Display homes
- Thread starter Pablo
- Start date
Pablo,
I haven't spent a lot of time looking at the investment angle of display homes but like most, I have spent a bit time looking through the homes. From my perspective most display homes would seem to be placed on smaller blocks than is the norm for the estate. Given than CG will be based on the land value and not the house value a display home may give you reasonable short term rental yields but limit your opportunity for CG.
I haven't spent a lot of time looking at the investment angle of display homes but like most, I have spent a bit time looking through the homes. From my perspective most display homes would seem to be placed on smaller blocks than is the norm for the estate. Given than CG will be based on the land value and not the house value a display home may give you reasonable short term rental yields but limit your opportunity for CG.
A further thought
Interesting comments !! I'll add one more - I looked at purchasing just such a place about 10 years back. At the time, during dd, I found that a fair percentage of display homes were built "slightly larger" than the plans provided at the Display home. It all helps when selling the dream..... And who would notice a 5% - 7% difference in dimensions when their "dream home is built? (Can be hard to put a finger on, really...)
So, what do you get if purchasing a display home? Well, first off you usually get a Cashflow neutral to +ve "IP" for the first 12 - 18 months.
Then you get all carpets replaced after they end their tenure as a "display home". And all damage made good.
You may end up with a slightly larger home that has had "THE BEST" of tenants in its early days. No PM, no damage, guaranteed rental, etc.
Are they really on smaller blocks? Or does it just appear that way (since they can be 7% bigger than "the norm"). Often, they are built on some of the more desirable blocks in the development (it's all about selling....)
Could there be a downside? Absolutely !!! A lot depends on each individual house, and even the company with whom you are doing business.
Could such a purchase be worthwhile? Absolutely !!! With the benefits listed above, I can understand how this could help someone "just starting out" to get a very nice house (perhaps better than most in the area) with a neutral, or better, cashflow.
Of course, the overall success of such a purchase could be tied to the overall success of the development (and the company marketing them) too.
Guaranteed success? NO WAY!!! Caveat Emptor still applies
Regards,
Interesting comments !! I'll add one more - I looked at purchasing just such a place about 10 years back. At the time, during dd, I found that a fair percentage of display homes were built "slightly larger" than the plans provided at the Display home. It all helps when selling the dream..... And who would notice a 5% - 7% difference in dimensions when their "dream home is built? (Can be hard to put a finger on, really...)
So, what do you get if purchasing a display home? Well, first off you usually get a Cashflow neutral to +ve "IP" for the first 12 - 18 months.
Then you get all carpets replaced after they end their tenure as a "display home". And all damage made good.
You may end up with a slightly larger home that has had "THE BEST" of tenants in its early days. No PM, no damage, guaranteed rental, etc.
Are they really on smaller blocks? Or does it just appear that way (since they can be 7% bigger than "the norm"). Often, they are built on some of the more desirable blocks in the development (it's all about selling....)
Could there be a downside? Absolutely !!! A lot depends on each individual house, and even the company with whom you are doing business.
Could such a purchase be worthwhile? Absolutely !!! With the benefits listed above, I can understand how this could help someone "just starting out" to get a very nice house (perhaps better than most in the area) with a neutral, or better, cashflow.
Of course, the overall success of such a purchase could be tied to the overall success of the development (and the company marketing them) too.
Guaranteed success? NO WAY!!! Caveat Emptor still applies
Regards,
Thanks for your advice.
The house I am looking at is on a 580m block and the house itself is 200m. The lease is 2+1+1 years at 7% at a cost of $310,000 so I am hoping that with the initial lease and then rent increases during that time I will only have a few years where the IP will be cashflow negative.
The house is also near a school, a large park and only 1.5Kms from a nice beach.
My main concerns are
1. That the builders over value the house to start of with to compensate for the 7% lease.
2. The house is right on the extremes of Adelaides outer suburbs and I am unsure how this will effect the CG ( although I am getting it cheaper to start of with due to this).
3. It is located on a corner of one of the busier streets of the housing developement.
Cheers.
The house I am looking at is on a 580m block and the house itself is 200m. The lease is 2+1+1 years at 7% at a cost of $310,000 so I am hoping that with the initial lease and then rent increases during that time I will only have a few years where the IP will be cashflow negative.
The house is also near a school, a large park and only 1.5Kms from a nice beach.
My main concerns are
1. That the builders over value the house to start of with to compensate for the 7% lease.
2. The house is right on the extremes of Adelaides outer suburbs and I am unsure how this will effect the CG ( although I am getting it cheaper to start of with due to this).
3. It is located on a corner of one of the busier streets of the housing developement.
Cheers.
Hey Pablo
Your strategy seems sound provided real rents stay as is or increase and the area goes well.
IMO it would be unlikey an area where the builder is committing to the that sort of investment willgo backwards over the term on the lease.
Risk is the builder defaults on the lease via bankruptcy. IS the lease direct or with a holding company. Is GST payable being used for business purposes?
Peter 147
Your strategy seems sound provided real rents stay as is or increase and the area goes well.
IMO it would be unlikey an area where the builder is committing to the that sort of investment willgo backwards over the term on the lease.
Risk is the builder defaults on the lease via bankruptcy. IS the lease direct or with a holding company. Is GST payable being used for business purposes?
Peter 147
Hiya
If you can buy one with close to cash then you are ok.
If you need anything like a normal LVR loan forget it. Most banks will take them as security
ta
rolf
If you can buy one with close to cash then you are ok.
If you need anything like a normal LVR loan forget it. Most banks will take them as security
ta
rolf
Success?
Has anyone successfully done this and is it a worthwhile strategy to be repeated?
I’ve seen the AD’s for Turnkey style investments as this but haven’t heard of anyone repeatedly doing it…
It could be a strategy to purchase an IP to later turn into a PPoR?
2+1+1 how strong is that lease really?
REDWING
Has anyone successfully done this and is it a worthwhile strategy to be repeated?
I’ve seen the AD’s for Turnkey style investments as this but haven’t heard of anyone repeatedly doing it…
It could be a strategy to purchase an IP to later turn into a PPoR?
2+1+1 how strong is that lease really?
REDWING
Just thought you might want to know that my fears that display homes are overpriced because they include the rent they pay you in the selling price turned out to be true.
I had decided to go ahead with the purchase of one and picked up the contract. When I was looking it over I found that the rent was only 7% of 256k not the 310k Purchase price and told I would get 7% on. Upon reading further I found that the 7% was paid on the market value. I then discovered an interesting thing, 256k + 3 years rent = 310k.
Needless to say I lowered my offer to 256k and they rejected it.
A big mistake narrowly averted.
Thanks for all your advice anyway.
I had decided to go ahead with the purchase of one and picked up the contract. When I was looking it over I found that the rent was only 7% of 256k not the 310k Purchase price and told I would get 7% on. Upon reading further I found that the 7% was paid on the market value. I then discovered an interesting thing, 256k + 3 years rent = 310k.
Needless to say I lowered my offer to 256k and they rejected it.
A big mistake narrowly averted.
Thanks for all your advice anyway.
Hi All,
I recently sold a display home & thought it was fabulous value for the buyer.
The company i work for is building 2 new displays in a nearby location & were looking for a buyer. So we sold the property with 8% lease for 5 months with options for extensions in the lease if we require it. The property was sold below replacement value, had heaps of extra's & the customers asked for the furniture with all fixutres to be included in the price. The company agreed & we are giving the house to the customer as is with everything. The house had alot of extra, $20,000 of furniture included, big block & in the best location in the estate. The purchases will move into the house once the lease period is over & they now have time to sell there current house.
Overall a good deal for everyone involved.
So the moral of the story, do your due dilligence & don't be afraid to negotiate.
Cheers Tony
I recently sold a display home & thought it was fabulous value for the buyer.
The company i work for is building 2 new displays in a nearby location & were looking for a buyer. So we sold the property with 8% lease for 5 months with options for extensions in the lease if we require it. The property was sold below replacement value, had heaps of extra's & the customers asked for the furniture with all fixutres to be included in the price. The company agreed & we are giving the house to the customer as is with everything. The house had alot of extra, $20,000 of furniture included, big block & in the best location in the estate. The purchases will move into the house once the lease period is over & they now have time to sell there current house.
Overall a good deal for everyone involved.
So the moral of the story, do your due dilligence & don't be afraid to negotiate.
Cheers Tony
Quoll, I won't name names but you could say they consider themselves heavenly builders.
Tony, I am sure that not all builders are the same but I enquired with all the major SA builders and they all seemed around the same price. Also from an investment point of view it is probably pointless spending an extra 20k on top quality fittings etc. when it will not earn you any more rent.
Regards Pablo.
Tony, I am sure that not all builders are the same but I enquired with all the major SA builders and they all seemed around the same price. Also from an investment point of view it is probably pointless spending an extra 20k on top quality fittings etc. when it will not earn you any more rent.
Regards Pablo.
Display Homes and Turnkey IP's
http://www.somersoft.com/forums/showthread.php?t=7713&referrerid=3143
Interesting Post from Dales Company..any idea how it went?
REDWING
http://www.somersoft.com/forums/showthread.php?t=7713&referrerid=3143
Interesting Post from Dales Company..any idea how it went?
REDWING
