Buying Model Homes as an Investment

Builder Model Lease-backs are becoming extremely popular among investors.  

It is possible to buy a Model Home from a Builder and then Lease it back to the Builder for up to 2 years or more while they build out their project.

Lease rates and terms vary, but we are finding that many investors have been disillusioned with the stock market and are becoming more active players in real estate.  A furnished model with a leaseback provides income while the home is open to the public, and investors anticipate a profit as real estate prices rise. There are investors who seek out builders prior to the start of construction of models in order to take maximum advantage of the real estate market. When Models become available, they go very quickly.... sometimes overnight.  That is why we specialize in finding these opportunities as soon as they become available.

Model Lease Back Programs

To encourage visitors to tour their communities, Builders through out Florida present model homes in order to illustrate their home designs, features and quality of construction.

As you visit models and model centers you may see information about “Lease Back Programs”.  These are the programs whereby you (the Buyer/Investor) contract to have a model (house) built and the builder or developer leases the house back from you for a predetermined amount of rent for a specified period of time.  Generally builders will lease the house back for the amount of the mortgage principal, interest, taxes and insurance payment (PITI) amount. Some builders/developers will have a built in increase for renting the home.  The period of time the builders/developers lease the home is normally from one to two years with additional time options generally at the builder's/developer's discretion. This is what is commonly referred to as a "Model-Lease-Back".

Model Lease Back Advantages

For the purchaser of the actual model, there are several advantages that add to the value and appeal.

The model home is not only a showcase of the builder's capabilities, but also a showpiece for the community in which it is located. That often means that the home is situated on the best location in the community with spectacular views. In addition, builders often include numerous upgrades to illustrate what is available for future homebuyers.

Buyers, who don't need to move in immediately, may find that the purchase of a model and leaseback to the developer can have significant financial advantages. The buyer is able to lock in on the price of the home, securing a purchase against future price increases, and lock in on today's low mortgage rates.

With the leaseback, the developer or builder is paying the buyer — or paying the buyer's mortgage — over the life of the lease.

The buyer is getting a home that is professionally decorated and maintained.

Model Leasebacks are also excellent candidates for 1031 Exchanges. Investors can buy and sell these properties without paying Capital Gains Taxes.

A builder's model has intrinsic value and the advantages make for a good buy, regardless of when it is purchased.  It is a sound real estate purchase in the long run.

 

Pros and Cons of Model Leasebacks

Pros: Leasebacks can be a good way to plan for your house needs now and have the home ready to move into when you're ready to move.  Some retirees find this an appealing option as more and more people are preparing for early retirement. Leasebacks can allow you to buy a house at today’s price and have it kept in like-new condition until you move in. Locking in on early pricing and low interest rates. Great 1031 exchange option, tax benefits, strong market appreciation, monthly income potential, good investment.

Cons: Builders may have final say on what options are put into the home, what colors are used to design the home, and where the home is located.  Builders want maximum exposure and as such, some of the model homes could be located in the front of a development or on a main street.  If this is a concern, ask for information on future Models to be located on “premium home-sites” only.

Important questions to ask about Model Leasebacks

  • What is the duration of the lease?
  • How will the home be used? (Will it be a 7-day a week model home or just used to bring interested customers through?)
  • How much rent is the builder offering? What it is based on (e.g. PITI) and does the rent increase if the builder takes any of the extended lease period options? (Meaning if the builder rents longer then expected)
  • Who will maintain the model?
  • What options will be placed in the model and who will be paying for these options?  (If the Buyer is to pay for any of the options ask if there is any reduction in the option's price.  Keep in mind the options shown in the home will help the builder greatly in selling these products and thus the builder will make an additional profit.) 
  • Where will the model be located?
  • Who is responsible for Taxes, Home Owner’s Association Dues, Maintenance, Utilities, CDD’s, etc…?

Contact Kim Simone today for a list of available Model Home Properties...
(941) 746-5525
kim@realtyteam.com