Builder wants to use house for a display home?

Hi all, I wonder if anyone has leased back a property to the builder? The builder has offered to build one of his designs on my property, and lease it back for 18-24 months.

They will choose colours, tiles etc., and put the ducted vac, integrated microwave, dishwasher etc..

The pros I suppose are guareteed rent for 2 years, it will be built well, and with high specs., some cons maybe that it may be well worn, and not really have control over the project.

A friend has suggested that they pay a premium for the rent?

Has anybody experienced this, and do you have any advice?

Cheers
Wayfarer73
 
Your friend is correct. They pay much more rent for a display home because it is for a commercial purpose. Just bear in mind that finance will be more difficult if you need to reborrow from the house in the next 2 years - as banks don't like display homes as security. If you don't need finance, I think it can be a very good idea for you to boost your income.
 
Best part is that you can claim al the depreciation back (which will be the most in the first 10 years and even more so the first 5 years).

Especially helpful if you were going to live in it anyway.
 
Hi Wayfarer,

We purchased a display home from a builder and were paid 8% rent for 18 months.

Finance was no issue for us, however building insurance was a problem as the property is not occupied at night. We ended up having to go through the builders insurance policy.

Also our builder maintained the property well and then gave it a thorough going over when the lease finished. You just have to make sure that the builder will replace the things required at the end of the term (if they are using the garage as an office for example).

And as JWR said the depreciation is excellent if they use quality fixtures and fittings.

Overall though it was certainly a much easier rental than having 'real' tenants in!!
 
Thanks for the reply.
I will need to refinance after the build, because I want to build another next door. My business partner and I bought well, in a good location, but he has become self employed, so is having difficulties with finance, where are the lo-doc loans when you need them?

The block is on 2 titles, it's in a development control precinct( which we have overcome). I need to develop 1 side at a time to make the numbers work. I was hoping to refinance immediately. What sort of hurdles am I up against? Do I write into the contract that they must make good any damage caused, because I imagine there will be more than fair wear and tear?
Cheers.
 
Personally I think there is far less wear and tear. Sure you have got more people walking through but you don't have the wear from people living in it.

Plus any marks and damage are quickly cleaned up/repaired.
 
CBA Rolf,
I have a 3rd party loan at 6.49%, no fees.

I've spoken at length with my current broker. We had a valuation done on the house, it came back at $700k, same as we paid for it. I asked if the valuer could bs instructed to value as 2 blocks, my broker said no, as that's not their current use. He said you'd have to separate the titles, remove house, and or provide a building contract with specs to get a valuation on completion? I would have thought I would be too commuted with the builder. I.e negotiations done by then.

I would have thought if I took the builders proposal with a guaranteed higher rent, then I should get a better valuation???
Cheers
Wayfarer
 
Finance was no issue for us, however building insurance was a problem as the property is not occupied at night. We ended up having to go through the builders insurance policy.

Seems kind of silly, doesn't it.
What happens if you worked night shifts.( and overtime night shifts)
so you were never home at night.
 
Yes kathryn it seemed silly to me too.

Doovalacky the house has an alarm system. However I spoke to a number of insurance companies and brokers but no-one would insure us. Their concern was that no-one would ever be in the house during the night.

It was lucky that the builder was good about it and put us on their policy (and i don't think they charged us either).
 
Hi all, I wonder if anyone has leased back a property to the builder? The builder has offered to build one of his designs on my property, and lease it back for 18-24 months.

They will choose colours, tiles etc., and put the ducted vac, integrated microwave, dishwasher etc..

The pros I suppose are guareteed rent for 2 years, it will be built well, and with high specs., some cons maybe that it may be well worn, and not really have control over the project.

A friend has suggested that they pay a premium for the rent?

Has anybody experienced this, and do you have any advice?

Cheers
Wayfarer73

Wayfarer - do you feel you will achieve a good yield once the builder has vacated and you need to find regular tenants? The display home rentback scheme seems to offer a higher spec home at a higher price but I'm not convinced that a commensurately higher rent will be achieved, and I'd be interested in anyone else's opinion.

Also, would you be paying stamp duty on the land content only or on both the house and land?

JB
 
One small thing I've noticed in display homes is that practicality is sacrificed for glamour. In one you could sit on the throne and watch the traffic go by through the glass.

This is particularly noticeable on lighting. It would help if you had a clause where such compromises are corrected on handover.
 
Wayfarer - do you feel you will achieve a good yield once the builder has vacated and you need to find regular tenants? The display home rentback scheme seems to offer a higher spec home at a higher price but I'm not convinced that a commensurately higher rent will be achieved, and I'd be interested in anyone else's opinion.

JB

Hi JB,

When ours finished as a display home and we had to rent it to a tenant, we advertised at the top end of what other similar properties were going for in the area, and didn't have any problem getting a tenant in. The area also has a lot of rental properties (and by a recent thread here a reasonably high vacancy rate atm) yet ours went pretty quickly. As such I believe that it helps with both return and renting the property. You just need to be mindful of the actual property cost as some display homes are way overpriced for the return you will get after it comes off the builders lease.
 
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