Forums / Property Investing / Value Adding / Buying Display Homes

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  • Profile photo of TraceyTracey
    Member
    @tracey
    Join Date: 2004
    Post Count: 2

    Hi
    Hope someone can give me some advice. Recently I came across a deal through a building group that offers you the chance to buy a display home. Some are already built others are yet to be built and you purchase them off the plan. The company then ‘rents’ them from you for a contracted time approx 2 years at what appears to be a good return. Has anyone else seen these deals and taken them up? Any thoughts about this type of purchase and problems to look out for? It seemed a bit too good to be true. The company offering this says that they would rather get the cash to then fund future developments than to hold on to a home for such a long time.
    Thanks for your time
    T

    Profile photo of vicgirlvicgirl
    Member
    @vicgirl
    Join Date: 2004
    Post Count: 69

    Tracy, I would look at three things. firstly, what’s the price of a block of land in the development. Secondly, what’s the price of the house if it was built on your land. Thirdly, look at the growth rate in the area/suburb. If the asking price is considerably higher than what it would cost you to buy the land and have the house built for you, and there is no hope for good capital gains in the next two years than it’s too good to be true. You make your money when you buy, not when you sell. Good luck.
    vicgirl

    Profile photo of GeronimoGeronimo
    Member
    @geronimo
    Join Date: 2002
    Post Count: 167

    Yes, and get some independant rental appraisals too as you can be pretty confidant the rent they pay you will be far more than the market rent.

    So in a nutshell, the potential risk you’re facing is that you have an overvalued property in 2 years and the rent will drop dramatically when you have to rent it on the open market.

    Good Luck!

    Brendon


    Acute Mortgage Reductions
    [email protected]

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Tracey,

    Ditto the previous comments and adding that most display homes I have seen seem to be placed on the major roads (often the entrance point) to subdivisions and estates. As a result future growth may be somewhat compromised.

    Derek
    [email protected]

    Property Investment Support Available. Ongoing and never stopping. PM welcome.

    Profile photo of qwertyqwerty
    Participant
    @qwerty
    Join Date: 2004
    Post Count: 117

    Hi Tracey,

    My accountant bought one of these homes and made quite a lot of money. This deal was done a few years ago though and the boom helped him considerably with his profits (he did sell after the builders lease expired).

    As stated before check market rent for the area. It might be considerably lower than expected. My accountant solved his problem by selling into a hot market and taking his profits. Today you might be stuck with it for some time.

    Profile photo of CreminCremin
    Participant
    @cremin
    Join Date: 2003
    Post Count: 105

    As far as i am aware, when you buy a display home you don’t get any fittings or fixtures included in the price. Not sure if that applys in your area or if it is standard with all building companies.
    Ps check that it’s insulated too!

    Work smarter, not harder!.

    Profile photo of TraceyTracey
    Member
    @tracey
    Join Date: 2004
    Post Count: 2

    Thanks for all the thoughts and suggestions. It has certainly given me more areas to investigate.

    Profile photo of Tim the ToolmanTim the Toolman
    Member
    @tim-the-toolman
    Join Date: 2004
    Post Count: 5

    I’ve bought and sold many display homes in the past (only bought 1, sold heaps through my job). The best part is that your tenant is a builder who will maintain the house adequately and the second best part is the high depreciation you will get on the fixtures due to the level of specification that is used to complete the home. The builders may not necessarily be aware of the commercial value of their specifications as many suppliers provide these items very cheap or even free so it would be wise to find out the spec and get it costed elsewhere and you will enjoy very healthy depreciation. I bought one property and sold it at around the same price I bought it, however, I enjoyed great tax benefits and returns for the 2 years that the display was open. Display homes are usually over priced due to the level of landscaping, air conditioning and other works going into the house so it’s almost a commercial proposition. The other thing is that even the ATO is unaware of GST implications for your rent and there still has not been a ruling on it. I have a contact at the ATO, and she is a GST specialist for the building industry and invests in display homes herself and she still can’t give advice on GST and your rental? Much more to tell if you want advice.

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