It isn’t unusual for developers to sell their model homes and lease them back. GMAC had a whole division devoted to this – it per month. frees up a lot of capital for the developer. Some model homes are sold to individual investors. This is primarily an appreciation play, and we know how THAT turned out during the bubble. A model home listing hit the market today at Les Maisons at Montreux.
20540 Latour may be the oddest listing I’ve ever seen. The model home is a 3660 SF 4/4.5, fully furnished, and listed for $1,295,000. (20600 Latour seems to be the same plan, and is currently offered by the developer for $1,475,000, just reduced $200,000, and has an early 2008 MLS number) Some listing terms:
– Buyer to lease-back home to the developer for 2 years for $5000 per month.
– Developer has the option to extend the lease-back period for an additional 2 years.
– Developer has the right to repurchase the home at 110% of the sales price.
Is this the absolute worst opportunity ever offered on the MLS? Assuming 100% financing at 6%, the monthly mortgage is about $7800 (I’m using 100% instead of 80% to account for lost opportunity cost on the down payment, but it doesn’t really matter). Property taxes are $11,117 per year, or about $925 per month. Homeowners insurance would run about $650 per month, based on .5% of purchase price annually. You might have to increase liability insurance due to the model home usage. HOA dues are estimated to be $550 per month, including yard maintenance. Throw in garbage service and a few light bulb replacements, and the buyer’s monthly cost is $10,000 to recover $5000 in rent. Over a 4 year lease-back period, the buyer would be negative close to a quarter million dollars! And then be stuck with dumpster charges to get rid of all that heinous staging furniture.
I miss Diane’s monthly reports for their terse appraisal of the market. But even when she "retired", market supply in the over $1M market vs. demand was approaching infinity (and beyond!). It isn’t a market segment anyone expects to heal soon. But even if it did, the developer has a "call" in place at far less than you have lost on carrying this house. Who would be fool enough to take this deal? Is there a plutonium level tax bracket I am unaware of that makes this deal pencil out?
No axes to grind here, just thought you readers might like a little levity and the chance to tee off on Montreux as a whole again. It’s been a while.