A question about the viability of purchasing a starter home in today’s market was recently posed to us, and it boils down to this: Should you invest now in a starter home or would it be more prudent to wait and save for your forever home?
Let’s first make sure we’re talking about the same thing—among economists, the prevailing definition of a starter home is one that falls within the lower-third of the market’s valuation, unlike, say, trade-up or luxury homes.
Homebuyers themselves may define a starter home a little differently, though; rather than a starter home’s defining characteristic being price, the question that’s front and center for buyers relates to time. Therefore, to a buyer, a starter home is one that they may only live in for a few years.
This is where the dilemma really lies. If you choose to purchase a starter home, the bulk of your payments in the first few years of ownership will go toward interest, which hampers your ability to build any equity in the home.
In fact, some estimates indicate that the break-even point for starter homeownership is somewhere around five to seven years. To put it simply, if you plan to live in the home for a short period of time, it might not make sense to buy at all.
To be perfectly clear: We aren’t necessarily telling you not to buy a starter home. In some cases, going this route may be squarely within a buyer’s interests. Staying in a home for more than five years, for example, will allow you to build savings that might otherwise go to rent and also build equity over time.
You might also find that, with the right renovations and care, your starter home could blossom into your forever home. Alternatively, you could keep the home and rent it out at a later time if your plans change.
Ultimately, this decision should be based on decisions and preferences specific to your situation. Let’s say, after careful consideration, you’ve decided a starter home is right for you. If that’s the case, take note: The best time to buy is imminently approaching. Why? Per Trulia, starter home inventory sharply increases and listing prices drop in fall and winter, which translates to maximal choices at less cost to you.
If you’re curious about what homes are becoming available in your area, check out this list. If you’re looking to sell a property, click here for a free home evaluation. Either way, if you have questions related to real estate in any way, give us a call at 801-859-7509. We’d be happy to help!