"Don't buy a starter home. I am very strict about certain rules about home buying and this is one of them. The reasoning I have on this is that starter homes don't make much sense for a variety of reasons. First off it is a starter home then it means their are some less than desirable characteristics about the home. It might not have enough bedrooms or be in a bad school district. Why would you lock yourself into that type of home? Also, once it is time to sell then you have to pay the real estate fees to go from a starter home into your next home. The transaction costs are too high. Finally, while you are in your 20s there is a decent chance your salary will increase. I wouldn't have wanted to buy a home based on the salary I made at 22 compared to the salary I make now.'
Now that I've been searching for a home for a month it is a little big harder to be so judgemental on people who buy starter homes. The thing with buying a home is that you always give up something. My ideal home has the following:
- 4 bedrooms - I would like 2 normal size rooms for possible kids, 1 master room and 1 guest bedroom.
- 2.5 bathrooms - I would like a half bath on the first floor and two bathrooms on the 2nd floor.
- Finished basement - This would be my spot to watch games, play ping pong, pour drinks, etc.
- Backyard - I don't need a huge one, but at least something would be nice.
- Good school district
- Character home (as opposed to a McMansion)
- Driveway for a basketball goal
- Family Room
303 S. Ardmore: 5 out of the 8. It only had 3 bedrooms, 1 bathroom on the 2nd floor and the basement wasn't finished. Otherwise it was perfect.
2745 Sherwood Road: 7 out of 8. It didn't have the type of finished basement I want, and the family room could have been a little bit bigger, but that is just being picky. The issue with this house wasn't the actual house, but the price. If the owner would negotiate with us then I could see us living there for a long time, but at the current price I think it is too much.
688 S. Remington Road: 5 out of 8. It doesn't have a finished basement, 2.5 bathrooms or a family room. Now could we change some of that over time? It is possible that we could finish the basement and probable that we could add a bathroom. As far as the family room goes it is just a little on the smaller scale, which means that we could host 2-4 other people at any time, but probably not a large group. Is it livable? Yes, absolutely. Is it something that M and I loved? Again yes. Price Range? Yes. The issue with the home is that it is a little small and probably would be considered a starter home.
Anyway, I am sure depending on your timing you have a different opinion on whether or not a starter home is a good idea. If you bought your home in 1998 and sold it it in 2004, then you probably think a starter home was the best financial decision you ever made. You were able to enjoy living in a nice home, while also increasing your wealth with the appreciation in housing prices. However, if you bought your starter home in 2005 then you most likely fall into two categories; 1) You are still living in it because you can't afford to move. 2) You are renting it out because you don't want to sell. Either of those two options isn't a situation that I want to find myself in.
Now, I don't know how the housing market is going to perform over the next 5 years. My guess is that it will continue to decline. I don't have any facts that back that up, but instead base that guess on the experiences of my friends and acquaintances. It seems like there are a lot of people out there who own two homes and are renting out the first one (normally a starter home). It seems to me there is an excess in supply of houses and not enough demand of people wanting to buy homes. Also, my fear is that people are putting themselves too far out on the ledge with their debt. If one bad thing happens (someone loses a job or you lose a renter) then it could create a domino affect where you might not be able to afford your mortgage payments. If that happens then instead of one home going into foreclosure the result would be two homes.
Also, this is more long-term, but a big macro trend that I am worried about is the number of people being born in the US. Back in 1960 it was 3.65 per female, but that has gone down to 2.06 per female. There are less people being born and that means there will be less of a need for so many houses. It seems simple to think that with less people will need fewer places to live in. Also, the people born around 1960 will be retiring shortly and might decide that they no longer need their big home and will downsize. Finally, the people being born are generally people of lower income. If these children aren't able to move from low income to high income brackets (which they probably can't) then there might not be enough people able to buy homes in the $200K-$400K range.
Anyway, there are concerns that home prices will go up in the short and long term. Based on that I don't think it is smart for M and I to lock ourselves into a home that we might not like in a few years. Maybe I am being too unrealistic about the future, but I can easily see a situation where we don't want to or worst can't move from the first home we buy. That is why we are analyzing this decision so much, because it is important to us to get this one right.