Has Anyone Purchased a Display Home?

GG57 on 20/02/2019 - 15:43

I only recently noticed that builders of display homes regularly sell these, with a lease-back arrangement for a pre-determined fixed term. The rate of return is quoted to be around 8% - 10% p.a., depending on the home / builder / etc.
The builder maintains the house during this period, and pays the outgoings (not sure about the rates though).

And apparently, the buyer can also purchase the display furnishings in some instances, at a discounted cost.

Has anyone done this?
What was your experience like?
Things to be careful about?

Home & Garden

Comments

  • JimB on 20/02/2019 - 16:20
    +2

    Any investment with a guaranteed return/rent is always overpriced. And the banks know it.

    Hence why Banks will not accept the rent nor sales price when assessing the loan.

    • deveshwar0 on 20/02/2019 - 16:42
      +1

      The banks would lend against the display house but without mortgage insurance. Generally the valuation is at contract price as well. Further, they will only take estimated rental as if the property were to be leased to a normal person for a fixed term not exceeding 12 months.

  • [Deactivated] on 20/02/2019 - 16:21
    +2

    It depends on who the builder is and the market it is appealing to.

    I'd never consider the lower end high quantity market. The number of people they'd be bringing through the house would surely be reflected in the wear and tear.

    The furniture in the lower end homes are also cheap stuff that is built solely for the look.

    I've walked through the Metricon stuff and honestly wouldn't purchase anything from them. I estimate they walked 100+ families through on the weekends.

    I've walked through some boutique houses. These cost approximately double of Metricon's "equivalent" design. They walk about a couple dozen couples (typically no kids) through. They don't come with a furnished option (I'm guessing leased furniture. High end stuff).

    TLDR - high traffic display homes are not worth it.

    • ihbh on 20/02/2019 - 17:44
      +2

      high traffic display homes are not worth it

      This seems like an emotional response rather than a considered financial calculation.

      Surely they change the floor coverings at handover or you can factor it into your return calc.

      • [Deactivated] on 20/02/2019 - 17:48

        You're not wrong. I'm a bit fuzzy when it comes to homes I live in.

  • ms_caz on 20/02/2019 - 16:31
    +4

    We purchased a display home - it is now our PPOR.

    All in all it went pretty smoothly. We did receive a ROR of 8%. We had the property as an investment for about 2 years before the lease terminated and the builder moved out/we were able to move in. This was probably the thing that was of most concern - the builder had an indicative date of when the lease would finish but he ended up moving out of the property before this date, as the entire development had sold out faster than then developers had expected (apparently) and there was no advantage for the builder to remain in the area. We had hoped they would go for another 6 months, as they had verbally indicated, but it was not a breach of lease situation as this was only something they had talked about with us rather than something written in our contract. As it happened, it didn't matter to us as we simply moved from our previous home and put it up as a rental. Because it was a brand new build and was producing income for us, we were able to claim a heap in depreciation.

    One thing you will need to know is that you will need a commercial insurance policy, instead of a domestic one. This was more expensive and a bit hard to find as many companies preferred not to do display homes as they are high risk for damage, vandalism and public liability. So be prepared to spend some time and money there. (although - tax benefits when claiming this as a deduction).

    Obviously being a display home, your property will have a high end fit out so you will generally be looking at something that has above base grade features, and hopefully has the builder's best work. We found that there was nevertheless a bit of wear and tear - in hindsight we would have replaced carpets, and there were some taps etc that were quite loose. I think that it could have been cleaned a bit more deeply before handover.

    All in all it was a good experience although in the end our relationship got a bit frayed as things that were apparently part of the house weren't quite what we expected eg the security system, which existed as a unit in our place, but which had no connection to anything. Some things looked like they had been installed eg a number of phone/data points which were there as plugs but not connected in anyway.

    Would we do it again? Maybe - it certainly suited our needs at the time and is now very much our home, and looks nothing like a display home!

    • ihbh on 20/02/2019 - 17:49

      We did receive a ROR of 8%.

      So that was a return of 8% p.a. on your purchase price for the lease period? Gross or Net of everything?

      E.g. you purchased for $1m and get $80k annual payment.

      What do you reckon the purchase price was to one of their similar standard homes (and land package)? E.g. +10%/20%. Purchase price vs similar home with your inclusions?

    • elvesg on 12/01/2022 - 09:36

      can you tell me who you got a mortgage through?
      I am buying a display home but having trouble getting finance

  • ms_caz on 20/02/2019 - 16:40
    +4

    re: furniture - it was staged and I guess we could have negotiated to buy furniture if we wanted, but we had no need to. They threw in a few decor items eg wall plaques etc.

    I should have also mentioned - not a volume builder. Our home was built by an individual builder who had teamed up with another to form a partnership in order to display their homes in the development. Each builder built a home of their own design in the display village.

    re: wear and tear - polished floors were resurfaced as part of the deal and hot water service etc was not installed until we moved in - apparently there is significant theft of such units from building sites, and it is standard practice to delay installation until the place is inhabited. However, the heating and cooling system had been installed and was well and truly out of warranty by the time we moved in, and there was an aircon issue we needed to deal with.

    • GG57 on 20/02/2019 - 16:50
      +1

      Thanks for both of your comments; very enlightening.

  • Donaldhump on 20/02/2019 - 17:06

    also pay no stamp duty i believe

    • djkelly69 on 20/02/2019 - 17:26

      What?? Never heard of a stamp duty exemption because you are purchasing a display home.

      • Donaldhump on 20/02/2019 - 17:29

        well its a new home, never been owned before, i might be making this up, but sure someone told me one day.

        not saying yes or no, but check it out

        • djkelly69 on 20/02/2019 - 17:43

          Stamp duty exemptions vary from state to state, so there is no blanket rule or exemption.

          Sounds like you are referring to the old NSW stamp duty exemption for first home buyers which was only for brand new properties. Apart from the fact it has been replaced, it had fairly strict requirements and a price cap, which would probably have been difficult to meet with a display home.

    • Almost Banned on 20/02/2019 - 17:47

      Why would duty not apply?

    • ihbh on 20/02/2019 - 17:51

      Nope, if you buy land and build, stamp duty is on the land only.

    • Trung on 20/02/2019 - 19:40

      You might be thinking of First home buyer duty exemption which, after reading:

      "You must live in your property as your principal place of residence for a continuous period of 12 months, commencing within 12 months of settlement"

      might apply, depending how long they're planning to rent back for.

      I used to think it doesn't apply in any case where you buy as an investment.

      edit to add: After reading the post again, OP never specified that they intend to move in after lease-back. Sorry, for some reason I thought that was the case.

  • [Deactivated] on 20/02/2019 - 18:43

    with a lease-back arrangement for a pre-determined fixed term.

    Be careful of anything promising certain amount rent for fixed period. Ie. Don't expect to get that after the fixed period. It is something used as a selling point, but is rather misleading.
    Someone might sell you a house and guarantee rental income of $500 per week for 2 years, what they don't tell you, is that it's only worth $300 per week (and they will subsidize the fixed term).

    • Quantumcat on 20/02/2019 - 21:15

      Sounds like a good deal if you intend to move in after that fixed period though

  • ihbh on 20/02/2019 - 21:54

    Sounds like a good deal if you intend to move in after that fixed period though

    Not if you overpaid for the property though. E.g. pay $1.1m for something worth $1m to get extra $20k rent.

    • dogboy88k on 21/10/2020 - 01:06

      But you're arguing a different point.
      The argument was "Be careful of anything promising certain amount rent for fixed period. Ie. Don't expect to get that after the fixed period"
      But if you only want to rent it out for the fixed period, that's fine. Which is the point @quantumcat made.
      No one mentioned whether the base price of the property was appropriate in the first place.
      Paying too much for the property is an independent error which shouldn't be made whether its a display home or to be rented or not.

      • ihbh on 21/10/2020 - 07:11

        My point is that there are no free lunches in life. You need to weigh up the risky option (that the rent could be variable) vs the riskless option in totality by including the "price" you pay to remove the risk - the extra for the property vs without the rental g'tee.

  • Jen2368 on 29/01/2021 - 10:18

    Does anyone know the tax implications if you buy a display home with the the expectation of selling primary home after lease back and moving into the display home ?

    • rodericb on 08/02/2021 - 20:05

      The tax implications is that you will not get exemption from capital gains tax if you move into an investment property, make it your PPOR and then sell it..
      You have to have moved into it after a certain period after buying it and last time I looked that period was seven years.

  • donzd on 08/02/2021 - 19:13

    Hi, could someone please share their experience in a buying display home from Homeworld? We recently put a holding deposit on a property located in Homeworld and upon receiving the paperwork from the Vendors Solicitor, we also received a bill from Homeworld's solicitors that we are not aware of. We basically thought we are only buying from the builder themselves who owns the house and lot but we didnt know that Homeworld, which is the display home location is going to be involved as well and there will be 2 contracts.Your comment/answer will be greatly appreciated.

  • Slowe on 10/02/2021 - 20:57

    Hi,
    We are buying a display home at the moment and are waiting for further information before we exchange contracts on an agreement we are required to enter into with Housing World Watagan Park.
    Nobody mentioned fees etc until we read the contract which talks about Investors Charge and their legal fees.

    It’s been a very long stressful process so far so I hope it’s worth it in the end.

    • Bazz1234 on 06/08/2021 - 09:20

      Hi slows. just checking in on how your process was in the end. Are you able to share the hidden charges and amounts. Also anything you didn’t know was included in the process. We are looking into purchasing a display home at the moment as we can’t secure the land we would like.

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