How Does Display Home Investing Work & Is it A Good Investment ?

One of the unique aspects of working for Urban Land Housing, A large company with deep roots in the projects space and strong partnerships with all of the major builder’s here in Sydney is that we often are commissioned by our builder network to market and sell their display and exhibition homes.

The biggest challenge with marketing a display homes for sale is really just the many questions would be buyers have-
Inquiry is attracted very easily on these gorgeous homes which showcase the builders best work, And marketing them we field a torrent of phone calls; Often from interested Mum & Dad investors who all have the same 3 word question :

“How Does it Work ??? “

Lets focus first on; The What ?

Builders all over the country advertise their craftsmanship in “Display Villages”, You may or may not have visited one before but if you have ever considered building I’m sure you can picture what I’m describing, These villages are usually a fenced of few blocks within a new growth area-

The location of the village is ALWAYS in the most visible, Most sought after position in the estate featuring rows of the most beautifully finished and styled properties you will ever find.

Typically each builder has 2-4 homes in a row surrounded by perfectly manicured designer landscaping and they are usually always fenced off with a single dedicated entry via a garage which has been converted to an office where you will be greeted by friendly sales staff eager to convince you to start A build with them.

This is how the builder showcases his best work and his company’s full capabilities.
You will find these homes to be of exceptionally high quality styled by the nations finest interior designers with not a cent spared on the decor-
Often these homes are decked out with the full optional upgrade list and finished with glamorous wallpapers, feature lighting, custom joinery.
Things like hanging fireplaces, Elaborate indoor water features, Cantilever Windows and Pillarless stacker Alfresco’s (costly upgrades people seldom agree to pay for) will all be on display as this is the builders chance to FLEX his ability to create masterpiece competition grade property ready for any magazine.

Now, The Why ???

These homes are there to SELL the builders work, but it comes at quite a price to the builder who is typically contracted to remain on-display in the display village for a set time.

Usually a display village operator such as HomeWorld requires the builder to enter a contract to exhibit his builds for on average 3-5 years with options to extend IF the village is successful - The Display home (to the builder) is A high end fixed investment property essentially which costs him a lot to fit out and essentially can be a cash-burden on the organization if the sales dont flow from it.

For some of the larger retail builders, They have no reason to sell - They are happy to fork out the dough to remain 100% in control of their asset.

BUT for others; The smarter decision is to SELL their Display Home to an investor and which frees the builders capital investment in the property so that he can take up other projects.

Obviously this requires him to then lease the property back - But the money he pays for the lease of course can then be written of as a company expense at Tax Time and this is reflected in the leaseback amount which is usually AT LEAST 6%, With the industry norm in Sydney being as high as 8% PER ANNUM - A WHOPPING and 100% stable and predictable return which absolutely smashes the R.O.I you will get from other more common investment vehicles such as; Residential property, Risky share-trading or just letting the bank sit on your cash for you in a “term deposit” or something of the sort which returns on average just 1.15% p.a. as of writing this article.

So; How do to get into this ???

Sounds GREAT doesn’t it, You may be wondering JEEZ why haven’t I heard of display home investing before ?

It comes down to two things :

1. Display homes aren’t all that common, There’s only a villages in NEW growth areas and they each have 20-30 homes MAX so this is a RARE investment opportunity to be fair and its typically more sophisticated advanced investors who even know about it.

2. The “Barrier of Entry” is quite high, The reason being is this is a “commercial property” and so it requires a different type of finance - I’ll explain more below..

As the display homes are being leased out by a commercial businesses for business usage, As a landlord you require a “commercial loan” as opposed to a regular residential loan - This means none of the residential grants and concessions apply & you will need to have at least 30-40% of the sale price in CASH MONEY as this is the min. requirement of most banks for commercial display home investors.

Banks ARE WARY of display home investing for a few reasons :

• The contract between the builder and the display home investor usually heavily favors the builder, The Builder usually has clauses in the contract to extend his lease for example but these are to be exercised 100% at his discretion - This makes it a little difficult to predict the exact end of the lease upfront & the banks concern is he may suddenly vacate after say 3 years when you the landlord financially planned for 5 or 6 years of 6% return.

• The lease the builder’s are willing to pay is VERY VERY HIGH in comparison to the market average, And the banks concern here is that if the builder suddenly leaves (maybe the company goes bust) you may be faced with a sudden dramatic reduction in rent return as it will more then likely be impossible to find a regular tenant willing to pay the same return.

NOW YOU UNDERSTAND THE WHAT, WHY & HOW - LET ME RATTLE OFF A FEW OTHER NOTABLE BENEFITS OF DISPLAY HOME INVESTING

• This is an opportunity to secure a block of land in the BEST possible location within an estate, Not only are the display villages in highly visible central locations but the standard of homes within the village is absolutely elite - You will enjoy life surrounded by the nicest most well kept blue-chip properties in your area, And with High caliber properties come high caliber people !

• Your home will be maintained at the highest standard - As opposed to a typical residential investment where you rely on a property manager to find you a tenant and risk having your investment taken by a family who may not be prepared to maintain the property well, A display home will be on exhibition by the builder NOBODY WILL EVEN LIVE THERE and on top of that it will be professionally cleaned EVERY SINGLE MORNING.

• You wont need to pay 1 single bill, Builders will take care of everything including all your utility bills and any maintenance fees that arise, You settle the house and just sit back and rake in the cash !

• YOU DONT EVEN NEED A PROPERTY MANAGER, The lease is drawn up by the solicitors so paying an agent to market the property, Manage the tenants weekly is simply not required.

• Yes the rent return is MASSIVE but don’t forget about the capital growth as well, Your display home will likely be a brand new home in a new GROWTH AREA and that means the room for capital growth will typically be very strong over the typical 3-5 year lease.

• When its all said and done a huge chunk of your mortgage will be paid off for you, You will enjoy moving in to one of the most impressive properties in the country fully decorated and styled by some of the nations best interior designers which is A luxury usually only a celebrity could dream of + If you are really lucky, You may even be able to negotiate that you get to keep all the furniture IF the builder owns it himself and doesn’t require it post-sale of course

SOME OTHER USEFUL INFO WE HAVE PICKED UP IN OUR EXPERIENCE SELLING THIS UNIQUE INVESTMENTS

• Banks That Lend for Display Homes - Adelaide Advantage, AMP, BlueBay, CUA, ING, Macquarie, ME Bank, St George, Suncorp, Westpac & more

• Maximum LVR allowed for display homes - Varies between lenders at around 70%-90% LVR

• DOWNLOAD A Display Home Investing Fact Sheet Courtesy of displayhomecentral.com.au

WHERE TO FIND NEW DISPLAY HOMES, WITH THE BEST LEASE TERMS ?

Check out 3 Chambers Street Marsden Park, $1,100,000 offering 6% leaseback per year ($66,000 PER YEAR.)

OTHERWISE CALL ME - Regular Agent’s you know are probably reading this article themselves right now learning a thing-or-two !

But at Urban Land Housing, Display Village development and display home sales are A core part of our business,
We aren’t a regular agency, We are a project agency And we have strong relationships with all the major builders who grant us exclusive access to their displays whenever they need to sell.