Model Units in Lease-Up: What a Furnished Model Costs and What It Must Return
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During lease-up, a new or newly renovated building needs to fill its units quickly. Many owners furnish one apartment as a model, so prospective residents can see the layout, the finishes and the size. The model costs money to furnish, to keep clean and to keep looking new. It also takes a unit out of rent while it is on display, unless the model is in a unit that would not lease anyway. The question for the sponsor is whether the model leads to leases sooner than the building would lease without it.
This guide shows how to cost a model unit, how to count the leases it must bring forward to pay for itself and how to show the case where it does not help. It is not advice on advertising or fair housing rules. A property manager and a local attorney should review the leasing materials and the tours.
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What does a model unit cost?
- Furniture and decor. The bed, sofa, tables, lamps, rugs, art and the small items that make the space look lived in.
- Upkeep. Cleaning, touch-ups and replacing items that wear out while the unit is shown.
- Rent not collected. If the model could have rented, the lost rent is a cost. If it could not rent, the cost is only the furniture and upkeep.
- Staging and signage. Directions, signs and the setup a tour needs.
- End-of-life work. Moving the furniture out, storing or selling it, and returning the unit to rent-ready condition.
Hypothetical example
These figures are made up for illustration. Get furniture quotes and the rent the unit would earn from the property manager before you buy.
A 90-unit building in lease-up furnishes one two-bedroom unit as a model for $9,500. Upkeep is $300 a month for the 12 months of lease-up, which is $3,600. The model unit's total cost is $13,100. Market rent for that unit is $1,400 a month. The owner assumes that a model brings some leases forward by one month each, and tests three cases.
| Case | Leases brought forward one month | Rent gained | Net against $13,100 |
|---|---|---|---|
| No help | 0 | $0 | minus $13,100 |
| Downside | 6 | $8,400 | minus $4,700 |
| Base | 12 | $16,800 | plus $3,700 |
The model pays back only in the base case, and only if twelve leases really come forward. In the downside case, the building spends more than it gains. The plan should show all three cases, so the owner does not count tours or interest as leases.
How do you count the earlier leases?
Use the building's own lease-up records or the leasing history of comparable buildings. Compare the leases signed in the months after the model opened with the months before. Count the leases the model brings forward, not the total leases, because the building would have leased many units anyway. Tour counts and interest do not prove the model works. The stabilized occupancy and lease-up guide explains how to build the lease-up schedule.
When does a model unit make sense?
A model unit is most useful when the layout or the finishes are hard to picture from photos, such as a renovated unit with a new floor plan, or a building that competes on finishes. It is least useful in a market where prospects rent from photos and floor plans, or where the building has no competing units nearby. Compare the cost with the rent gained and the time saved, and decide before you furnish the unit.
What should you check before you buy?
- The lease-up schedule and the number of units that need to rent in the first year.
- The property manager's view of how many prospects tour the model and how many sign.
- The furniture's resale value and the storage space for it when the lease-up ends.
- The rules the building must follow when it shows a unit, including the model's disclosure.
- The lease-up budget and whether the model's cost is in the plan.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). The deal's lease-up budget shows the model's cost and the earlier leases it must bring, so investors see whether the assumption is tested. DoorRaise does not furnish units or run tours. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
Start with a sponsor page or see the fees.
FAQ
Does every new building need a model unit?
No. Use one where the layout or finishes are hard to picture, and skip it where prospects rent from photos and floor plans.
Can the model unit be rented after lease-up?
Yes, once the furniture is moved out and the unit is ready to rent. Count that rent only after the unit is leased at market terms.
Should the model's furniture be counted as a capital asset?
Ask the CPA. Furniture often has a short life and is treated differently from building improvements, and the treatment depends on the owner's records.
What if the model unit makes the building look more expensive?
Show the actual rent and the finishes that residents will get. A model that shows finishes the unit does not have misleads prospects, and the leasing team must avoid it.
Sources
- Stabilized occupancy and lease-up in apartment underwriting, for building the lease-up schedule.
- Renovation pace and lease-up in value-add underwriting, for how the timing of work affects lease-up.
- Economic vs physical occupancy, for counting leased units that pay rent.
- Example figures are hypothetical. No survey of model unit results is cited here. Test the earlier leases with the building's own records.
This article is general information, not legal, tax or investment advice. Talk to a property manager and a local attorney about leasing materials and tours, a CPA about the furniture's treatment and a securities attorney about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.