If you’re in the process of acquiring new investment properties or even buying your own first home, you may consider buying a so-called starter home, but there are a number of drawbacks that you may encounter, many of them financial in nature, making a starter home a bad choice for some, but a good choice for others. In today’s article from The Short Sale Gal, Kristine Zelazo, we’ll explore what a starter home actually is and the advantages and disadvantages of buying this type of real estate.
What is a Starter Home?
A starter home is designed to be an individual’s first home, so as such, it’s usually fairly basic in terms of the construction and amenities. The fixtures, appliances and other non-structural elements are typically (but not always) lower-line models, selected with affordability in mind. You can always upgrade, though, so this is an important point to consider when working with a builder or when buying an existing home.
A starter home may lack many of the bells and whistles, as they’re generally intended to be affordable and temporary accommodations until the homeowner has the financial ability to upgrade to a larger, better home.
Starter homes are usually fairly small in terms of size, averaging 2-3 bathrooms and 2-3 bedrooms. These properties are very popular amongst real estate investors, especially those who are seeking fix and flips and rental holdings.
What are the Pros and Cons of Buying a Starter Home?
Starter homes are quite numerous, so it’s likely that many of the properties you encounter as a real estate investor may fall into this category. From a cost perspective, many starter homes are comparable to townhomes and condominiums in terms of price and square footage. So these may be good alternatives. Here is a look at some of the points to consider when buying a starter home, whether it’s for use as an investment property or for yourself:
• Mediocre (or poor) building quality could mean it doesn’t retain value well. Unfortunately, some (but not all) starter homes are not built to last for a lifetime and as such, some may see deterioration and value loss at a faster rate than a well-built home. As a result, if you were to stay in a new starter home for more than 5 or 10 years (or move into an older starter home), you may begin to see things that require repairs and replacement — a key consideration for investors. This can make it difficult to save money to upgrade to a bigger and better home if you’re using the property as a residence. So it’s important to pay attention to the quality of the structure and consider how long you may want to keep the property.
• The pool of potential buyers could be smaller than some other homes. Starter homes are primarily appealing to first time or younger home buyers, which can make them a bit more challenging to sell than a larger property or a home with more bells and whistles. So it’s a good point to keep in mind, as depending upon the economy, the pool of first-time or young home buyers may be smaller (or larger) at a given point in time. This is an especially important point to consider if you’re a real estate investor as you don’t want to get stuck with a fix and flip that you can’t flip. But if you’re seeking a rental holding, you may find that you have a larger pool of renters when the economy dips.
• Many move in with the intention of moving out. Generally, when you buy a starter home, you move in with the intention of moving out within a few years. As such, many individuals are hesitant to make home improvements and other alterations to the home — alterations that could boost value. This means that when viewing starter homes, you’re less likely to see upgrades. You’ll really want to consider how long you want to stay in the home if you’re considering it as a property for yourself. For investors who are seeking to use the home as a rental property, the “moving in with the intention of moving out” mentality is actually an advantage.
• Home improvements may not bring a high ROI. Home improvements on a starter home don’t always bring the same degree of return on investment that you would see with the exact same home improvements on a higher quality home. The reason? You’re making improvements to a home that’s designed to appeal to first-time home buyers. So even if you install beautiful hardwood floors, gorgeous cabinets, granite countertops and other major improvements, the fact remains that you’ve made these home improvements to a starter home. In short, the improvements generally do not change the fact that it’s a starter home and the degree of alteration that would be required to make a starter home comparable to a well-built higher-end home would just be impractical from a cost perspective. Again, this is a very important point to consider for real estate investors who are considering a fix and flip.
NEED HELP GETTING STARTED IN REAL ESTATE INVESTING?
If you’re getting started in real estate, consider working with a real estate investing mentor like The Short Sale Gal, Kristine Zelazo. Getting started in real estate investing can be somewhat challenging, but when done right, you can stand to make significant profits. You’ll have lots of advantages in this regard when you work with a real estate investing and short sale expert like Kristine Zelazo, better known as The Short Sale Gal.
Based in Florida, Kristine works with both buyers and sellers and she is an experienced negotiator. So if you’re an investor seeking to get started in buying short sales and need a great mentor or wish to pursue a short sale transaction for the sale of your property, turn to Kristine Zelazo, the Short Sale Gal! To get started with selling your home, simply complete the home pre-sale form to provide Kristine with additional information on the property in question. Then, call 786.570.0360.