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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.
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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
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