The pros of the sale-leaseback for homebuilders

As a homebuilder, it can be challenging to get your construction deals to pencil out in today's market. With higher interest rates, labor shortages, and construction costs on the rise, it's no wonder why the future is uncertain. However, there is a solution that may help alleviate some of these financial pressures: the model home sale-leaseback.
‍

A model home sale leaseback is a transaction in which a builder sells their model homes to an investor, who then leases the property back to the builder. This arrangement allows builders to free up capital that would otherwise be tied up in unsold inventory and use it to fund new construction projects. In return, the builder pays rent to the investor for the use of the property.
‍

One of the main advantages of a model home sale leaseback is that it allows builders to de-risk their portfolios. Currently, most builders have around 3-7% of their inventory tied up in model homes that aren't generating any income. By selling these properties, builders can reduce their risk exposure and redirect that capital toward more profitable ventures. 
‍

Another benefit of a model home sale leaseback is that it allows builders to take advantage of higher profit margins. By reinvesting that capital into new construction projects, builders can generate even higher margins than they would by simply holding onto their existing inventory. Builders can be more profitable and less cyclical if they can turn their capital more rapidly and productively. We’ll show you a real-life example in a future blog post. 

‍Finally, a model home sale leaseback can help builders weather the current market conditions. With interest rates on the rise and regional banks tightening their lending practices, it can be difficult for builders to secure financing for new projects. By freeing up capital and bank lines through a model home sale-leaseback, builders can avoid relying on traditional lenders and take more control over their financial future. The job of a production home builder is to efficiently recycle capital as often as possible. ‍

‍In conclusion, the model home sale-leaseback is a useful tool that can help builders de-risk their portfolios, generate higher profit margins, and navigate the current market conditions. By exploring this option, builders can take steps to ensure their long-term success and profitability.