How to invest in residential property with just $5000

If you believe the housing market is set to rise, the good news is that you don't have to spend large sums to invest in residential property.

For a minimum of $5000 you can invest in an Australian residential property fund called the Centric DHA Residential Property Fund.

What is unique about this unlisted, closed-end residential property fund is that it invests solely in property leased to Defence Housing Australia (DHA), which provides housing for members of the Australian Defence Force and their families.

The advantages of DHA property is that an investor knows the annual rent growth will be 4.25% and DHA guarantees 100% occupancy throughout the nine- to 12-year leases. The tenants are of a good quality. The fund pays out a quarterly yield that is low but reliable.

The residential property fund is a first for DHA, which has 10,000 properties for investors. The fund aims to raise $53 million to buy 83 houses, townhouses, apartments and duplexes throughout Australia, with the exception of Tasmania.

The length of the investment term is 10 years. Units in the fund are $1 each and research house PIR estimates that 97% of all the cash flow will be paid to investors.

DHA Investment Management manages the fund and has appointed Centric Wealth to structure and distribute it to investors.

MONEY VERDICT

For an income-based investment, the fund has a low pre-tax distribution yield that research house PIR estimates to be 2.7% for the 2014 financial year and to average 3.25% p.a. over 10 years.

Gains depend on the capital growth of the property in the fund. Based on past performance of DHA's portfolio, the return has been 7.04%pa over 10 years, according to the RP Data-Rismark all dwellings index, but this may not necessarily continue. Fees are high at 2.33% of gross assets but include all the general property expenses.

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