purchasing display homes

[jsoe]

Hi,
I went to see a few display homes last weekend. They are so shiny and gorgeous of course dressed and furnished by designers.
I know some people actually own these and they move in/rent out to a normal tenant after their lease back scheme with the builder has ended after 24 months or so. I understand their return during that 24 months as a display home is quite good as it's commercially rented.

My question is are those display homes (attached with 24 months lease back scheme) cheaper to buy?
Or is it cheaper to buy display homes right after their commercial use with a few wear and tear?
Or is there no difference at all?

I have very little idea in this subject but am really interested in buying one. Not sure where to go through. I guess I'll approach the builders?

Thanks,
Junie

 

[Propertunity]

Junie,

This has been discussed many times before - there are some traps.

Please do a goole search: site:somersoft.com "display home"
There are many threads to read there which will help you.

 

[natedog]

Hi Junie,

Couple questions

do you want to rent it out to a tenant after the leaseback with the builder expires?

do you want to move into it?

Generally speaking, you can normally build the same design that is on display for cheaper than the price the builder is asking for the display...but then you have to landscape, furnish etc yourself.

i have seen people who bought display homes in the early stages of big land developments do well in terms of capital growth...and also people who have bought at the tail end not do so well....but you may want to move into yourself as a PPOR, and you arent so focused on return.

while its common to get a 7-8% rental return on the leaseback from the builder....normal market rent once this tends to be lower.

do some research, talk to builders, if they are desperate enough to offload a display that is chewing a hole in thier hip pocket, due to lower construction vloumes putting a squeeze on them financially you might get lucky.

dont get sucked in by the pretty bright lights and nice furnishings and forget about the underlying return you will get though.

Nathan

 

[CHam]

We purchased a display home on an 18 month lease back a few years ago.

Nice rent, great depreciation. Obviously once it comes off lease and you put tenants in you take a hit - although we are getting higher rents than similar homes in the area.

Although we purchased ours at what we thought was a good price, generally they are expensive. Part of this is to do with the fact that they normally are optioned up significantly, plus they need to factor in rent and margin into the cost.

With regards to when to buy - really depends on the market and the purchase price of the home. If the market tanks after you buy then you will struggle with values, same if the initial purchase price is too high.

Google display homes for sale and you will find them or go to the builders websites. Then you need to compare them to other homes for sale in the area, plus take into account current rent, future rent, etc.

Also one thing to note is that it is extremely hard to get insurance for them whilst they are display homes due to them not being occupied at night.

 

[tobe]

Note, its a little bit dificult to get finance for display homes, as they are leased to a company and not a mum and dad. they are a couple of the big four who specifically exclude them as securities.

 

[jweg]

Do it Your Way

Hi Junie,

i have seen people who bought display homes in the early stages of big land developments do well in terms of capital growth...and also people who have bought at the tail end not do so well....
do some research, talk to builders, if they are desperate enough to offload a display that is chewing a hole in thier hip pocket, due to lower construction vloumes putting a squeeze on them financially you might get lucky.

dont get sucked in by the pretty bright lights and nice furnishings and forget about the underlying return you will get though.

Nathan

A measured but accurate response (above)

I'll keep it brief as I know this is about a forum - not selling your wares - however I think it offers a different perspective on the angle of investing with builders.

Most comments above seem to allude that to buy in this way requires total submission to the builder when it comes to price, inclusions, level of finish.

The company I work for is currently preparing to build a display in a new estate - We are deliberately avoiding the over-capitalised and 'hard to sell' approach used by most display homes - and building a practical 4 bed home that is suited to the local market (in Toowoomba QLD).

Rather than set a 'this is the house, this is the cost, sign here!' - we are attempting to engage with an investor who can control the process and amount they spend.

INVESTOR WINS: they build a quality home for approx 20-35K less than what it would otherwise cost to build (zero margin build). Also wins with fast build time, reducing holding costs etc.

BUILDER WINS: Gets the first home built in the estate... which makes a huge difference to their prospects of gaining additional business in that estate.
Also gets face to face contact with potential buyers/customers (most builders will lease back at 7%).

Food for thought...

 

[jsoe]

Thank you all. These are informative. I'll browse the other forums as well and will come back with questions.
yes, my concern is around financing as well. We intend to move in once the lease back is up.

 

[CHam]

Not discounting tobe's comments however we had no issue with finance, and we are with one of the big 4.

 

[Rolf Latham]

Not discounting tobe's comments however we had no issue with finance, and we are with one of the big 4.

LVR has a bit to do with it as well

80 % isnt much of an issue if the lease is 2 years or less and isnt onerous.

Above 80 % with LMI you will need to search a little harder

ta
rolf

 

[Plantagenet]

Display

I'm holding my second display.

Only Westpac will look at a display. The other three wont even look at it. Even though I was under 80% lvr.

The lease back cannot be over 2 years though with westpac

 

[Jacque]

Also one thing to note is that it is extremely hard to get insurance for them whilst they are display homes due to them not being occupied at night.

Something to be aware of... thanks for bringing this to our attention. A very good point!

 

[HotRod]

Gettable though.

Try Don Hutton insurance.

It is a little bit more pricey but still doable.

 

[Rolf Latham]

Gettable though.

Try Don Hutton insurance.

It is a little bit more pricey but still doable.

U can insure a Burning House for the right premium

t
arolf

 

[CHam]

We tried everyone without luck. In the end we simply jumped on the back of the Builders insurance. The builder certainly doesn't want their nice display home uninsured!

 

[MsAli]

Margaret Lomas show Your Money Your Call tonight had the same question! Was someone from Melbourne calling.