With rising housing prices, investing in model homes has become an attractive option for both individual and institutional investors to enter the real estate market. Model homes refer to furnished showcase homes that real estate developers build to showcase the features and layouts of homes in a new housing community. As an investment product, model homes have some unique advantages.
Low capital requirements make model homes accessible
Unlike investing in entire housing developments, investing in a single model home requires much less capital, often less than $100,000. This low capital requirement makes model homes an ideal entry point for investors with limited funds to gain exposure to the real estate market. Smaller investors can pool funds together to invest in model homes and enjoy the benefits of real estate ownership.
Built-in occupancy and cash flow from the start
As showcase units, model homes usually have a rental agreement with the real estate developer to be used as a sales office and furnished show unit. This means model homes come with a built-in tenant and occupancy from day one of investment. Investors can enjoy a stable stream of rental income from the outset.
Hassle-free ownership and property management
The real estate developer handles all property management, maintenance, insurance, utilities and upkeep as part of the rental agreement for the model home. Investors benefit from all the upsides of real estate investment with none of the common headaches that come with direct residential property ownership.
Favorable exit strategy through conversion to primary residence
Model homes are often high quality, newly built homes located in desirable neighborhoods. Investors have the option to convert the model home into their primary residence subject to the rental agreement, providing a built-in exit strategy through personal use.
In today’s hot housing market, investing in model homes allows both institutions and individuals to enter the real estate asset class with modest capital outlay. Investors can benefit from a tangible asset producing steady cash flow without the responsibilities of direct ownership.