Are Builder Model Leasebacks a Good Investment​?

Buying a Model Leaseback could buy you time to get your retirement in order and get you into your desired home community.

Are model leasebacks a good way to buy your future home?

Production builders in new home communities will often build one or more models to showcase their homes, the upgrades available and dazzle those who are shopping for a new home. Before the market crash in 2008, builders had open lines of credit with their bank and built one of each Model in impressive model courts. That practice ended as the housing market experienced a much longer slump than anticipated. As the market recovered, we were lucky to see one model, often the most popular or the most profitable, in each community.

Things have improved steadily over the past 8 or 9 years and some communities have two or even three model homes. It has become standard practice now to build them and sell them as “Model leasebacks”. Is this a good investment?

Good investment or not?

A good investment is a property you can purchase at or below market value that you believe will appreciate in a relatively short period of time. Typically, real estate is a long-term investment; if you are looking to resell a property in a few years, you need to purchase at a significant discount. A model leaseback may or may not be a good fit because a model is loaded with décor and detail that does not “appraise” when you are ready to sell. Appraisers compare square footage, number of rooms, and factual data without much regard for décor. So, consider the purchase price, the length of the leaseback, your carrying costs and settlement costs to both purchase and sell.

A good way to buy your future residence?

If you are not yet ready to move but you have decided where you want to live eventually, a model leaseback might be the perfect fit. Let me give you an example –

A new community was having it’s Grand Opening and the two builders were setting up appointments on a first come, first served basis. Each builder had a limited number of lots available in the first Phase. 

We were working with a couple that was on the list for both builders, in the #1 spot for Builder A and the #2 spot for Builder B, with the intention of seeing what each had available before deciding. At their meeting with Builder A, they learned of an opportunity to purchase their model leaseback. It was the home of their dreams and the leaseback fit their timeframe, which was flexible. Despite everything going into this home, the price was extremely attractive – it was an excellent deal. If they did not decide on the spot, the next person in line already indicated they wanted to buy it. They looked at each other and consulted with us and said, “We’ll take it”! They are now full time residents loving their new retirement lifestyle.

This was not an investment, it was an opportunity to buy a future retirement home for a couple that had decided that this was where they wanted to be. By leasing the model back to the builder for a year, they bought themselves time to get their current home sold, retire, downsize and get rid of things they would no longer need. The house they were buying would come with just about everything they could ever want or need.

Need help exploring your new home options in Delaware for retirement? Get in contact with one of Active Adults Realty Agents! It is our goal is to help you buy a home that you’re going to be comfortable in for the rest of your life.