Investing in Showhomes!
Since 2013, show homes have been one our most popular investment opportunities. The long-term security they offer has given our clients years of sizeable returns with very few drawbacks. They aren’t the most well known opportunity so we thought it would be wise to give you a full round up and discuss the setup in more detail. We’ll also touch on why developers will tend to offer these deals on most new sites.
What is a showhome?
Showhomes are built at the front of new housing developments. They are often located near to the sales office and covered in the developer’s branding.
Their primary function is to assist with the sales team by allowing them to show potential buyers around a sample property. You’ll often find that the developer builds several show homes for each development. The number of show homes will depend on the amount of different house styles throughout the rest of the site.
Internally, these properties are ‘staged’ by an interior designer. The idea is the make them as attractive as possible and to sell a lifestyle to family’s and other potential buyers. The properties often come with a range of lavish soft furnishings and kitchen appliances.
From our perspective as an investment sourcing agency, we’re only really concerned with the numbers on offer. In this section we’ll go through the leaseback terms, plus discuss why they are great investments.
When you buy a show home from a top developer, you’ll lease the property back to them for a fixed term. This can be anything from 12 – 60 months. You simply purchase the show home as soon as it’s built and then give it back to the sales team to use. The length of the lease depends on how long they expect to be on site.
The developer pays you a fixed return to use the property. This is usually 6/7% per annum with payments arriving in monthly instalments.
The leases are water-tight and are written into the purchase contract. This is great for investors as it offers full security and a guaranteed income throughout the entire term.
What are the benefits?
As touched on briefly in the last section, the security offered by the lease is the key benefit when buying a show home. Having a fixed return of up to 5 years is a very attractive proposition. There are no voids to worry about which means you know exactly what your income you’ll receive each month.
Plus, these leases are often backed by blue-chip companies who build thousands of homes per year. They are the ideal tenants!
Due to the fact the sales team will be using the property, there are no management costs. Plus the developer will maintain the property themselves. Think of it in terms of a commercial lease arrangement.
Lets use the example of a £200k show home which comes with a 48 month lease at 6%. This property will return a gross £12k per annum. Over the duration of the term this will amount to a gross return of £48k with no management or maintenance fees to worry about!
After the term finishes
At the end of the term, the developer will simply give the property back to you in the same condition in which it was sold. Plus you get to keep all of the internal goods and appliances. These can be worth several thousand pounds.
All of the sofas, beds and even the cutlery is yours to keep. You can either sell the furniture or move it to another of your rental properties. For those of you who wish to sell the property, advertising a staged showhome to the open market is a great idea. Lots of buyers consider it to be desirable to live in a former show home.
You’ll also tend to find that developers increase the asking price of their houses throughout the phase of the build. So a £200k semi-detached show home you bought 5 years ago may now have comparable units selling for £250k + on the same development.
There is a very high chance that you’ll benefit from capital appreciation when you buy a show home. Almost everyone we have worked with on these deals has sold for a sizeable profit when the lease has expired.
Of course you don’t need to sell. You’re more than welcome to hold them as part of your BTL portfolio for long term cash flow.
Why do they offer these deals?
Developers will sell their show homes first is to aid their sales on the rest of the site. By selling a particular house style to an investor early doors, the value of that house style can then be used as a reference point for surveyors conducting mortgage appraisals on the rest of the site.
Quite simply, it will help underpin the value on that particular phase of development.
If you’re interested?
We have recently secured a large amount of show homes on various sites across the Midlands / North (July 2022). Although many of the show homes are usually secured by institutional investors, we still have units available for purchase.
Contact our sales team on 0115 985 3964 and they will discuss investing in showhomes with you . Follow this link and you’ll see one of our latest offerings which comes with a full 60 month term offering £829 pcm.