When prospects visit display homes, builders try their best to impress them. They use the most high-end material and hire the best interior designer for constructing their model homes. This is often done with a hope to lure more people to buy their property. Sometimes prospects are so impressed, they look forward to buy the display home itself, which in fact can be a great investment decision.
However, there are both pros and cons of buying a display home, especially when you are considering it from an investment perspective. Here, we discuss all that points that you should keep in mind while buying a display home.
Pros of buying a display home
In most cases, the builder is usually the tenant for your display home. More importantly, he is ready to pay you a higher rental yield, more than you would otherwise get. Typically, you can expect to get a 200 – 300 basis point higher rental yield than the market rates. The incremental yield translates into major savings over the term of the lease, which you can look forward to reinvest in another asset.
Builders are great tenants to have as they take care of the display home property very well. When the lease expires, you will be surprised to find it as good as new. This will help you easily impress a potential new tenant and thus attract better rentals than prevalent market rates.
A high rental yield and almost no expenses that you have to pay on the maintenance, means you can look forward to generate savings and at the same time comfortably service the bank debt.
While paying the taxes on your rental income, you can hope to get a higher benefit of depreciation than usual. For a display home, you can claim for a deduction on the depreciation of the various fixtures and equipments in your home which may include air conditioners, kitchen cook top, and ovens. The rate of depreciation on most equipment and fixture is quite high and hence you can look forward at paying much lower taxes.
With builders as your tenants, you do not even have to care to keep a property manager to maintain your property. So, you generate savings on the cost of property manager.
As display homes are built to impress the choosiest of customers, you can be assured that there is no compromise in the material used for decorating the interiors.
Cons of buying a display home
The amount of bank funding that you may be able to avail to finance the property will be less. This is primarily because the value assessment by a banker would be lower than the price you would be paying. A lower value assessment is because banks shy away from giving the desired value to the various fixtures and equipments that would have been installed in the display home.
Once the term of the lease with the builder is over, the rental yield that you can expect would be in line with the market rates. So you will need to reconcile with the difference.
There is uncertainty on how long the lease may last, as builders will use their display homes only till the time they have unsold properties in the project.
While the builder takes due care of the property, there are chances that some appliances or fixtures in the home may get damaged by the time lease would expire. Hence, you may need to make some unplanned expenditure in order to bring the house back in a good condition.
Display homes have generally proven to be a wise investment for most people. Display centres promise an extraordinary rental yield and builders a better job of maintaining your property than even you personally would. If the idea sounds attractive, head out and take a look the display homes by new home builders in your city.
I’m Divya working for site newstart.com.
Categories: Home Improvement
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