Buying a home is still a sought-after goal for many of us. A recent Bankrate survey found that 79 percent of Americans still believe owning a home is a major part of achieving the American dream.
But wanting to buy a home and being able to find an affordable one, especially as a first-time buyer, may not be the same thing. A starter home is the first home you’ll buy when looking for a property, and they’re becoming scarcer. Investors are increasingly focusing on the starter home market, leaving less inventory for people who can normally afford these homes.
While a starter home’s price and amenities will vary based on location and local demand, here are some tips to help you find the right one and navigate your market.
What is a starter home?
A starter home is typically the first home a novice buyer purchases and is in the lower price range of homes on the market. Other characteristics of a starter home might include:
- Older existing property in need of repairs or updates.
- Smaller in size than higher-priced homes.
- Not located in ideal neighborhoods.
- Fewer amenities than a larger, newer home.
“A starter home, in my opinion, is defined as something affordable to a young professional within the first few years of starting their professional life,” says Mihal Gartenberg, a licensed real estate agent with Warburg Realty in New York City. “(It’s) a starter home because the individual’s housing needs will change over time.”
On the other hand, a forever home is where you plan to live for the majority of your life.
Where you live can impact the details of a starter home. Around the country, most people live in starter homes for a few years before owners feel they’ve outgrown them. But it’s not like that everywhere.
“What’s considered a starter home differs (by) state and city,” says Louis Adler, principal and co-founder of REAL New York in New York City. For example, the concept of a starter home is almost unheard of in New York City, where a small studio or one-bedroom apartment starts around $550,000 (not including the monthly condominium fees), according to current listing data on Realtor.com. In Atlanta, though, you could buy a new, decently sized single-family home for under $250,000.
Why this affects first-time homebuyers
Finding a starter home is an often elusive undertaking in some markets as home values keep rising and people stay in their homes longer.
“The number of starter homes within a reasonable price limit is decreasing,” Adler says. “Not only are there fewer homes on the market, but they’ve also become more costly.”
Investors are putting more money and effort into scooping up starter homes that would otherwise be ideal for young, first-time homebuyers. Investors are buying starter homes at a higher rate than past years: it’s peaked at 20 percent over the last two years, according to data from CoreLogic. That’s about two to three times the rate investors have purchased higher-tiered homes.
Since investors have the cash to buy starter homes outright, it’s harder for cash-strapped first-time buyers to compete against those offers. It means you might be renting for longer and taking more time to save for a home in your price range. And if you can’t find a home in your ideal neighborhood, you might have to expand your search to alternative areas.
How to find starter homes for sale
Even with a limited inventory, there are still a few ways you can take action now to find a starter home.
1. Adjust your expectations
Buying a home is rarely a sprint and almost always a marathon.
“The fewer priorities you set, the more achievable it becomes,” Adler says. “Be open-minded about location, size and amenities of the starter home.”
Finding a starter home is more achievable if you worry less about finding the perfect home and more about what works within your budget and needs. For example, consider buying a townhouse or condo instead of a single-family home, or a smaller home that’s in the suburbs instead of the city center. In other words, be prepared to make some tradeoffs.
2. Widen your prospects
Maybe you’d prefer a larger space to accommodate more people or things. But you might be limiting your inventory.
“Look for two-bedroom properties instead of one with three bedrooms,” Adler says. “Or choose a one-bedroom property that has a small extra room instead of a true two-bedroom property.”
And don’t be afraid to search in neighborhoods that weren’t at the top of your list.
“You may need to look a bit (farther) from the center of town or buy something that needs work,” Gartenberg says. “If you need financing, you may need to think more creatively about what type of seller may consider you for the purchase of their home.”
3. Work with an experienced real estate agent
With starter homes in high demand, the guidance of an experienced real estate agent who knows the local market trends and your desired neighborhoods inside and out is critical to success.
“Make sure you find someone that will guide you towards a purchase that makes sense to you now and will make sense in the overall market when it comes time to sell,” Gartenberg says.
Agents not only have your best interest in mind but also an idea of what the market looks like. Even if you live in a highly-competitive area, an agent should be able to help you find something that fits your needs and your budget. Your agent can also help you write a strong offer letter that stands out from the crowd.
What if starter homes aren’t available?
You might run into a lack of inventory or bidding wars and come up short in your search for starter homes. If so, expand your search a little farther away from your preferred neighborhoods.
Moving farther out means you’ll have a longer commute time, so you might need to look for areas close to public transportation or major highways.
And, in some cases, you might need to put your search on hold for a while and focus on saving more for a down payment. Meanwhile, find other ways to get familiar with properties you like, Adler advises.
“Look for rentals in your neighborhood of interest and maybe save some more money, so you can buy your dream house in a few more years,” he says.