First-time home buyers are given an amazing opportunity to build wealth for retirement through owning real estate. Different from past generations that raised kids and retired in the same spot, most first-time home buyers stay in their starter home for only a short time – lasting only 2-5 years. For a new generation of first-time buyers, we need a new strategy. Here are my top 3 controversial tips if you are thinking of buying your first home. 1. Put down as little as possible. When you purchase a home, you typically pony up cash for down payment and closing costs. Your down payment is the amount of equity you own in the home – usually as little as 3-5% of the purchase price for first timers. The lender then finances and owns the rest – charging borrowers a monthly fee to repay the loan with interest. For past generations, the gold standard was to put down 20% on a home. Why am I suggesting you consider deviating? This new generation of property owners has high hopes of owning multiple properties to generate cash flow today or generate passive income in retirement. If you choose to rent your starter home one day, you will see a greater rate of return with less invested. For example, putting down $40,000 on a $200,000 home that rents for $24,000 a year gives you a 60% rate of return before expenses. Whereas a $10,000 investment would yield a 240% return before expenses. Putting down less on your starter home also allows you to pocket some money for future down payments without needing to sell your starter home. Of course, there are times when it makes sense to put more money down. In situations where your monthly payment is too high (due to mortgage insurance, high rates or high loan balances), it may be smart to spend a little more up front. Having an open mind and running the numbers will lead to the best choice. 2. Buy below your means. This is a hard pill to swallow in a world of HGTV UN-reality. Don’t get distracted by high-end appliances, shaker cabinets and stone countertops. Buying your first home should be done on a beer budget - even if a lender says you can afford champaign. Buy a home that allows for an affordable rent or has resale potential for a wide array of income-earning buyers. Again, chances are you won't last in this first home long. Save your money for a home that will give you more mileage for the spend. 3. Buy with rental potential - not just resale - in mind. Building wealth through real estate is a great goal that diversifies your investment portfolio no matter how big or small. Even more importantly, should markets shift, having the option to rent or sell your starter home hedges against risk. If you find yourself needing to move in a down market, purchasing the home with a possible rental scenario in mind ensures you can rent the home until market values move up and you can cash out equity gains. Whereas, if you sink all your money into a starter home or have higher than necessary house payments, you may find yourself “stuck”. Who doesn’t want options! Selling a property in 5 years or fewer can erode equity gains and appreciation. If you’re considering buying your first home, speak with a trusted advisor who can help guide you into both a great short-term and long-term decision. Never want to miss a post? For more useful real estate tips & tricks, subscribe to our mailing list or contact us with any real estate questions.
Authored by: Kat Medaries, REALTOR® MT Realty Advisors of Long & Foster Real Estate Village of Midlothian Sales, 1100 Jefferson Green Circle, Midlothian, VA 23113 Licensed to sell in the Commonwealth of VA | Equal Housing Opportunity For informational purposes only. Not intended as legal, financial or credit counseling advice. Seek the assistance of a professional should you require.
11 Comments
5/6/2024 12:10:33 am
I have been searching for such an informative post since many days and it seems my search jst ended here.Good work.Keep posting.
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5/6/2024 12:11:14 am
Your blog is very nice
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5/6/2024 08:18:55 am
That allows for an affordable rent or has resale potential for a wide array of income earning buyers. Again, chances are you won't last in this first home long. Save your money for a home that will give you more mileage for the spend. Thank you for sharing your great post!
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5/12/2024 11:20:24 am
Buying your first home should be done on a beer budget even if a lender says you can afford champaign. I truly appreciate your great post!
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5/15/2024 08:09:50 am
In the event that you end up expecting to drop in a down market, buying the home in view of a potential rental situation guarantees you can lease the home until market values go up and you can cash out value gains.
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5/15/2024 08:10:05 am
In the event that you end up expecting to drop in a down market, buying the home in view of a potential rental situation guarantees you can lease the home until market values go up and you can cash out value gains.
Reply
5/15/2024 08:53:54 am
Try not to get diverted by very good quality machines, shaker cupboards and stone ledges. Purchasing your most memorable home ought to be finished on a lager spending plan regardless of whether a bank says you can manage the cost of champaign.
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7/5/2024 02:58:44 pm
Buying your first home can be both exciting and overwhelming. Are you looking for advice or information on a specific aspect of the home buying process? Thank you for the beautiful post!
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7/6/2024 04:42:18 am
This new age of land owners has high any expectations of possessing various properties to create income today or produce recurring, automated revenue in retirement. Assuming you decide to lease your starter home one day,
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7/6/2024 07:41:39 am
Try not to get diverted by very good quality apparatuses, shaker cupboards and stone ledges. Purchasing your most memorable home ought to be finished on a lager financial plan - regardless of whether a moneylender says you can manage the cost of champaign.
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