Hi Chaos,
We purchased a display home a couple of years ago.
It was rented back to us for an initial 12 month term + 6 month options (ended up being 18 months total lease) at 8% interest.
The pros are:
Nicely finished house with good fittings and fixtures, lovely landscaping with decks, pergolas and plantings;
The rental period with the builder was stress free;
Always paid on time, and the house was very well maintained;
Very high depreciation (from memory $17k in first year);
We were able to rent out at the end of the display term at higher than market rates (although at a large decrease to what we were getting from the builder -which we new was going to happen). Basically went from being positive to negative cashflow, although depreciation is good at tax time;
The builder did a fair bit of work on the house to make it suitable for living in when they moved out.
The cons are:
You do pay more than purchasing a standard house in the same area. The builder is covering their costs and margin, plus potentially the rent they are paying you. Although in saying that - the house generally has a better fitout and more options than a standard build, which contributes to the price;
However - there is no way you could build the same house to the spec of what we got for the same money now;
We had no trouble getting finance but could not get insurance. Ended up getting the builder to put us on their policy;
Some are better than others in terms of what you get and how much you pay (some are way over specced imo).
My suggestion would be to:
Compare purchase prices with other properties in the area. This will give you an idea if you could exit the property if need be at the end of the term;
Check rents with other properties in the area, and work out what your returns would be after the builder leaves. This will then give you a real idea of the returns on the house.
In our situation we paid $399k for a 4 bedroom display 2.5 years ago. The rent from the builder was $613 per week at the time. We now get $390 per week. Current value is very difficult to put a figure on, but best guess would be $450-$500k.
Good luck!