Display Home

[komstak]

I'm considering purchasing a display home with a guarenteed 7.5% for 5 years.

Pros:
- positive geared from day 1
- guaranteed rent for 5 years
- Insurances, rates and water paid by the builder

Cons:
- Hard to secure a loan. Does anyone know why banks dislike display homes?
- Often problem with valuation

Has anyone here purchased a display home? I would love to hear your experience/problems

 

[newbyinvestor]

I'm considering purchasing a display home with a guarenteed 7.5% for 5 years.

Pros:
- positive geared from day 1
- guaranteed rent for 5 years
- Insurances, rates and water paid by the builder

Cons:
- Hard to secure a loan. Does anyone know why banks dislike display homes?
- Often problem with valuation

Has anyone here purchased a display home? I would love to hear your experience/problems

You don't mention the specific numbers and various details with the deal, however I will give it a go.
If the banks valuation is for example $500,000 and your purchase price is $620,000 then the promise of 7.5% for 5 years isn't going to be enough to convince banks.
While 7.5% is a great return, the banks perspective maybe to consider what happens if the 7.5% deal falls over and or what happens if interest rates go through the roof.
1: Does the lender have the capacity to service the loan.
2: If there is a default, will the sale of the asset cover all of the debt.
BTW, you don't mention deposit?

I don't believe banks have a specific dislike for display homes, it's simply a matter of whether or not individual deals meet their lending policies.

 

[Paul Do]

I'm considering purchasing a display home with a guarenteed 7.5% for 5 years.

Pros:
- ...

Aren't you forgetting the main Con - overpriced?

What you need to do is a cost benefit calculation. For example, say a near new similar home in the same location costs $100k, and the extra rent and outgoings is worth $15k over 5 years, but the asking price is $120k, then you're better off giving the display home a miss, and vice versa.

 

[newbyinvestor]

Aren't you forgetting the main Con - overpriced?

What you need to do is a cost benefit calculation. For example, say a near new similar home in the same location costs $100k, and the extra rent and outgoings is worth $15k over 5 years, but the asking price is $120k, then you're better off giving the display home a miss, and vice versa.

I would also listen to the feedback the bank gives you with this property.
Has your bank mentioned what amount it would finance the property for?