What exactly does buying a starter home means? Starter homes are typically in lower socio-economic areas and therefore come with a lower price tag. They are likely to be older homes needing renovation work. They give you the feeling of a new house and are almost always livable from the outset, but of course, you probably won’t be hosting fancy dinner parties for a while. The pro is you get your home at a low price. The con is you will need many renovations to build it into a full-fledged house especially if you were careless while noticing the faults at the time of purchase.
Economic reason behind buying a starter home
The idea of a starter home is that you are purchasing a house with the intention and expectation of selling it after a limited amount of time. In theory, your starter home will appreciate in value after five years and afford you the ability to upgrade into a larger home as your family grows or your needs change.
The pro is you are getting a home and making an investment as well.
The con is that this theory is proved correct mostly but still hinges on the assumption that the value of a starter home increases within a five-year time span which is not a guarantee.
Fact about buying a starter home and selling it
When anyone thinks of purchasing a house, the basic idea behind this that he or she will be living at that location for another 5-6 years. If that is not the case, the person will be taking a financial hit. The first hit will be the costs closing. Depending on where the house is located, each buyer and seller will be paying a different amount, but yes everyone will pay something which can be easily added up to thousands on a short term selling basis.
The way mortgage payments are designed is that a person pays more interest during the start of the loan, considering the first 3 years after he or she purchases the house. Although it depends on the mortgage structure, but usually, it isn't till you have paid enough on the mortgage for 5 years that you can consider your progress enough to make it better than renting an apartment.
Some benefits of buying a starter house
High demand. The starter homes are always in high demand as they are entry-level homes. Their demand tends to remain constant. There is always pressure on the prices of entry-level homes because that is the biggest market for the new comers. People may not need to buy a three-story 5 bedrooms house, but at some point or another in life, almost everyone needs an entry-level house.
Better growth. There is always a chance of real estate price going down. In the case of starter homes, the pro is that they emerge even faster. For the buyers who are very cautious while investing in real estate can be at ease due to this benefit. During the market crash of 2008, which resulted in the downfall of housing prices by more than 50%. During the rebound in 2012, prices of starter homes were the first to emerge out of the recession.
Of course, mortgage prices will be less in a case of starter homes as the selling price is less but other than the property taxes since they are based on sales price, will be much more manageable. There are other expenses that people usually do not consider such as electricity and gas bills will be less. It will cost more for a two-story 5 bedroom house to heat up or cool down than compared to a starter house.
Always be flexible when buying a starter home
Maybe you don't find a perfect home, but when you see it, you will know it immediately. However, some buyers don't find a perfect home at all, particularly due to the lack of time and resources. Starter houses are not expected by buyers to have everything available. At anytime you can add a garage, swimming pool or a deck in your house later on.