Buying a Display Home

Just had a thought today- what about display homes.
I know they are usually overpriced due to the styling etc, however they have some really good yields, usually guaranteed for 2 years, with up to 4 years or so depending on how things go with the estate land sales.
Some of the surplus rents can be up to 23k per year- yields range from 6-8% with all outgoings and insurances paid by the builder during the lease term. I haven't researched this properly, so would be interested to hear everyones thoughts.
Have you or anyone you know had a display home that has been leased back to the builder? From what I have seen online those who have seem to have only had good experiences with it.
I know pricing is inflated, but to be honest it doesn't really seem that much higher than if you built, plus they would be full of upgrades that to do yourself would cost hundreds of thousands. If I did this I would probably buy one that is one of the bigger better ones rather than the smaller ones I think

 

Are you intending to rent once the display period has ended?

If so, I wonder if the rent you would need to charge to cover the higher purchase price would be difficult to achieve in a new estate?

 

I have no idea. Im not seriously considering the idea yet, just after some info. I would like to buy to live in I think, and sell off my current PPOR. I believe they for a higher yield than similar homes in the estates, though still wouldn't be anywhere near the 8% etc. I have noticed this when I have seen them come up for lease in the past.

 

Has anyone had any experiences with any?

 

Guaranteed yield promise is what makes me immediately take a step back.

There's no such thing as a free lunch.

 

I'd avoid it. I worked for a couple of builders and were involved in getting finance for their display home purchases.
The only exception are the rare sites that stay displays for years after the sites are built out.

Those ones were worth the money, but they are pretty rare as builders like to show off their new homes, rather than hold onto old stock, even if it's a high traffic area. It's hard to tell at purchase which ones will be long term displays.

Finance is very difficult.

Low vals, low lvr, if the lender will consider it at all (cba and I think westpac expressly prohibit displays) using only the market rent off the val.

Id say if you have the sort of cash to do a display home, id look at commercial or two resi investments instead.

 

I think i want to buy one just as a dream. Im after one of the 54sq 5bed/4 bathroom ones. One I am keen on is in a display village with 52 displays, so I would expect to get a few years run out of it, then move in. It goes against everything I know though... I think its not my head thinking!

 

As long as it's in good location and easy to rent out. Or it's going to be your ppor. We thought of buying a display home but somebody was quicker in thinking.. In hind side we should have bought it instead of buying a vacant land nearby. Depreciation and rent in first few years should be good. They put all the quality stuff that's why a bit over priced, even the building quality looks better. I would buy it especially it is going to be ppor later

 

Fair enough if your going to live there, but get a quote on the same specs nearby. Even to that spec, displays are overpriced. Basically the first couple of lease terms overpriced.

 

Would make an amazing PPOR in a few years when the kids are teenagers. Would probably only stay in it til kids are in their 20s then move on. SO probably would live in it for 10 year for so, hopefully to realise some CG.
Surprisingly, it doesn't seem as overpriced as you would think. Land in the estate is 400k. I would imagine this would be a 450k build, and then all the "extras" they upgrade for display purposes that you wouldn't be getting in a 450k build. Its priced at 899k. Seems like a crap load of money, but not so much when you factor in what it would cost to build yourself anyway, then your getting the leaseback benefit, this one is 8.5%, plus in that time I may even see further growth in my current PPOR which I would then sell when the builders lease was up.

 

Im going for a look today just to see out of interest, and get a quote for the same model house build, and a land price. Interesting to see either way. TBH I don't think finance would be easy to get anyway, and I only have enough equity for an 800k buy, so really out of the question anyway, Nice to dream though!

 

Display homes are usually on busier streets, main artery roads?? to attract clients

Display homes will have lots of traffic coming through during the display period, wear and tear

Display homes provide a higher rental return as incentive to the buyer, but what is the real rental return?

Display homes are generally higher in price point.

Display homes is all about eye candy, curtains, gardens, carpets etc have a short term expiry date and may need to be replaced because ie plants not suitable, carpets not higher grade for wear and tear, curtains/window fittings not appropriate do not provide adequate cover for all seasons.

Best way to make money from new builds is
1. buy land yourself
2. source competitive pricing/project homes

I was doing this in last Perth boom, land and house packages, view posts by @sash and @melbournian and @Connor currently doing this in Melb

Generally speaking in a rising market ie Melb you could see 20%+ on completion.
I would not be wanting to pay more than the value of the property, you are already behind the 8 ball, no point really IMO

 

@MTR i agree. I like these ones as they aren't on the main arterials, its set back in the estate in like a village.but out of my budget anyway!

 

Right
I would place market conditions as number 1

 

Yes! Market conditions are a bit scary right now! Luckily it's already sold so I can't be tempted. I went for a look it was beautiful though

 

@MTR I do see value in H/L deals where you source untitled land.
I see some 400m blocks going for 260k in Clyde (Melb). You can build a Metricon 45sq home for 280k at the moment. I could see a flip with good profit if held for 2-3 years. With titles a year away you could almost realise profits before it's even built.

 

Just be wary when it cones to new estates and L&H packages you want to get in esrly, clise ti peak and tyou can get burnt with this strategy

 

@MTR yes I have noticed this. I think I'd only do it if titles were 8-12 months out to get growth without money down to be safe

 

I do know of a person who bought one in Williams Landing because they really liked it and wanted it as a PPOR after the leaseback ended. They had a 4 year leaseback plus 4 half-year extensions at builder discretion, return was 8%. By the time they moved in (the builder requested an extra year at 12% at the end) it had gone from 805 to 1.2M in value, and the house was nicely furnished. I think if you get it from a quality builder, and are careful with making sure the contract specifies the need to fix it up before returning, it can be OK.

 

I remember looking into these. They were offering rent for 2-3 years at 10% return and the house was going to be used as the display village house. The only problem was they were always 20-30% over priced to make up for the extra rent they were giving you along with what @MTR was saying I would tread carefully