Buying a home and only staying in it for 5 years?

[ScrimpAndSave]

I know, I know...you hate when I post about houses. BUT - I am educating myself.

Here is my question. I'm 27 years old and have lots of friends that are buying houses now. In my community, a "starter home" is probably around $200k-$225k. A "forever" home is around $300k-$325k.

My question is...many of my friends buy their starter homes and plan to live in them for 5 years. Then they plan to buy their longterm houses later. Does this make sense? They say they will gain equity...and aside from this being a tough market - aren't they putting out a lot in seller fees, buyer fees, furniture, upgrades and even just utilities?

I guess I don't see the sense in it when you can comfortably rent around here for $600-$700 a month.

Do I make sense? Because my goal is to save up a good amount before I buy...and hopefully buy something that can be a longterm home.

::sigh:: Houses.

[ummabdullah]

It sounds like you have calculated the difference between renting and buying in your area and that is what makes sense to you. So decision already made!

[maat55]

It makes sense if you buy a house at a bargain and finance on a shorter term loan or pay or save extra towards the next home. 30 year notes do not build equity in five years. Appreciation will be across the board if you are buying in the same relative area.

This best works when you buy a fixer. You get it cheap, fix it up and hang on at least two years to advoid capital gains. If I could afford the dream home on 25% of my take home pay, I would probably just buy it now. If you are looking to wait 5 years for higher pay, the 5 to 10 year plan works great, when done right.

[disneysteve]

I'm of the opinion that buying and selling a home and packing and moving is a HUGE pain in the behind. We bought our home in 1994 and don't ever plan to move unless we relocate or become physically unable to handle a multi-story dwelling.

The concept of a "starter" home is totally artificial and a fairly recent one. My parents bought their one and only home in 1955 after they got married, before they had children. My mother just moved from there 2 years ago because the neighborhood had gone downhill and she was starting to have some trouble managing the place. Otherwise, she'd still be there. Many of my relatives have the same history of owning one home there whole lives.

There is no way I would buy a house knowing that I was going to sell it 5 years later. Of course, renting a home doesn't eliminate the packing and moving part, but it does reduce it in a way because knowing the rented place didn't belong to us, we wouldn't decorate as much or furnish as much since it was only a short-term home.

[ummabdullah]

I travel and relocate alot because of my husbands job. And I have to say that settling down in one area and moving my way up sounds like heaven at the moment. To live in a place more then 8 years would be a dream come true.

[MonkeyMama]

The starter home thing (usually starter condo) is a long standing wealth building strategy for people who live in VERY expensive areas.

I don't know anyone where I am from who can own a home (even our parents and their generation) without starting small and moving up.

Though, I totally agree, the current incarnation of moving up is insane (people moving up in their 40s/50s/60s and happy to die with their mortgages). That is most certainly not the point of the true move-up strategy! Where I am from the point is so you can some day afford that $600k 2-bedroom/1 bath house on 1/10 acre.

That being said, from what you have shared about the are you live in, yeah, it doesn't seem to make much sense in your situation. Though there is a small chance it could put you better off, I don't have my crystal ball handy. Common sense would say real estate is going to be a downer for a while.

I've actually done both strategies and both paid off for me.

When I was 23 we bought a condo as a starter home (far cheaper than renting and hoped to ride the equity wave to a house).

We quickly grew disillusioned with the area and moved elsewhere. We never planned to stay in our condo more than a few years anyway. We ended up buying our "forever house" at 25. IT was 5-bedrooms, before we had kids, cheaper than our condo, and everyone else thought we had lost our minds. But due to many factors/reasons this was FAR cheaper than starting smaller and moving up later. (Realtor fees, moving expenses, property tax considerations, etc., etc.). Likewise, we wanted to buy our forever home in our 20s, whatever ended up being affordable (could have easily settled for less. We grew up thinking we could never afford a 3-bedroom HOUSE). I think certainly by your 40s you should be done moving up.

So if you can easily afford it, buy the forever home. If not, start small and pray you can move up some day. Both strategies have their places.

[cschin4]

Buy a "starter" home and stay in it forever. That will get you the furthest ahead. However, it makes no sense to buy a home unless you are fairly certain you plan to stay in the area. The nice thing about being young and renting is the mobility. You can easily pack up and go and not have to worry about selling a home, etc. Also, because of this ease of mobility it allows you to look for and take better paying jobs. If you are determined to stay put, it may make sense to buy a home. But, if you are interested in getting married, possibly moving, etc. I would advise you to wait until you are intent of putting down some roots.

[LivingAlmostLarge]

Depends, like Monkeymama, I'm at 29 on my second home with plans of third for sure potentially a fourth. Where we live it's expensive you can't afford to jump into a forever home even 3/2 SFH unless you have rich parents.

So we went from condo, townhouse, and one day in about 3-4 years we'll be in single family land. We are doing it by appreciation and building equity rather than renting. We'll have been owners for almost 7 years now and I feel secure that we've done it the right way for our area.

But RE is always location depenedent. Not many people would pay $300k for a 1 bedroom condo which is what we sold our condo in CA for and we bought it at half that price. $150k for a 1 bedroom already sounds stupid to be honest. $150k buys Single Family Homes in many areas of the US.

But we bought our place built equity, traded up. Same thing now. It depends on where you live. I think we came out ahead doing what we did, but it's not for everyone.

Honestly how many couples are willing to buy a 500 sq foot condo? And are willing to make sacrifices to buy it?

[jIM_Ohio]

Originally Posted by ScrimpAndSave

I know, I know...you hate when I post about houses. BUT - I am educating myself.

Here is my question. I'm 27 years old and have lots of friends that are buying houses now. In my community, a "starter home" is probably around $200k-$225k. A "forever" home is around $300k-$325k.

My question is...many of my friends buy their starter homes and plan to live in them for 5 years. Then they plan to buy their longterm houses later. Does this make sense? They say they will gain equity...and aside from this being a tough market - aren't they putting out a lot in seller fees, buyer fees, furniture, upgrades and even just utilities?

I guess I don't see the sense in it when you can comfortably rent around here for $600-$700 a month.

Do I make sense? Because my goal is to save up a good amount before I buy...and hopefully buy something that can be a longterm home.

::sigh:: Houses.

Moving from my starter condo to my single family home (dream home) cost me around 18k. I lived in the condo for about 5 years and refinanced it once.

I have already refinanced my mortgage in my current house once. We have lived here for 3 years this December- I think. Might be 4 years.

The condo was purchased for about 152k and sold for about 179k. The current house was purchased for 352k and was appraised at 365k a year later. There are houses on our street which closed for higher, the house across the street was built and they asked for 325k and it finally sold this week (2 years after it was built) for around 250k.

Real estate is always local.

Here is my answer based on my own experience-

Buy the house which allows you to move the least amount of times. Buy it big, assuming your family will grow. Buy one which can be added onto. Find a neighborhood with people within 10 years of your own age.

Moving cost me 6% of the 179k we sold the house for (10k) plus 1k to move out into storage, $200 for storage, another 1k to move from storage into the new house 6 months later, plus closing on the construction of the new house.

Add in the two closings we paid to refinance and the closing on the condo when I first moved in (and those moving costs).

30k over 8 years was spent on moving and closing I think. Plus setting aside the down payments.

Moving is expensive and not needed. Using my logic if you found a starter house for $225k, you could justify a $255k house if you did not move in 8 years and $285k house if you did not move in 16 years and $315k house if you did not move in 24 years.

More expensive houses will hold their value better and appreciate at a higher percentage than a smaller house.

A $350k house might appreciate at 3% per year, where as a $250k house might only appreciate at 2.5% per year.

I come to this conclusion because the expensive places to live get more expensive faster than the moderately priced places to live. I have not seen this published anywhere.

There is higher risk with the more expensive house (it could drop in value more) so the reward for that risk would logically be it would also appreciate at a higher percentage too.


Do not let the houses your friends buy suggest what you do or don't do.

[MonkeyMama]

Originally Posted by LivingAlmostLarge

Honestly how many couples are willing to buy a 500 sq foot condo? And are willing to make sacrifices to buy it?

Most people aren't.

It's the difference between success and failure in an expensive area, for sure. I have always felt like it was somewhat our secret. Every single person in our family has owned real estate in the Bay Area, starting small.

While the rest of our peers can't seem to figure it out. When you tell them the "secret" they turn up their nose.

Their loss.

I was just reading a starter home in somewhere like Texas is a 2000 sf 4-bedroom home. In LA or NY it's like a 500 sf condo. It's all so relative.

[jIM_Ohio]

Originally Posted by MonkeyMama

Most people aren't.

It's the difference between success and failure in an expensive area, for sure. I have always felt like it was somewhat our secret. Every single person in our family has owned real estate in the Bay Area, starting small.

While the rest of our peers can't seem to figure it out. When you tell them the "secret" they turn up their nose.

Their loss.

I was just reading a starter home in somewhere like Texas is a 2000 sf 4-bedroom home. In LA or NY it's like a 500 sf condo. It's all so relative.

I agree it is relative.

My first townhouse was in Ohio, 1600 sq ft. The only reason we moved is because the 1600 sq ft was spread between 3 floors. We had 2 BR and 4 BA. We had the right square footage but the wrong floor plan for a family.

If we had two kids of different genders we could not in good conscience put an 8 year old in the finished basement for a bedroom (the basement was a walkout and was 400 finished sq ft, maybe larger).

But that starter townhouse on the coasts would have been triple the price, where as we were quite happy there as an engaged couple and as newly weds.

[LivingAlmostLarge]

Jim, we moved into a 1800 sq ft townhouse. 3 stories and it's a dream.

Monkeymama, we told our friends to get into RE early and buy cheap. They laughed at us for buying a 1 bedroom condo. The location was solid too. 3 years later we laughed at them. You can't get away with buying the dream home on the coasts first time out.

Even now we could have stretched to buy a SFH but we knew a townhouse was the right move even with moving costs. It made more sense.

So it depends on what you can afford and what you need.

[bankaround]

I agree with a few of the posts in that you should be comparing the cost to rent and own. If the difference is little, you should consider owning your own real estate property to live in, even for 5 years.

While no one can predict the future of the real estate market, if the rent vs own is in favor of owning, definitely look into owning, only if you can comfortably afford it after taxes and HOA.

[ktmarvels]

I'm very interested in this thread too, because DH is in the military and it means that we move every 3 years or so, but we also are wanting to buy a house. We figure that at our next duty station (in about 2 years) we should have enough money saved toward a down payment and I'll be finished with school and ready to start working.

We have been choosing to rent in places that are less expensive than our military housing stipend (BAH). I have no doubt that we will be able to find an inexpensive place to rent. However, I know with BUYING a place there are a lot more factors that go into the search.

Can anyone help me realize what factors come to play when deciding to rent or buy? Here's what I have so far:
1. Housing market
2. Monthly cost (rent vs mortgage and insurance and taxes)
3. What we decide to buy (condo vs townhouse vs single family)

Not very much, but I'm new and learning!

[momof1in150]

Originally Posted by ktmarvels

I'm very interested in this thread too, because DH is in the military and it means that we move every 3 years or so, but we also are wanting to buy a house. We figure that at our next duty station (in about 2 years) we should have enough money saved toward a down payment and I'll be finished with school and ready to start working.

We have been choosing to rent in places that are less expensive than our military housing stipend (BAH). I have no doubt that we will be able to find an inexpensive place to rent. However, I know with BUYING a place there are a lot more factors that go into the search.

Can anyone help me realize what factors come to play when deciding to rent or buy? Here's what I have so far:
1. Housing market
2. Monthly cost (rent vs mortgage and insurance and taxes)
3. What we decide to buy (condo vs townhouse vs single family)

Not very much, but I'm new and learning!

Be very careful buying while you are in the military. I am near Newport, RI and many families here are struggling because they bought 2-4 years ago and now they can't sell their houses. Many active duty spouses have had to leave to go to their next duty station and their families are staying here because they can't afford to move. Some are able to rent their houses but it is risky because most of the time you have to hire someone to watch the house and do maintenance.

If you want more help let me know. I am a Realtor and it must sound strange for one to tell you not to buy but my DH is also retired military so I know both sides.

[LivingAlmostLarge]

Definitely I've heard it's bad to buy when military.

[Coleroo]

It's really a relative thing and based on your situation, your loan terms, your interest rate, etc.

But for me, personally, I hate the idea of a starter home. I guess it's because I grew up in an "older" family where people buy one home and STAY put? .... In fact, I hate the idea of buying, moving, selling, etc. When we bought our home in spring of 2006, our mortgage broker tried to convince us we'd only be here 5-7 years because of "statistics". I was surprised to learn at that time that people are doing that (buying and moving within that short of a time frame). To me that's nothing more than "renting" with a slight possibility of accumulated interest. I wouldn't dare trust the real estate market to increase in such a short time span...there's too much risk that you will end up upside down on your loan.

We purchased our home in 2006 and actually plan on keeping it permanently. Our longterm goal is to some day build a bigger home (15-20 years down the road) but we'll be keeping this one for rent income.

[Madwand]

Right now home prices are the lowest they have been in 5 years. Many experts think we have hit the bottom.

My advice is educate yourself on home values in your area. Find a good Realtor and go out and buy the most expensive house you can afford. Your starter home might end up being your forever home at todays prices.

Don't listen to the gloom and doom. This market will turn around. If it doesn't then we are all screwed anyway. However it has been proven over and over again that markets are cyclical.

It's like the stock market. Buy low and sell high. I doubt you will see a better buying opportunity in real estate like this one in your life time.

Go for it!!

Scott

[TBH]

Originally Posted by cschin4

Buy a "starter" home and stay in it forever. That will get you the furthest ahead.

I think this is really true in my case, but I still want to move up and every time I drive by a house I like that's for sale I have to give myself a stern lecture.

We bought our house in 2004. It is a 3BR 1BA row house in a nice but transitional neighborhood. Our street is just fine, but there are some economically depressed areas just a block away. The house still needs a lot of work. We've done a lot, but it was really a shambles when we bought it. I am reluctant to put more money into it because I would rather save the money for my next house. For the next house, I don't want to settle again and buy a house that is tolerable but that I don't love. I'd rather wait and save until I can afford what I really want.

But I know it would be better financially to finish fixing up our current house and just stay in it forever. We will have it paid off by the time our kid goes to college, and by the time the kid is out of college it will be just about time for his dad to retire. If we move, we'll be starting over with a big mortgage, and we'd have to cut out a lot of little luxuries and ratchet back our retirement savings. Not a good idea. Better to stay where we are.

Still, I want that 4th bedroom and I want that big yard. Also, I want a house with more curb appeal. I have always thought our house was, well, ugly. My city has such gorgeous architecture and I ended up with a drab little asymmetrical box.

I don't love my house, but I do love my mortgage. Low interest rate, low balance, and low payments. I can tolerate a lot of ugly for that.

[meatloafkend]

I don't know where you live, but jeez, a starter home for 200K?!!!!! Since when did people start paying over 120K for their first home? This keeping up with Jones' is getting rediculous. Of course, if you live in CA or NY or something, that makes a big difference.