1. Home
  2.  / Show Homes As An Investment

Show Homes As An Investment

Mark Honeybone explains why show homes are a niche investment worth considering.

By: Mark Honeybone

1 January 2018

If you’ve never thought that a show home could be a great investment, think again. It’s rare when home construction companies offer the opportunity of financing their show home to investors, but when it happens, it can be an excellent investment option.

The reason it doesn’t happen that often is that such houses are usually picked up “in-house”, as some investors use this as their strategy, and are also profitable.

So that the liquidity is maintained, a construction company will often find a preferred investor to finance their show home where they can showcase their product.

Depending on the building company, this usually happens every two to four years. By doing so, the company then keeps things fresh for any potential clients as well as showcases any new products they have.

How Does It Work?

What typically happens is that an investor funds the construction company’s show home project from the beginning, which assures the ownership of the property outright.

Then the property is leased by the building company during the required amount of time. Since no one actually lives in show homes and they have very little wear and tear, these homes are often returned to their owners at the end of the project date in a near new condition.

Benefits Of Investing In A Show Home?

  • New builds require 20% LVR.
  • With the current interest rate of about 4%, the term rate can be fixed for one to three years resulting in a positive cash flow of 5% net yield offering a 1% gain.
  • For example, a $500,000 home will provide you with $5,000 cashflow (pre-tax).
  • Guaranteed income from a property that will receive little or no damage during this time.
  • Most of the time the construction company covers any insurance or outgoings needed during the show home lease.
  • Show homes are low-maintenance properties.
  • The lease-back fee is also something that’s often higher than an interest rate that you would receive on a mortgage against a property, which gives you an immediate net gain.
  • Usually in capital gain areas which can see a profit over the lease period.
  • The quality of the show homes will usually be high spec’d, as the building company would want to showcase their products in the best possible way.

Could It Work For You?

It is an investment with high returns, so if you’re looking for a project for the next one to three years, this could be something you can do and then decide whether you’d like to sell it, renew a lease or keep and tenant it. Options!

This investment option would also suit someone who is planning on relocating at some stage in the future. Buying a house for current market prices will ensure that you have a great home to live in years later without paying increased prices in the future. It is also the security of knowing you have a well-built home to live in yourself later.

Things To Consider

Any investment opportunity requires proper research and preparation on your part.

Make sure to check the building company, area, current market and what the future trends might look like, what your level of investment will be, current interest rates and your possibilities.

Such opportunities are rare, as building companies would use their preferred investors, and the fact that they only need one every two to four years.

How Do I Find Out More?

Get in contact with any company in your area that might be doing such projects and find out whether there might be an opportunity coming up for you.

At Property Ventures we have a new home consultant that deals with a variety of these building companies in various places around New Zealand.

Property Ventures is a licensed Real Estate Agency that specialises in Investment property throughout New Zealand. They also have the NZ Property podcast/YouTube series where Mark interviews the property experts from around the country helping hundreds of thousands of investors. He can be contacted at [email protected] or 0800 NZPROPERTY (697767) Or watch the Podcast/YouTube video at www.propertyventures.co.nz/podcasts

Advertisement

Related Articles