Is a “Starter Home” a Good Investment?
Starter homes are defined as relatively inexpensive residences, often fairly small, that are within reach of college graduates and young families. The idea behind a starter home is that the buyer will eventually upgrade, whether through remodeling or relocating, when they’ve launched their careers or had more time to put up savings. Opinions are divided on whether these are smart financial decisions, or whether people should simply hold off purchasing real estate until their means allow them to buy the place they intend to stay indefinitely.
What determines whether a starter home is a good idea for you? There are several factors to consider. Research the history of your area, paying special attention to how the value of real estate has changed over time. Has it appreciated, or depreciated? If the area has seen significant appreciation, what caused it? Many areas see a sharp incline in real estate prices because of changes in industry, tourism, etc. that may either plateau or, worse, go back on the decline. For homebuyers intending to purchase a home, live in it for several years, and then sell again it is important to try to gauge whether or not a profit can even be made for the effort.
How long do you intend to stay in the home? If you’ve just finished a degree, completed in-demand certification, or just started a job with high potential for advancement, you may want to think hard before buying a home as you may be ready to upgrade within only a couple of years. The last thing you want is to be ready to sell your starter home, only to find that you can not make enough money from the sale to cover your mortgage and other costs that went into acquiring this. As a safeguard, it’s a good idea to only get into mortgages you plan to pay on for several years.
Alternatively, if you don’t mind the hassle of being a landlord, keeping the starter home to rent out after you’ve moved on is always an option. The clincher, of course, is that this home represents a burden on your credit and you are limited as to what new house you can get because of the additional payment. Whenever you plan to rent out a house, you should always be sure you have enough money to pay for the rental and your new place of residence out of your pocket. Relying on renters to meet that house payment can cause a lot of grief in the long run because you can never depend on the house always being rented out or the occupants to always pay their rent on time.
