Millennials take up the biggest share of the first-time home buyer market. To buy a home right away, consumers will take a look into buying a “Starter Home” – a small, modest, and affordable home. When they buy their starter home, they may want to start to grow their families and advance in their careers. As they do so, they may want to sell and move into bigger and better homes, transferring the equity from that one place to another. However, some might stop and think if it’s worth buying a starter home, or if they should save by renting to prepare for the big transaction. What are the pros and cons of starter homes?
Pro: Build stability in your life quicker – When consumer’s purchase their first or second home, they feel more stable and on the right path of life. Mentally, they think they are settled down and can make their parents and family proud by starting to settle down early. Not to mention, if you are the first one in your group of friends to buy property, you’d have bragging rights to them that you are the first of the group to make a large purchase!
Con: Buying twice = packing and moving twice and paying the fees twice – One of the reasons why people would hold off is because they don’t feel like paying the closing costs twice or any other fee twice. Also, lots don’t want to pack, move, unpack, and organize where everything goes more than once. Raise your hand if you enjoy spending all day packing your items, labeling them where they go, hire the movers to move your items and let them know where each item goes, unpack and plan on where everything else goes. Yea… we didn’t think so.
Pro: Get a quick start on building your equity and discover the tax benefits – If you make improvements onto the house, the equity you’ve gained you can use towards the purchase of your next home (don’t forget that a renovation loan may work in this instance!). Also, when you pay your mortgage, the interest portion of your payment can be written off against your income tax. When you’re renting, you might be giving your landlord the tax benefit and equity instead of yourself.
Con: You might spend more than you’ve originally planned – Once you’ve become tenant to owner, you might come to realize that you are responsible financially wise for more than the mortgage payments and taxes. If you want to hire a contractor to redo the floors or upgrade certain appliances, the costs could add up in the end. It might make you think, “is it really wort it in the long run?”
Just like the stock market, there is always risk vs reward in any kind of major transaction anyone can make, especially in purchasing a home. Is the reward in obtaining a start home at first worth the risk? As you can see above, if you are planning staying put for a couple of years or more, then yes: it is worth it on your equity and tax benefits alone. If you want to stay put in the same home/neighborhood for a while, why should you give your landlord the extra benefits that you can obtain yourself? Isn’t it time to reap in the benefits and rewards?