Due diligence
The model home leaseback due diligence checklist
We don't sell investments. We try to give investors enough information to evaluate them. Work through this list on every model leaseback, with your own attorney, lender, inspector and tax advisor.
Start here
The seven items that decide the deal
If you only have time for a short list before you go hard on a deposit, work these first. Each one can change your return, your financing or your exit on its own.
- 01
Tenant entity and guaranty
Confirm exactly who signs the lease and whether the parent homebuilder guarantees rent and restoration.
- 02
Early termination rights
Any builder right to end the lease early caps your contracted income at that date, not the stated expiration.
- 03
Restoration scope, in writing
A defined de-modelization standard with a named payer is the difference between a modest turn cost and a five-figure surprise.
- 04
Appraisal versus contract price
Order the appraisal early; a model's upgrade premium can cut usable leverage or break your loan entirely.
- 05
Reassessed taxes and real insurance quotes
Underwrite your own post-sale tax bill and quoted premiums, never the builder's current numbers.
- 06
Verified market rent comps
Recently leased comparables set your post-lease income. This single number drives most of the hold-period return.
- 07
Lease-up gap and conversion cost
Budget vacancy months and a real bid range for making the home rent- or sale-ready.
The full checklist below covers everything else, organized by category.
Property
Confirm what you are actually buying, and what condition it will be in when the tenant leaves.
- AppraisalOrder it early. Ask how the appraiser is treating the upgrade package relative to neighborhood comps, and what the gap does to your loan amount.
- TitleFull commitment, exceptions, easements, and any builder-retained rights over signage, parking or the sales office.
- SurveyBoundaries, setbacks, and any parking or signage improvements added for model use that must be removed at restoration.
- InspectionInspect even on a new home. Models get heavy foot traffic and sometimes non-standard finishes and lighting.
- WarrantyWhat builder warranty transfers to you, what survives the leaseback term, and how claims are made once the builder is no longer the occupant.
- Upgrade scheduleThe itemized options list with costs, so you can judge what is value and what is model-only décor.
- Model-specific conversionsConverted garages, offices, awnings, hardscape, or removed closets — and written confirmation of who restores them and when.
Lease and tenant credit
The lease is the asset. Read the document, not the summary.
- Tenant entityThe exact legal entity signing. A single-community LLC is not the same credit as the parent homebuilder.
- GuarantyIs there a parent guaranty? Full or limited? For rent only, or for restoration obligations too?
- Term and commencementStart date, expiration, and whether the term shortens if the community sells out early.
- Extension optionsHow many, at what rent, and how much notice the tenant must give.
- EscalationFixed percentage, CPI, or none. When it triggers.
- Expense responsibilityLine by line: taxes, insurance, HOA and special district assessments, landscaping, pool, utilities, HVAC service, roof.
- Default and remediesCure periods, late fees, your remedies, and whether the deposit is meaningful.
- Early terminationAny termination right, the notice period, and any fee. This is the single most important clause for your income model.
- Restoration / de-modelizationWritten scope and standard for returning the home to retail condition, who pays, and what happens if it is not done.
- Assignment and sublettingWhether the tenant can assign, and whether the lease binds a successor if the builder is acquired.
- EstoppelA signed estoppel at closing confirming rent, term, deposits, and no outstanding defaults.
Community
The remaining sales runway is what keeps a model in service — and what your exit market looks like.
- Remaining lotsTotal homesites, sold, closed, and remaining.
- Absorption paceMonthly sales pace over the last 6–12 months, and implied months of runway.
- Builder sales pace at this communityWhether the model is likely needed for the full lease term or longer.
- Competing inventoryOther communities and builders nearby that will compete with your eventual resale or rental.
- Amenity completionWhat is built, what is promised, and what is funded.
- HOA and special districtsCurrent dues, CDD/MUD/Mello-Roos assessments, planned increases, and reserve health.
Financial
Separate contracted income from underwritten income, then test the second half of the deal.
- Contracted rentVerified against the executed lease, not marketing material.
- Property taxesPost-sale reassessment at your purchase price — not the builder's current bill.
- InsuranceActual quotes for the market, including wind and flood where applicable.
- HOA and assessmentsConfirmed in writing with the association.
- ReservesEven under a NNN-style lease, hold reserves for post-lease capital items.
- Market rent compsRecently leased comparable homes, not asking rents.
- Conversion costRealistic bid range for restoring the model and making it rent- or sale-ready.
- Lease-up assumptionExpected vacancy months between the builder vacating and a market tenant paying.
- Residual valueSupportable resale value at exit, net of selling costs, against a built-out community.
- Gross yield vs. NOI cap rateCompute both and know why they differ on this specific deal.
Financing
Ask these before you go hard on a deposit.
- Loan productWhether the lender treats a builder leaseback as residential investment or commercial, and how that affects rate and term.
- Appraisal riskWhat happens to your obligation if the appraisal comes in below contract.
- LTVMaximum leverage for a leased single-asset residential property in this market.
- DSCR requirementsMinimum DSCR, and which rent the lender underwrites — builder rent or market rent.
- Lease reviewWhether the lender must approve the lease, and any required lease modifications or SNDA.
- Exchange coordinationIf you are in a 1031, how the lender's timeline fits your identification and closing windows.
Never rely solely on Model Home Investor's information.
Everything published on this site comes from builders, public sources and our own estimates, and it can be incomplete or out of date. Verify all information with the builder and your own licensed professionals before committing capital. We are not a licensed real estate broker, agent, appraiser, lender or tax advisor, and we do not represent any party in a transaction.