First-time homebuyers are often faced with a choice: Buy a starter home to live in for a few years before moving on to a larger property with more square footage, or buy a forever home right away -- a home that's move-in ready with enough square feet to grow into. The question is: Which option is best for you?
What is a starter home?
A starter home, as the name implies, is a property that may not be ideal to live in on a long-term basis. Rather, it's a home that's more likely to suit your needs for a limited period of time. Compared to forever homes, starter homes tend to be smaller and less updated.
What does it cost to buy a starter home?
The amount of money you'll need to purchase a starter home will depend on the market you're looking at. In San Francisco, for example, the median price for a starter home was a whopping $895,000 as of 2019. But on a national level, you'll need less money than that to buy a starter home. The National Association of Realtors reports that as of late 2018, the average cost of a starter home was $219,300.
Pros of buying a starter home
First-time buyers can benefit from investing in a starter home before moving on to a larger space. Here are some of the advantages of a starter home:
1. They cost less money
You'll generally pay a lot less for a starter home than you would for a larger space that's more up to date. That's a good way to keep your mortgage payment more affordable.
2. Their property taxes tend to be lower
Property taxes are a function of a home's assessed value multiplied by its local tax rate. A starter home in a given market is apt to come with lower property taxes than a larger home on that same block, or in that same vicinity.
3. Less maintenance
The larger your home, the more time and money it will cost you to maintain it. If you're new to homeownership, a starter home is a great way to ease into the experience without getting overwhelmed. Also, a lot of new buyers find that they get in over their heads financially when they realize just how much upkeep can cost. A smaller home is therefore a safer bet in this regard.
4. Easier resale
There's a limited inventory of starter homes on the real estate market today. That could make finding a starter home a challenge, but once you do, there's a good chance you'll have a relatively easy time selling it once you decide to move on, especially if you buy a house that's in a desirable neighborhood.
5. The potential for rental income
You may outgrow your starter home at some point, but if it's relatively affordable, you may have the option to hang onto it, rent it out, and have someone else pay off its mortgage.
6. Access to your neighborhood of choice
If the average house in your ideal neighborhood costs $500,000, but you're on a budget, a $300,000 starter home could be your ticket into that desirable zip code. And from there, you could get access to a great school system, shopping, and other local perks.