by Lew Sichelman on October 15, 2010
A few years away from retirement but still not quite ready to pull the trigger and buy a place in paradise? Maybe you're eager to buy but not interested in moving just yet? Then you might want to take advantage of a little-known opportunity to buy now and occupy later.
It's not common knowledge, but builders in many amenity-laden destination properties are willing to sell their model homes and lease them back from their buyers for anywhere from a few months to a few years. That way, when your builder-tenant is done with his sample house, you can move in or rent it to someone else.
The American Dream Deferred
Sale-leasebacks are nothing new. In fact, to some builders, selling their fully decorated, upgraded model houses is the preferred business model. But in today's market, when cash flow is more important than ever, more and more builders are willing to sell their models as soon as they are completed and then lease them back for however long they'll need them.
Buying a sample house offers many benefits for anyone who wants to buy now and enjoy later. For one thing, you can take advantage of today's prices and low loan costs, and profit from any appreciation that may take place. For another, your new house will be generating some income while you're waiting to move in. Very often, the rent the builder pays is enough to cover your monthly costs.
The terms of the lease are always negotiable. With one custom builder in Florida that has employed the sale-leaseback strategy "for years and years and years," the term could be as short as a few months to as long as two years, depending on each party's needs. The company pays rent of anywhere from 6 to 8 percent of the total price, which is "almost always" enough to cover the buyer's debt service - and then some.
Minimize Wear and Tear
Another benefit of renting to the builder as opposed to a family, especially one with children, is that the wear and tear on the place is minimal. Model homes are very gently used, and builders often agree to do whatever it takes to refresh the house back into like-new conditions before they hand it back to the owner when the lease expires. In addition, builders sometimes pay all the operating costs, too, including utilities, maintenance fees and even homeowner association dues.
"Who could be a better tenant?" says one builder who employs the sale-leaseback technique. "We're not going to use the place nearly as hard as someone else, and when you are ready to take possession of the house, we treat it as a brand new property as if it is just closing. We do a walk-thru and fix whatever is necessary. And the warranty period starts on the day the buyer takes possession rather than the day the sale closes."
Under one innovative program that was employed by a Vermont builder a few years back, the company didn't leaseback just its model homes. Rather, it leased back the actual townhouses that were purchased by buyers for one to three years and then re-rented them to vacationers and corporate clients.
That sure beats buying a place and trying to rent it yourself. Not only that, but owners got to use their three-bedroom homes - or if it's occupied, another one just like it - whenever they want. And since they are owners in the four-season resort, they have access to all its amenities, which include two championship golf courses, a fitness center and indoor and outdoor pools.
Other Advantages of Buying a Model Home
There are other advantages to sale-leaseback program, especially when they involve model homes. Generally, for example, the models are built in the best locations. And they are extravagant showplaces. Not only are they outfitted with all the bells and whistles like upgraded kitchen cabinets and top-of-the-line appliances, they are decorated to the hilt. You simply can't replicate these homes for what you pay for them.
Sale-leaseback opportunities are not available everywhere, and even when they are available, they're not always publicized. So to find these hidden gems, you'll have to do some spade work. But who knows? It might be worth the effort and then some.
About the Author
Lew Sichelman is a nationally syndicated columnist who first started writing about housing in 1969. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors.
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