as a first timer on the forum my question is: would it be a good investment to buy a new diplay home which is leased back to the builder at 9% for 2 years with a further two 6 month options?
There really is not enough information here to give any sort of detailed opinion but 9% is a good return for a new property as long as you don’t pay an over the market rate price for it. You need to consider how long you want to hold the property and what sort of market rent return you will get when the builders lease expires. The location and normal rental demand is important as well.
Todd Burns
http://www.freepropertyhelp.com.auAlso check you can get insurance and the cost (this may drag the yield down) as you are willingly letting people into the home to view it so not insurance will cover you for some types of damage. Check it out before buying.
Could be a good thing, just check everything out first to be sure.
Regards
PKOriginally posted by crusher:There really is not enough information here to give any sort of detailed opinion but 9% is a good return for a new property as long as you don’t pay an over the market rate price for it. You need to consider how long you want to hold the property and what sort of market rent return you will get when the builders lease expires. The location and normal rental demand is important as well.
Todd Burns
http://www.freepropertyhelp.com.auMy thanks to both of you. The present open market rent in the area is just over half of what the builder is offering for the 2 to 3 year period.My thoughts are that the local rents MAY go up during the next couple of years and as the erea becomes more established the value of the property may also increase. I would hopefully hold it for the long term (15 to 20 years maybe) . The depreciation schedule will help and when the builder’s lease expires he will make good any repairs (but I don’t know yet about wear and tear) and complete all fencing etc. There is a good shopping centre very close by and a bus service about 50 meters away – nearest train station is a good 6 k’s away. So with that and remarks Ive had from local estate agents it seems that it would be easy to rent out for the long term.
I hadn’t thought about insurance though! I just assumed that the normal landlords insurance would be sufficient cover??? Will have to check that out, and the situation with regards to wear and tear.
Does anyone know of any experiances, good or bad, with type of arrangement?Hey guys, great topic good feedback
im actually considering the same sort of deal at the moment, and my main concerns are :
at what point in the building process, do we start having to make mortgage payments? ie – if the builders lease commences from the day its turn-key ready, will there be a period before this where we are paying mortgage payments and getting zero rent?
my other concern is what happens when the good rental income ends and regular tenants move in at a reduced rate and the shortfall goes up..but this is an obvious one!
–EDIT–
sorry guys 2 secs of research answered my own question !
[exhappy]
Hi guys,
I’ve heard that investing in display homes is a good idea because of the guaranteed high returns while the house is a display home. However, how would I go about buying a display home because i’ve also heard that their can be a line-up to buy display homes because of their guaranteed returns? Is this true? If so, how would one go about buying a display home to get the initial returns?
Thanks
Paul
[suave2]Hi,
I have not invested myself but know of someone who has. They say its a great investment. As part of their terms, the place gets a repaint and new carpeting and everything fixed to as new before the lessee hands back the property.Mat
Just pulled out of a display home deal myself. Looked a good deal on the face of it but finance can be a real problem. Most lenders consider them non standard because of the leaseback and so your available sources of finance are immediately limited. This was a lesson to me though I fail to follow the logic.
The lenders valuer ended up saying the property was worth a lot less than the asking price, mainly because there was little comparable sales in the area, being a new development. For the amount required to invest I felt the return was not good enough in the end. I have no doubt the property will perform well over the medium term but the short term risk was too high. If the bank had been right then I would have lost $70k instantly and relying on faith of the future development to recoup that over the coming years.
Generally the cost of the lease is added back onto the purchase price, so watch out for that.
As long as you are not paying above market rate then I would say go for it as the secure and quality tenant for the initial period makes it a worry free investment. But be sure to really research the deal carefully and get a fully independent valuation based on the plans!
From someone who has just been through a whole lot of learning about the world of display homes I hope that helps.
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