Waiting For the Perfect Home May Cost You Money
By Rudy Mireles, REALTOR® Associate, B-Town Realty
Part 1 of 2 Part Series
“I plan to stay in my next home forever.”
“I want to pass this house on to my future children.”
“I’m taking my time finding the exact home I want because we don’t ever want to move again.”
This is usually what I hear when a potential buyer client walks into my office.
I get it. I really do. As a millennial and a veteran, I’ve moved 17 times over the last 15 years.
I’ve moved for work, to upgrade to a better home, and finally to make my permanent home here in the Rio Grande Valley so I can be close to family...and the South Texas weather!
So when someone tells me they don’t ever want to move again - I get it.
As humans we crave stability. We need it in our careers, our friendships, our loved ones. So why wouldn’t we want the same when it comes to making one of the biggest financial and personal decisions in our lives?
But is buying a “Forever Home” really the answer to that financial stability you seek? Let’s figure that out.
The “Starter” Home
When we hear the words starter home the first thing we may think of is Nicole Curtis on HGTV’s Rehab Addict as she and her crew work to tear down old walls, replace all the wiring in a 100-year old house, and the headache that comes with coordinating multiple crews of contractors to make sure a project is completed in a timely fashion and able to turn a quick profit.
That model is perfect for its intended outcome which is to buy, fix, and flip a home. (It’s even better for some wholesome TV drama.) But that is not a true starter home.
A true starter home is simply a home or condo that you can afford at your current budget that may or may not need a few improvements.
“Starter” Homes Can Make You Money
Recently I had buyer clients come to me and tell me she and her husband were looking for their first home. They were a young couple with two children in middle school. They were pre-qualified for a home mortgage up to $300,000.
They told me all the things I mentioned at the beginning of this article. They also mentioned that they would like to stay under $275,000 so they knew they could truly afford their new “Forever” home. Smart!
After several showings, I decided to show them a different option - a starter home with some light renovations needed.
The home in question was listed for $265,000. A whopping $10,000 under their set budget. After speaking with a few contractors, the home needed approximately $5-8,000 in repairs. I’m always cautious when handling my own estimates so I told them let’s assume a total of $10,000 in repairs.
They loved everything about the home. They asked if they could come back with their extended family to see it again. Daughter was showing grandma her potential YouTube studio, son was showing uncle where the Virtual Reality space would go so they could play video games, and grandpa was in the backyard talking to dad about the conversion of the brick gazebo into a giant grill for carne asadas.
Here’s the best part: After doing a Comparative Market Analysis (CMA) with other similar homes in the same Brownsville, TX neighborhood, we found that the homes value was actually around $325,000.
That’s a profit of around $50,000 if they wanted to turn around and sell that home as investors or “flippers.” Right off the bat.
With children in middle school, that means they’d be graduating and out of the house within six years. According to top economists, that is almost perfect timing to sell your home.
The Five Year Rule
In a recent Architectural Digest article, real estate expert Thomas Bayles said the following:
"An economist by the name of Home Hoyt did a study on [real-estate] cycles and found that they tend to run in 18-year rhythms. So chances are you will have a good runway for a chance of appreciation if you hold for seven years,"
In real estate we often refer to the “5-year rule.” According to Bankrate, the five-year rule states that new homeowners should generally stay put for at least five years before selling their property or risk losing money.
Closing costs and commissions typically average between 7-15% of the cost of your home. According to the National Association of Realtors, the average home is expected to appreciate around 3.1% annually over the next two years. With an average appreciation rate of around 3.1% annually, your home needs to appreciate around five years so you can break even on those costs.
With six years until their youngest child graduates high school, the couple would have had the perfect launch ramp to sell their home for a massive profit. With an average 3.1% appreciation rate over six years, their $265,000 home could have been worth around $388,000! Take into account the repairs with my “safety cushion” addition to the estimates and the family would have been able to make around $113,000 on their home in only six years!
Does that really seem like your version of a starter home to you? Not exactly what you had envisioned, huh?
Unfortunately, they were scared off at the idea of making renovations and stuck in their search for the forever home. And every house they continue to visit and turn down in that search is another lost opportunity to grow their wealth.
Everyone is Different
Now I’ll admit, this couple has a nice chunk of change to purchase their new home. Your situation might be different and that’s ok. This isn’t about how much money you have but rather how you choose to spend that money. Making wise choices with your money instead of emotional ones can be the difference between starting your five to seven year path towards greater financial success or renting for another year because you still haven’t found the perfect forever home.
In the next post in this series, I’m going to be talking about another reason that buying a starter home in Brownsville, TX or anywhere in the Rio Grande Valley area right now instead of waiting could save you - and make you - a ton of money over the next few years.