Display home with leaseback - do I need landlord insurance?
- Thread starter lenovo
- Start date
It probably wouldn't hurt to get something with a low premium, then if the builder goes bust and disappears at least you can get some rent back. There shouldn't be any damage to worry about though.
Where is the home is it a good deal? I like the display leasebacks personally but you do need to do your homework and be sure the rents aren't factored in to the sales price. Often they are much higher spec than the ones they are selling and you can do quite well out of them.
Where is the home is it a good deal? I like the display leasebacks personally but you do need to do your homework and be sure the rents aren't factored in to the sales price. Often they are much higher spec than the ones they are selling and you can do quite well out of them.
Thanks. I think if the vendor goes bust, the remaining lease payment is already covered by the contract... and all other damages are also covered by it. So I guess it's safe to say that we don't have to get one?
The property is in a new golf estate (designed by Greg Norman) and therefore we had difficulty with the bank as it was "risky" as they said. The bank had it valued and it was 20K off the mark. We didn't care as the lease was 8% of the price and we just have a 5% interest rate. The lease will even pay the interest of our current PPOR with a little more to spare. As it is a display home, it is positioned in a great location. The second level rumpus & veranda has unhindered views of the pond, the 7th fairway, and the 7th and 6th greens. All outgoings will be paid by the lessee (council, water, even building insurance will be paid by them). Golf course will be open on the end of 2010. It's a big risk if it goes bust but we feel it's a great investment if all goes well.
The property is in a new golf estate (designed by Greg Norman) and therefore we had difficulty with the bank as it was "risky" as they said. The bank had it valued and it was 20K off the mark. We didn't care as the lease was 8% of the price and we just have a 5% interest rate. The lease will even pay the interest of our current PPOR with a little more to spare. As it is a display home, it is positioned in a great location. The second level rumpus & veranda has unhindered views of the pond, the 7th fairway, and the 7th and 6th greens. All outgoings will be paid by the lessee (council, water, even building insurance will be paid by them). Golf course will be open on the end of 2010. It's a big risk if it goes bust but we feel it's a great investment if all goes well.
Might sound like a dumb question..do you need a PM to manage such properties?
Or the builder is the PM? In such cases, is the PM cost factored ?
Cheers
Or the builder is the PM? In such cases, is the PM cost factored ?
Cheers
I'd say that the valuation was spot on.
I have valued quite a few display homes over the yeas and in every case they are sold over the odds with the difference reflecting the present value of the over rental. They are generally sold on rental yields of 8% when market rents are a 4% yield.
Basically when you buy a display home on such a yield you are just giving them a premium that they give back to you over the years oin the form of rent.
It is really like buying a property at market value plus a 4% annuity until the lease expires.
Still you do get a lot of bang for your buck in terms of quality of fit out in display homes.
cheers
RightValue
PS It is always the valuation that is off the mark ... no one ever pays too much....
The builder/lessee takes care of maintenance. It always have to be spic and span in the eyes of potential customers.
Sorry Sparky it's better to keep the figures to ourselves at this point. The estate is in northwest of Sydney - Stonecutters Ridge.
8% lease might not be a good deal if interest rates are 7%-8%. But in today's trend of 5% interest rates or lower (we'll see next month), it's a good one. Of course we are always aware that interest rates can go up to 10% in two to three years time but we have still have time to mitigate this risk.
lenovo,
Are you registered for GST? I've got a feeling that if the builder is using the property as a place of business (display home) then 1/11th of the rent will need to be paid as GST, if you are registered.
Can anyone with experience in regards to this able to shed some light on the situation?
Boods
Are you registered for GST? I've got a feeling that if the builder is using the property as a place of business (display home) then 1/11th of the rent will need to be paid as GST, if you are registered.
Can anyone with experience in regards to this able to shed some light on the situation?
Boods
I would be surprised if an ordinary landlord insurance policy (or even an ordinary building policy) covered a display home. Make sure you get it in writing from the insurer that you are covered for your situation.
For example the fact that it will be unoccupied for more than 60 days is something you have to tell them and they have to agree to cover it.
I would also check whether the policy would cover rent default over such a long lease period or would they just cover it for say 12 months. And if the builder did go bust and you had to rent it to an ordinary tenant paying much less rent, would the insurer make up the difference?
Does the builder fix damage due to theft and vandalism?
For example the fact that it will be unoccupied for more than 60 days is something you have to tell them and they have to agree to cover it.
I would also check whether the policy would cover rent default over such a long lease period or would they just cover it for say 12 months. And if the builder did go bust and you had to rent it to an ordinary tenant paying much less rent, would the insurer make up the difference?
Does the builder fix damage due to theft and vandalism?
Definetly not always the case I have come across some great buys, also we sold the home I was working out of in January for $445,950 with 8% leaseback. This was exactly the same price as another identical house we were marketing except that mine had ducted air conditioning, $7k of extras a water filter and extra phone and internet points so all up approx another $20k more in value. No way was the rent factored into that selling price.
I also missed out on a purchase for myself a couple of years ago just because I was too slow, I had all of the figures in from the valuer that told me it was a good deal and it was also selling below the prices of equivalent properties in the same street. Too much time spent on due diligence in that case.
Hence the reason I say each one should be looked at on its own merits!
hi boods,
i've asked our accountant about gst as our solicitor mentioned it to us also and he said display homes are still considered residential so no need to charge gst. we're not registered for gst by the way... but if any other display home owners got experince in charging gst I'd be interested to know the details.
you're right we received a special kind of insurance from the lessee. i think the lease contract and insurance provided are enough to cover for everything. if ever it gets vacated, we're always prepared to transfer there as we bought it with the intetion of making it our ppor in the future. we're not keen to let anybody use it except as a display home.
hi sparky,
yes, we've settled last week (finally!). it has been a long process since october... you can see the property through this link - www.stonecuttersridge.com.au - it's the second one from the left. the dining/kitchen is also shown in one of the pictures in the header.
