In real estate, there is a concept known as a â€œstarter home.â€ A starter home is a lower cost home that works great for current needs, but may not be a perfect fit for the long-run. While moving is expensive and can be quite a hassle, it can help you level up your real estate and personal finances at the same time.
Needs Change Over Time
When you move into your first home, you may not have kids, you may not have a dog and you may not have a significant other. But fast forward a few years and life could look a lot different. That is one of the most common reasons people decide to move.
Few people can move right into their lifelong dream home right after college or even in their 20s. Due to closing costs, many experts suggest not buying a home unless you plan to live there at least five to seven years. However, this may not always be great advice.
If you live in a hot real estates market like Denver, Portland or Austin, your house may appreciate quickly, even within months of moving in. In these cases, owning a home for even a few years could lead to a huge profit for you, while renting means putting the profit in someone elseâ€™s pocket.
Not all markets are the same, so do your research and buy with caution. Some neighborhoods tend to outperform the local market while others lag behind. Whenever you buy real estate, use conservative optimism and never rush into something that could turn into a bad deal.
Prices Tend to Rise Fastest in Trendy Areas for New Buyers
Depending on where you live, moving out of a starter home could pay you great dividends. Even after closing costs, it is easy to make a profit in some areas, most notably the bigger metro areas that are growing rapidly. In smaller cities and towns, real estate prices do not typically rise as fast as they do in large cities.
Consider a condo near downtown Denver purchased in 2011 for $137,000. Three years later it was put on the market and sold for $215,000. Thatâ€™s $78,000 profit (fewer Realtor fees) for the owner. Today, Zillow estimates the condo to be worth $329,000. Great news for the person who bought the condo in 2014 for $215,000.
Certain trendy neighborhoods see prices skyrocket far faster than the suburbs do your research on a neighborhood by neighborhood basis.
Donâ€™t Be Afraid of the Suburbs
It is easy to find stories about how Millennials will never move to the suburbs, but more recent data says that the suburbs are still quite fashionable, although suburban life may be attractive at a later life stage than for Baby Boomers and Gen X families.
The suburbs are in the midst of a resurgence. But suburban living is not for everyone. The key to success is living in highly desirable areas where home prices are expected to increase. Sites such as Zillow or Trulia or offer estimates on future home values. But there is always a risk that the market could turn south. After all, The Great Recession in the late 2000s led to a nosedive in home values from coast to coast.
Buying real estate is certainly not without its risks. Just ask anyone who bought a home in 2006 near the top of the market. But if you time it right, selling can lead to great things.
Donâ€™t Spend Your Real Estate Profits
Everyoneâ€™s real estate experience is different and every market is different, but when you focus finding a great home, in a great neighborhood, you can maximize your investment.
Whatever you do, donâ€™t rush and spend the proceeds or profits from a real estate sale. If you do, you may not have the cash to level up in the future and could find yourself downgrading to a smaller, lower cost home.
Focus on the Long-Term
Many interpret YOLO (you only live once) to mean you should do everything to live in the moment. YOLO can also mean something else – you only have one chance, so donâ€™t make large financial mistakes if you can avoid them.
With a long-term focus and short-term wins, real estate can open many doors for your future. If that means moving to a new home, donâ€™t let yourself get discouraged. Sometimes moving leads to great results.
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