I have no idea if this particular investor group is directly or indirectly affiliated with Lennar. I do know that this kind of thing has happened in the past.
What’s interesting is that when there’s a new subdivision, the first couple of closed sales are generally considered to be the most indicative comps for the homes that get finished later. I know for a fact that these homes were used by appraisers in appraisals of subsequent units from those projects – I know this because I personally reviewed some of those appraisals.
The thing is, an investor group can work a deal out to buy a model home at whatever price the builder wants to set, and then recover some of that sale price in the way of excess rents during the 12 or 18 month period that it takes to sell off the remainder of the project.
For example, I recently saw a model home purchase from a builder (NOT Lennar) where the leaseback was for a 12-month term with 18-month option and the rental rate was about 350% of what the home would have rented for had it been exposed to the rental market. In this case, those excess rents would have amounted to over $120,000 just for the first 12 months. That payback essentially amounts to a sizable sales concession, and that sales concession would be invisible to every appraiser and every buyer who came into that project thereafter. There’s no way anyone coming in from the outside would have found out about the true sale price of that model home.
Sneaky stuff. That’s just one more reason why I know there’s a lot of room in the current prices for contraction. Sure, some of the costs have gone up in response to the demand, but the builders are also using various ways to hide a lot of profit in their transactions. At this point, I’m pretty sure I’d never buy a new home from a subdivision builder, any more than I’d let a new car dealer sell me a car based on the monthly payment.
