Should you invest in a starter home? Or, is it a better idea to wait and save up for your “forever” home?
First off, let’s make sure we are talking about the same thing. Economists often define a “starter home” as being in the lower third of a market’s valuation (as opposed to trade-up homes and luxury homes). For many homeowners, however, a starter home is not about price. Instead, it is about how long they plan to stay there.
This is where the dilemma really lies. This is because buying and selling a home, as well as moving in and out, each carry specific expenses. Also, since the bulk of the mortgage payments for those first years go to interest, you are unlikely to build up much equity if you only own the home for a short while.
In fact, according to one estimate, the break-even point for a starter home is somewhere between five to seven years. In other words, if you’re planning to stay in the home for just a few years, it might not make sense to buy it in the first place.
Am I telling you not to buy a starter home? No. There are definitely situations in which a starter home makes perfect sense.
For example, if you’re planning on staying put for five or more years, a starter home will save you money on rent and help you build up equity. Purchasing a starter home also makes sense if the home has the potential to become your forever home with the right renovations or additions.
If you are open to keeping the home and renting it out later in case plans change, buying a starter home may be a wise choice in this case, as well.
Ultimately, this will be a decision that is based on your own unique preferences and places.
When you weigh all of that in, if you do decide that a starter home might make sense for you, then here’s something important you should know: The best time to buy a starter home is coming up soon. Fall is the season when starter home inventory peaks and listing prices drop, according to the real estate portal Trulia. This means you will have the most choice, at the most affordable prices.
If you have questions about the current Orange County real estate market, including whether a starter home is right for your unique circumstances, give me a call at (714) 334-9156. I’m here to help.