Lease Back Opportunities

The Benifits of lease back and some of the cons of

Many new homebuilders offer their model homes for sale to consumers who are interested in making an investment but prefer to eliminate the hassle of having a tenant, or who simply cannot move immediately due to the need of selling a current home or fulfilling a job commitment, etc.Simply, the consumer purchases the model home and then immediately leases it back to the builder so the builder can continue to utilize the model as an office and an example of the style of homes that will be built in their community. The builder may require the use of this home for 2-5 years.Now, here's the best part. Unlike a typical investment property scenario, with a model home lease-back you don't have to worry about tenants ruining the carpeting or letting the landscaping deteriorate. The builder is your tenant and they need to keep the property looking it's very best if they want to continue to sell homes in that community. Additionally, if anything happens to the home while the builder is leasing it, they will fix it. So if the AC unit gets hit by lightning, the builder would replace it, not you. The builder maintains the property at their expense, so it always looks brand new. As well when you do take possession, the home for all practical purposes is new. It has never been lived in.Most lease-back programs are for a period of 1-2 years but on occasion can go as long as 5-years. The length of time will depend on how quickly the builder can sell out the community in which the model sits. The builder pays the owner a monthly payment that is typically more than the mortgage payment on an 80% LTV mortgage.Many buyers who purchase a lease-back property and in most cases will put down approximately 50% instead of the average minimum requirement of 20%. By putting more money down, they increased their monthly cash flow, in most cases doubling their monthly investment.Some buyers purchase a lease-back not as an investment but as a method of securing a home which they desire, in the community they wish to live while taking advantage of low interest rates and a buyers market. These buyers may not be able to move due to the requirement of having to sell a current home, have two more years until retirement or graduation from college, etc.Many baby-boomers interested in retiring in the Charlotte area have taken advantage of lease-back programs “now” instead of waiting 2-3 years down the road when they officially retire. Who knows what the real estate market will be like 2-3 years from now. That beautiful corner unit town home that is perfect to down size to is only $160,000 today. In a few years it will no longer be available and that community will most likely be sold out. Even if the buyer was to find that same unit in another community it would probably be priced over $200,000 and might be out of the buyers comfort zone.A lease-back allows the buyer to secure the property and have the monthly payment covered until they take possession. Not only is the payment covered, the buyer gets a substantial amount of peace of mind not having a tenant who either does not maintain your property and might skip out on their lease at anytime. Maintaining a rental property can be a major hassle especially if the tenant turnover rate is on an annual basis or less. The cost of repainting, carpet cleaning or replacement, lock replacement, etc., can be substantial. With a builder lease-back the buyer pretty much gets a check every month and forgets about the property until they take possession.In summary, here are the advantages to this lease-back program in most cases with most builders. These advantages and disadvantages may vary by builder.- The builder will pay for your property taxes, insurance and all maintenance and repairs.- The builder will pay you a lease payment that will generate a monthly income based on an 80% LTV.- The builder will continue to pay you the lease payment for as long as they need the model or for a minimum of 12-months.Here are the disadvantages to a lease-back program:- This is an investment property so your lender will most likely require 20% down.- If the builder needs the model after the initial 12-month period, you must allow them to utilize the model for marketing and sales purposes for as long as necessary. (typically until the community is sold out.)(For most investors, this is actually a positive advantage, not a disadvantage. Keeping a tenant who pays to maintain the property and generates a positive cash flow every month is usually a good thing. This scenario would be a disadvantage for the investor who wishes to live in the model after the initial 12-month term.)Lastly, the consumer needs to purchase a lease-back from a builder they feel will continue to sell homes for at least 3-years. Luckily, here on Marco Island, we have a pretty good idea which builders will prosper over the next 5-years so if you would like some assistance with a lease back opportunity, please allow us to assist you.For more information about lease-back programs and a list of builders who currently offer lease-back opportunities contact Marco Island Home Builders for a list of current homes available for lease-back