澳洲Australia property Builder's Display Home | Sydney

在澳大利亚


RE is offering opportunity to buy builder's display home and builder will rent it back for 2 years. I was just wondering what one needs to be aware of when considering this?

Insurance - if the public trip and hurt themselves - owner or leasee's insurance?
What is the potential rent return / value of property when builder vacates?
Do you get a better finished home because it is the display?  

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Finance will be the biggest concern (along with insurance). Banks won't take the actual rental they will only take the market rental. Plus they may not even accept the security. You also need to pick the insurer carefully because insurers do not insure vacant buildings like display homes.  

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Generally the rent they will offer will be above market rate.

Pros:
- tenant who will upkeep the garden
- you can ask for a make good at end of lease if you like - ie tenant to repaint and repair before handing back to you (this is totally optional and just something you might like to ask)
- they don't use the appliances
- they are generally amongst other display homes and there are 10 or so nicer homes which do often have higher resale
- you can ask to purchase the furniture package in the house - often a good buy at very reasonable prices
- display homes are always built to a better standard than their stock standard House and Land

Cons:
- warranties may run out before you even get to use the goods
- insurance
- builder might end lease early
- be careful not to pay over market value  

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We wrote a blog on this topic, with reference to the depreciation deductions. It might be of interest to you:
http://www.mcgqs.com.au/blog/display-homes-property-investment/

Regards,

Mike  

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Thanks aaron, westminster and mcgqs.

The pro that got my attention was the builder is offering 8% return on purchase price.

I am waiting on RE to get back to me with no. beds, bath, cars, land size etc. It is in what will become a very large estate which will have an affect on rents post 2 years I think.

I believe it will be an OTP deal and from what I have read on SS about OTP is that it should be avoided. - Is that another set of risks?


Anyone on SS bought a display home and leased it back?  

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The first email sent by RE is definately a baited hook to catch fish.

The price has gone up (he forgot to add his commission/ selling costs to the price so extra 10k)
The lease is initially 12mths not two years.

I wonder what else will come out of the wood work.

And me thinks the house is overpriced. It is a 4 2 2 for 406k in an estate opposite recently you could buy a 4 2 2 NRAS for 330k (slightly less land).  

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Hi Chaos,

We purchased a display home a couple of years ago.

It was rented back to us for an initial 12 month term + 6 month options (ended up being 18 months total lease) at 8% interest.

The pros are:
Nicely finished house with good fittings and fixtures, lovely landscaping with decks, pergolas and plantings;
The rental period with the builder was stress free;
Always paid on time, and the house was very well maintained;
Very high depreciation (from memory $17k in first year);
We were able to rent out at the end of the display term at higher than market rates (although at a large decrease to what we were getting from the builder -which we new was going to happen). Basically went from being positive to negative cashflow, although depreciation is good at tax time;
The builder did a fair bit of work on the house to make it suitable for living in when they moved out.

The cons are:
You do pay more than purchasing a standard house in the same area. The builder is covering their costs and margin, plus potentially the rent they are paying you. Although in saying that - the house generally has a better fitout and more options than a standard build, which contributes to the price;
However - there is no way you could build the same house to the spec of what we got for the same money now;
We had no trouble getting finance but could not get insurance. Ended up getting the builder to put us on their policy;

Some are better than others in terms of what you get and how much you pay (some are way over specced imo).

My suggestion would be to:
Compare purchase prices with other properties in the area. This will give you an idea if you could exit the property if need be at the end of the term;
Check rents with other properties in the area, and work out what your returns would be after the builder leaves. This will then give you a real idea of the returns on the house.

In our situation we paid $399k for a 4 bedroom display 2.5 years ago. The rent from the builder was $613 per week at the time. We now get $390 per week. Current value is very difficult to put a figure on, but best guess would be $450-$500k.

Good luck!  

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CHAOS said: ↑
The first email sent by RE is definately a baited hook to catch fish.

The price has gone up (he forgot to add his commission/ selling costs to the price so extra 10k)
The lease is initially 12mths not two years.

I wonder what else will come out of the wood work.

And me thinks the house is overpriced. It is a 4 2 2 for 406k in an estate opposite recently you could buy a 4 2 2 NRAS for 330k (slightly less land).Click to expand...
Hmmmmmm

In answer to your OTP question above - this is one of the few cases where OTP is less risky. It's not like an apartment building where it all hinges on xxx being sold, the market and the developer. Sure there is a chance the builder will go bust but less likely than an apartment development - which will also take a lot longer to get off the ground than a display home.

If you want to look at the display home market then most builders will sell them direct - then you don't need to factor in REA fees etc. Dealing direct with the builder is the best way in my opinion.  

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CHam thanks for your detailed response.

Great that the builder added you to their insurance policy.


Westminster - I had never come across this type of investment opportunity before receiving an email from the RE. It makes sense to deal direct with the builder.

I did some more research on the estate and rang to ask a few general questions. House and Land Packages 360k for 4 2 2 same land size.  

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CHAOS said: ↑
I did some more research on the estate and rang to ask a few general questions. House and Land Packages 360k for 4 2 2 same land size.Click to expand...
CHAOS,

Don't let that comparison put you off. Have you built before? If not the add-ons, site costs and landscaping would easily take that 360k to $406k+.

Not saying that it is a great deal but possibly worth doing some more due diligence on.

Don't get me wrong - we probably wouldn't do the display home thing again unless the deal was very good. But each situation is different and may be attractive to people for various reasons.

And on another note ours was already built and being used as a display (so not OTP) - which is possibly why we missed 6 or so months of rent and only got 18 months. Off the plan may work if you have a fixed price, don't have to make progress payments whilst in construction and can then get additional capital growth (hopefully - depending on the area) whilst it is being built and you are not making repayments.  

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I'm not sure how common it is in Vic - it's pretty common in WA and all the builders usually have a page on their website which lists the displays for sale.

A quick google showed me Metricon have 57 listed

http://www.metricon.com.au/melbourne/home-and-land/displays-for-sale

Metricon are offering "Wouldn't you love a 10% rental return?
For a limited time a selection of display homes for sale in Melbourne have a guaranteed rental return of 10% for the life of the display* All building progress payments, council rates or taxes, insurance and gas and electricity use are paid for by Metricon for the term of the lease. Investors and home buyers who purchase a Metricon display will receive a great return on their investment"


You can compare prices and standard deals.

Finishing off a home with floor coverings, painting, landscaping etc can easily add $50-100k on top depending on the price-point.

The downside can be that they are generally in the outer reaches and new estates where growth might not be that good.  

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Thanks for the great feedback guys. It is something I definately need to do more DD on before I jump in.

This deal involves 5% deposit and progress payments. Builder will not start until he has an investor.

The estate it is in is going to cater for 2200 homes. While vacancy rates are still low in the area, owners have had to reduce rents to get tenents in. Speaking to local PMs they say it is due to all those first home buyers whose new homes are now finished so they are moving in instead of renting.  

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Any thoughts on why some builders offer 7% leaseback and others 10%? I've purchased a display home recently and with interest rates as they are, thinking about another one and being able to lock in for 2 years at 4.99%, if a builder is offering 10% that's a fantastic extra earn in my pocket for the next 2 years to buy another one. On a $450k purchase, that's roughly $22k in my pocket for the next 2 years, as well as depreciation advantages. So they build some extra into the purchase price, apart from that why wouldn't mroe investors take these offers up?
Thanks for feedback  

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More people don't take them up because they can't get finance for them - so having a 7% or 10% return is moot if no one will lend you the cash.  

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Aaron_C said: ↑
More people don't take them up because they can't get finance for them - so having a 7% or 10% return is moot if no one will lend you the cash.Click to expand...
What are banks looking for? When I purchased original display I had 20% deposit.  

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