are usually more
expensive than cash flow positive properties, in
terms of purchase price, stamp duty and land
tax and it can be harder for beginners to enter
the market.
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 5
New vs Old Location
One of the biggest questions investors try to Location is a critical factor in determining the
tackle is whether to purchase an existing success and growth of your investment
property or buy brand new. As with all things property. As a golden rule a property that is
there are pros and cons to each. An existing close to public transport, community
property generally lends itself to a larger block amenities, shopping centres, businesses and
size and an established area. There is the popular schools will always be an attractive
potential for investors to renovate the property choice with potential renters. It is infrastructure
and add their own touches to it. The downside that draws population growth to an area and
is that it can come with unforeseen issues increases the rental pool.
like termite damage, water penetration and
deteriorating plumbing and wiring. With newer
properties, you have the benefit of the latest
fixtures and fittings, are able to get a slightly
better rental yield with a better quality tenant
and claim depreciation come tax time.
There is no right or wrong strategy, but more a Time Frame
question on whether you are a hands-on type
investor or an investor that wants a set and
forget asset with minimal maintenance. Although you might not know what will happen
in five years time, it is still a good idea to think
about how long you intend to hold onto your
investment property for. When making this
decision you should also take into consideration
your original investment goals as well as your
financial position, as both of these factors will
have an influence on the term of your
investment. Keep in mind that property investing
is a long-term investment and if you sell your
property in the short term you may not be able
to recover all of your fixed costs.
6 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITIONVacancy Rates How It Works!
If there is a low number of rental properties on Let’s say you want to buy an investment
the market, then there will be a high level of property with a market value of $400,000.
demand and as a result rental prices will rise. There are also additional purchase costs (legal
If there is a large number of rental properties fees, stamp duty and so on) of $20,000,
available and not enough tenants looking to rent, bringing the total cost to $420,000.
then the opposite will occur - rental prices will
fall. Vacancy rates can also differ slightly from Assuming that you meet the loan approval
suburb to suburb and they are driven by market requirements, a lender will fund 80% of the
conditions. It is important to talk to property property’s market value - potentially more if
managers to get an indication for demand within you’re prepared to pay Lenders Mortgage
an area before committing to the purchase. Insurance (LMI). That is, the bank will lend you
$320,000 to buy the investment property. As
the total cost of the property is $420,000 you
still need an additional $100,000 for the deposit
and other upfront expenses. This can come
from the equity in your existing home.
Equity & Let’s say the market value of your existing home
How To Use It is $500,000 and the balance of your mortgage
is $300,000. The difference between the two is
$200,000, which is your home equity. As an
Your home equity is the difference between your investor you can access up to 80% of your
property’s value and the balance of your home equity (without the need to take out LMI),
mortgage. If you’ve owned your home for a few which equates to $100,000 in this example.
years, there’s a good chance you’ve built up Instead of coming up with a cash deposit for the
some reasonable equity, and this can be a additional $100,000 needed to buy the
valuable resource when it comes to property investment property, you can take this from the
investment. $100,000 of accessible equity in your existing
home.
Alternatively some lenders will lend up to 95% of
the property value less the existing
mortgage, where LMI would be paid on the
amount borrowed over 80%.
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 7Positive &
Negative Gearing
No doubt you’ve heard the term negative gearing before.
But what is it exactly?
First things first – negative gearing can only apply if you are renting out your property. Gearing
basically means borrowing to invest and positive gearing is when your rental income is greater
than your investment expenses. Negative gearing is when your investment costs are higher than
your rental income. That’s right. You’re losing money.
So why is it so popular? Because when you’re negatively geared, you can deduct the costs of
owning your investment property from your overall income – reducing your taxable income.
High-income earners will benefit the most, because they’re in a higher tax bracket. It’s best to
think of negative gearing as a tool for reducing your losses. That way you don’t lose sight of the
fact that you are actually making a loss.
Don't wait
to buy Real Estate.
Buy Real Estate
& Wait.
8 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITIONCashflow Example
& Comparison
Set Up Costs / Funding Position
ADF Member Civilian
Purchase Price $550,000 Purchase Price $550,000
Stamp Duty $0 Stamp Duty $7,500
Legal Fees $2,500 Legal Fees $2,500
Lenders Mortgage Insurance $10,500 Lenders Mortgage Insurance $10,500
Total Cost $563,000 Total Cost $570,500
Required Deposit $68,000
FHOG -$10,000
KickStart -$10,000
Actual Deposit Required $48,000 Actual Deposit Required $75,500
Loan Amount: $495,000 Loan Amount: $495,000
*Based on NSW House and Land Package with land value of $250,000
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 9Cashflow Example
Holding Costs
$495,000 @ 3.5% Interest Rate $17,325
Council & Water Rates $2,500
Insurances $1,200
Repairs & Maintenance $1,200
Real Estate Management Fees $1,500
Total Cost $23,725
Rent ($480 per week x 50 weeks) $24,000
Tax Refund from depreciation $4,500
Net Cashflow Position
after tax breaks
$88 per week
OR
+$4,575 per annum!
10 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITIONHome Purchasing
Assistence Scheme
(HPAS)
As a member of the ADF you are eligible for
assistance to purchase your home. HPAS comes
in the form of a lump sum payment of $16,949,
before tax. Note that it will reflect your share of
ownership (ie - joint ownership with a non-ADF
Home Purchase
member will see the amount halved).
or Sale Expenses
To be eligible to receive HPAS, you must meet Allowance (HPSEA)
the following criteria:
HPSEA is an allowance for the reimbursement of
1
You must not have received HPAS before; costs to an ADF member when they sell a
it is payable only once in your entire home at the time they are being posted to a new
period of service. location; or if they sell in their previous posting
location and buy again in the new location.
2
An example of this would be if you own a home
You must purchase a home in your
in Sydney, then get posted to Melbourne and
current (or new) posting location.
want to buy a new home there. You would be
eligible to receive HPSEA to reimburse the sale
3
and purchase costs, including real estate
On the day that you sign contracts, it is
commissions, stamp duty and solicitor’s fees.
expected that you will serve in the
This is to compensate for the relatively high
location for 12 months after the
transactional costs of selling and buying. For
purchase. Also, this means
this allowance, the amounts that you will receive
that you will have to live in the house for
through HPSEA vary, depending on your
the remainder of your posting tenure to
expenses - but they are covered in extensive
that location.
detail within PACMAN.
4
If you are MWD(U), you need to remain
that categorisation for the next 12
months. The best part? You are eligible
to receive this lump sum payment
BEFORE you need to pay your deposit
as you are considered to have purchased
a home when you have signed either the
contract to purchase or the agreement
for it to be built.
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 11Defence Home
Ownership Assistant
Scheme (DHOAS)
DHOAS was designed to achieve two aims
within the ADF - help you and your
family achieve home ownership; and to improve
recruitment/retention. DHOAS subsidises your
home loan, for an amount and period of time,
based on how long you serve. The amount
you are entitled to receive varies, based on a
three-tier system and DHOAS can be taken as a
lump sum option.
State Based First
Home Buyer Grants
Each state has a First Home Buyer Grant that
can be applied for and used by first home
purchasers. The amount varies from state to
state being $10,000 in NSW and Metro VIC and
up to $20,000 in regional VIC.
The big advantage for ADF Members that are on
the NSW and Victorian electoral roles is that
unlike civilian purchasers, that have to move into
the residence for 6 months, ADF Members are
Residence Exempt, meaning they can utilise
these benefits without losing RA or Defence
Housing and turning the property into an
investment from day 1. This allows members to
look at more affordable locations across these
states and not within a posting locality.
12 ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITIONClient Journey
An ADF member reached out to AssetBase at the beginning of the pandemic
hoping to learn more about how to get into the property investment market.
He was overwhelmed with information and unsure of who to speak with, who to
listen to or who to trust.
He was worried about not having enough of a deposit to get into the Sydney
property market. He was also unsure about his ability to manage a new build
project given that he was not always accessible and could be posted anywhere
at any time. He wanted to understand how to access his entitlements and to
learn more about AssetBase’s processes and exclusive $10,000 KickStart
Program.
The AssetBase team worked closely with him on a strategy. AssetBase then
commenced the research required to find a suitable location at a comfortable
price point that was also cash flow positive.
By using available cash on hand, obtaining the stamp duty concession, the First
Home Owners Grant and the $10,000 KickStart, he was able to invest sooner
and access over $35,000 in savings and grants.
The team at AssetBase worked tirelessly to project manage the build and all the
stakeholder relationships to ensure the process ran smoothly. Having that
support ensured that he did not need to worry about the project while he was
away. He now owns a 4 bedroom home in a high growth location just outside of
Sydney. In fact, during the pandemic his property grew in value by $39,010 and
was tenanted within 5 days of handover at $440 per week.
ASSETBASE | ADF PROPERTY INVESTMENT GUIDE 2021 EDITION 132021 EDITION
Australian Defence Force
Property Investment Guide
7/1 Danks St, Waterloo NSW 2017
585 Little Collins St, Melbourne VIC 3000
P: (02) 8387 7948You can also read
