Investment in a builder’s display home may be a sound decision depending on your circumstances. Many builders sell and rent back their display homes to recover some of the capital construction costs. Usually a display home will have a limited life until a new development area is built out, so the lease back option can be attractive to a builder who can maintain a presence in the area without having the financial burden of the construction cost.
The benefits to you can be that the annual return on investment you earn from the rent paid by the builder over the lease back period may be higher than market rates. You may also benefit from any capital appreciation over this time.
Your asset will be extremely well maintained during the rent back period as it is in the interests of the builder to present the home beautifully as a showcase to the public of his building skills. The quality of brickwork, plastering and tiling in the display home may also be above average because of the builder’s desire to demonstrate his workmanship quality and capability.
Investment in a builder’s display home is all inclusive. Elements in a display home that would not normally be included in the standard building contract, eg established gardens, paving, fitting (and sometimes furniture) are included in the changeover price. This may mean that the builder’s asking price is higher than his standard products. There may also be some taxation advantages associated with your investment.
One important consideration is what you will do once the rent back period expires. Rental income from the builder will need to be replaced by perhaps a not so reliable, or cleanliness and maintenance conscious tenant. Is the area a growth area where there is likely to be a number of tenants? What are the prospects for capital gain on your property?
These questions may be less relevant if you choose to live in the home, and not necessarily maximise your return on investment.
You should read the legal documentation and the conditions of the sale and leaseback arrangements carefully and seek advice before committing to a purchase.