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I've been given the opportunity to purchase a pre-construction property and have it used as the builder's model unit (one of two). It seems like a good deal (same price as a regular, non-model unit but with tons of extra upgrades). My thought is that the builder will use it for 1-2 years while the community is being sold and then I can rent it out afterwards. I'm just worried because of the current uncertainty in the real estate market. Does anyone know if model homes retain value better than non-model homes? There would be equity in the home as soon as I buy it but if real estate values go down, the equity could disappear. Any thoughts on the value of owning a model home would be appreciated. Thanks!
Will it be a problem for you if the community takes 4 years to sell out?
No, the length of time isn't an issue, my only fear is that to get units to sell faster, the builder could start lowering prices. I was planning on holding for 4-5 years at least regardless and the builder does pay rent so that's not an issue.
So you close on the house upon completion and the builder pays you market rent to use it as the model/sales center. I see.
Taking all the other background factors out of the equation (local rental market, etc) and talking only about your concern about lowering prices....it's just a straight market bet. If you think the market will decline, then yes, this is a very real concern to consider. If you think the market will improve, the opposite could happen and prices in the community could be raised.
The answer to your question is based on the same crystal ball that we all wish we had to answer the question "Is the market going to go up or down in X years?"
So you close on the house upon completion and the builder pays you market rent to use it as the model/sales center. I see.
Taking all the other background factors out of the equation (local rental market, etc) and talking only about your concern about lowering prices....it's just a straight market bet. If you think the market will decline, then yes, this is a very real concern to consider. If you think the market will improve, the opposite could happen and prices in the community could be raised.
The answer to your question is based on the same crystal ball that we all wish we had to answer the question "Is the market going to go up or down in X years?"
Yes, ideally someone on here had that the darn crystal ball :-). I was really asking more specifically if a model home has any more intrinsic value than a non-model home. in other words, if the home prices within the community decrease, will the model home price fall to that same level? I would think a model home would be worth a "little" more ($10k? $20k?) simply because it was professionally designed with special upgrades, window treatments, color choices, etc, but didn't know if there was actual evidence of that.
Where's the model home going to be located? Most models I've seen are on a corner lot, right at the entrance to the subdivision. I'd think the negatives of that location would offset any possible gain for window treatments and whatnot. For your calculations I'd assume the model is worth exactly the same as a regular model. That's my opinion anyhow!
Where's the model home going to be located? Most models I've seen are on a corner lot, right at the entrance to the subdivision. I'd think the negatives of that location would offset any possible gain for window treatments and whatnot. For your calculations I'd assume the model is worth exactly the same as a regular model. That's my opinion anyhow!
That is a GREAT point that I had not considered regarding lot location. In fact, such a great point that it entirely changes my thinking here.
We looked at many resale homes in our home search and I can confidently say that I do not care how nicely decorated a home was or how many upgrades it had, if it was right at the entrance to a community I would not consider it. Feature for feature, what you gain in value with upgrades, if the lot is right at the entrance or on a corner you probably lose out in the location, location, location mantra.
Positive rep points going to adlnc!
EDIT - OOOH and one other thing. We looked at several 5 year old homes that were "former model homes" and we thought to ourselves "REALLY?!!?!" because many of the upgrades are based on what's hot at the build-time, not what's hot at the time you go to sell it. If travertine flooring is the new "granite countertops/stainless appliances" of 2012, and hardwoods in the kitchen are looked at like vinyl is today, then you're really no better off having those upgrades.
(Not saying that's going to happen, but decorater/upgradeable items are some of the first to go out of style)
Now, if you get an extra bonus room, an extended garage, or a sunroom and screenporch for the same price as the base model, those are structural additions that would definitely add value over standard.
I have seen model homes in which the builders or interior designers went crazy on colors....purple walls and everything to match it....so IMo it depends on where the location is, what the interior would be (some models are really great), etc.
You also have to remember there will be a lot of traffic coming in to the home...
Like I said, model homes have lost their equity. We were almost lured into the same situation during the market boom. We did not bite, thankfully so as we would have lost our shirts. I do not think a model home is going to have anymore value than the other homes and your equity will depend on the market at that time.
Another thing to consider is how do you know what the rental market will be in 1-2 years? You said you could hold onto it for 4-5 years, but is that based on it being rented the entire time? What happens if you can't rent it?
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