Investing In Showhomes
The showhome has been one of our best selling investment opportunities over the past 6 years.
For those of you who are receiving these types of deals for the first time, it’s important that we explain the structure and the benefits that they can provide. In the following paragraphs I’ll explain every aspect of the opportunity so that you’re prepared for when the next examples become available.
We have sold dozens of showhomes on behalf of some of the UK’s largest developers, including Keepmoat, Bellway Homes, Miller homes over the past 6 years. From our experience these are some of the best performing investment deals on the market, with very few risks involved.
What is a showhome?
The majority of us within the property industry will have been subjected to a pitch from an over enthusiastic agent showing us around a decadently furnished, spotless show home or flat at some point or another.
When developers build new sites, they will immediately produce a sample of each house style they intend to replicate throughout the build. Naturally, these properties are within prominent positions near the entrances of developments so as to attach interest from potential buyers. They are also located near to the sales office with the developer’s branding clearly visible to the passing public.
Each property will be furnished to the highest possible standard in order to project a level of desirability to potential buyers when the sales team are pitching them to homeowners. The interiors are created by professional interior designers using the highest quality materials and fabrics. These houses are usually of higher specialisation than other properties produced on the site.
Its hard not to be impressed when viewing such properties, which is why developers love them and have used them to sell houses for decades!
Here’s the interesting part… It may come as a surprise to lots of people to learn that many of these properties are actually owned by private investors and not the developers themselves.
Why would I buy a showhome?
Many developers will sell the showhomes to private investors immediately once they’re built. We’re well aware that some of these properties might not be massively attractive as conventional BTL purchases without any incentives which is why we help structure a comprehensive package that will benefit both our clients and the developer.
Quite simply, you will agree within the purchase contract to lease the property back to the developer immediately upon completion. This will allow their sales team to use the property on a daily basis to display the quality of the developers craftsmanship to potential clients.
In exchange they will offer to pay a fixed return of up to 8% per year.
Some sites can take up to 7 years to build, which means that clients can secure guaranteed rental returns of over 50% plus excellent capital appreciation too.
If you were to buy a £250,000 show home, it would equate to a return of £20,000 per year with no management fees or risk of voids whatsoever. This means your only real expense during the guarantee period would be the mortgage. Your tenant would be a company with an annual turnover of over £100m which is surely every landlord’s dream.
We often compare the show home deals to HMO’s when explaining them to clients. In our mind there is only one winner if you’re looking for a completely passive and hassle free income.
We will also negotiate discounts against the final list price of that particular house style too. In monetary terms this can sometimes equate to discounts of over £30,000 against comparable properties on the development which means there is also the potential to refinance and pull some of your money out of the deal.
Developers will often hike the prices of any particular house style throughout the duration of the build on a yearly basis. This will mean that some investors can see huge amounts of capital appreciation over the years they own the property.
So strong yields, appreciation and no risk of voids… and there are more incentives yet to come.
The luxury interior and designer furniture is yours to keep too. In particularly high end developments this can equate to £15,000 – £20,000 of additional extras. Everything you see in the marketing and promotional pictures is yours to keep, including tables, chairs and even the clocks on the walls.
During the years the developer owns the property, there may be elements of wear and tear that creep in, especially if the show home located on a popular development. Fear not, as it’s within the developer’s interest to keep the house as tidy as possible so that any damage will be repaired. The arrangement will work similarly to a commercial lease whereby they will be obliged to return the property in its original condition.
Owning the show home furniture is a massive plus when you’re looking to re-sell and market the property once the guarantee has expired. In the past some clients have even decided to keep one or two things for themselves or transfer to another rental property they own.
We’ll also specify what other incentives we’ve managed to agree. Developer will also offer free additional parking spaces and landscaped gardens to investors too.
What is the benefit to the developer?
This is the first question many investors will ask our sales team when these opportunities are presented to them.
How and why would a developer offer a rental guarantee of £20,000 + per year for 5 or more years? On paper some of these deals can be easily worth in excess of £100,000 to the investor and the numbers can be breathtaking.
However it does become clearer when you consider the benefits to the developer. First of all, if there are 5/6 houses which sell and complete relatively quickly, it will provide instant cash flow for the developer.
This can be beneficial when the developer has finance costs to consider.
The main benefit is that the developer will be able to display sold prices on land registry relatively quickly which in turn will increase the chances of the rest of the properties on the development valuing up accordingly. This has massive value to many developers, especially on larger sites whereby the GDV is in the tens of millions of pounds.
Lending and Finance
Barclays continue to be the main lender on the market, offering products to both ltd companies and individual buyers. In recent months Keystone have also emerged as another option for brokers to approach.
We are in regular contact with our brokers to understand which lenders are happy to lend on these properties.
Prime Property Agents will be bringing a large amount of these opportunities to the market in the coming days. These will be located across the Midlands / North of England and offer rental guarantees of up to 6 years.
It is important that you register your interest so that we can contact you with a full list of what is available immediately upon release as these will be very popular.
For more details on all our latest showhome investments click here or register your details below: For a free PDF information pack on this deal enter your details below and we’ll send to your inbox direct:
Or call 0115 985 3964 to discuss this deal in person.