Model home lease back.......

[Toby Johnston]

Has anyone had experience buying a builder model home with a leaseback provision?  What was your experience like?  Would you do it again?  Pros and cons?  I realize the numbers need to make sense first but just looking for some general advice here.

[Eric Black]

Hi Toby,

I haven't done one of these but have heard you have to be careful. The temptation is that they offer you a 1-year or 2-year leaseback so you have "guaranteed" rent. What I have heard happens sometimes, and again I haven't experienced this, is that after a buyer is found the developer/builder goes bankrupt and therefore your rent is no longer guaranteed. 

My advice would be, determine what the market rent for the property is now, in case something were to happen. Not that it will, but if the builder guarantees the leaseback at $2,000 per month and market rent is $1,500 per month then you could be in big trouble. If market rent is $2,000 per month then you should be okay even if the builder goes under. 

Do your due diligence and hopefully someone who has experience will be able to give you their input. Just remember, the numbers have to make sense regardless of who is renting/leasing the property. If they do then it's hard to lose. If the numbers only make sense with the leaseback numbers then beware.

Best of luck!

Eric