Buyin 1st primary res.- buying starter home VS house to grow into

33 Replies

So as the title states,  what're some opinions when it comes to buying a starter home, below budget, VS buying 4 bedroom home that may stretch budget 40% of post tax income.

Reason being and things I see, buying a starter house..living in it for 5 years, only paying off interest, and then moving again.  So why not buy a primary that I know I can and will grow into with the serious girlfriend.  May stretch now, but with dual income it becomes extremely affordable.  No moving, relocating, and buying a house that don't need anything major for ~10 years is great vs coming in below budget and I have to do a roof year after next.

Hi Rob,

Depends on what your long-term goal is, but buying what you will grow into is what I did.  When my wife and I were not married yet, we looked for a 2BR Coop in neighborhood that had a good public school (about 5 years ago).  Until about 1.5 years ago when we had our first child, we were renting our 2nd bedroom.  You always have that option (or even Airbnb, we did short term rentals for few few months until our tenant who stayed with us for 3 years moved in). One thing to keep in mind is your income will grow over time, but your mortgage won't.  when you do buy your larger home in the future, interest rate could be much higher (but maybe price maybe lower, who knows). It gets harder to save money once you have kids (and maybe you won't have the luxury of dual income at that point.   My wife doesn't work now, and we lost our tenant too, so it was a double wammy for me), so it's better if you just buy it now. I personally think that's a better approach.

However, from investment standpoint, perhaps not as great, since you COULD invest that extra money and hope to get extra returns from the capital you saved.  But you don't know if the appreciation on your below budget property + whatever return you get from you investment property will beat how much the bigger property would have appreciated.

Hope that helps!

Just to clarify though, you can always overcome the negative point i made about from  investment standpoint by renting out your extra bedrooms, if you don't mind living with someone else! I'm not sure if that's something that's common in your neighborhood, here in NY it's very common so it was very easy to find a tenant.

No not very common in my area, but being 30 possibly renting a room to a less established friend is an option for a while.  School is grade A for the area. Property appreciation is expected for the area.  It's home (as far as the area is concerned), and local and central for work and family.  Job security is high.  Adding her income makes it more affordable, but I cant ask to put her in that situation before I make the worst investment all of us guys HAVE to make and buy her a big worthless diamond she'll probably lose. 

I just don't want to stretch myself.  I guess another question to add on to the thread would be ----- What percent is your PTI+bills for your primary residence compared to your monthly net?

No B&B numbers or duplex outliers where you say you pay zero etc, just standard SFH where you reside and pay a mortgage.

Thanks BP

Originally posted by @Robert T. :

So as the title states,  what're some opinions when it comes to buying a starter home, below budget, VS buying 4 bedroom home that may stretch budget 40% of post tax income.

Reason being and things I see, buying a starter house..living in it for 5 years, only paying off interest, and then moving again.  So why not buy a primary that I know I can and will grow into with the serious girlfriend.  May stretch now, but with dual income it becomes extremely affordable.  No moving, relocating, and buying a house that don't need anything major for ~10 years is great vs coming in below budget and I have to do a roof year after next.

In your shoes I would buy the starter home and use the money saved for down payment on an investment property.

@Robert T. Pick something in between? Being house poor is stressfull. And what is a “starter” home? Sounds like a realtor coined term. Buy where you want to live, but only if you can get in at a price that isnt stressfull. as for a starter home, seems you Might as well rent if you end up breaking even on your first “starter” place.
@Robert T. Good conversation. To the point that someone already made about renting a room, what about looking at a small multi unit property? Something that had 3-4 units. You could then be acting out the “starter home” role while building an investment at the same time.

Starter home meaning 2-3 bedroom when I think I'll need 3-4.  0-1 car garage when I want 2-3.  1200sqft when I want 2000. 1 bathroom when I want 2.5 etc. 

And when I say starter, maybe meaning something more than affordable, vs a home you can raise a family in comfortably  but may push the budget to 45% of net going to a home and bills.  Which is practically one paycheck a month going to home and bills.  That's why I asked what is wise to put towards PTI and bills? Articles say 35% as a guide, but as most things just a guide. 

What's to be said about buying a smaller home and paying closing and interest only to move in 5-6 years and start over? 

Originally posted by @Robert T. :

So as the title states,  what're some opinions when it comes to buying a starter home, below budget, VS buying 4 bedroom home that may stretch budget 40% of post tax income.

Reason being and things I see, buying a starter house..living in it for 5 years, only paying off interest, and then moving again.  So why not buy a primary that I know I can and will grow into with the serious girlfriend.  May stretch now, but with dual income it becomes extremely affordable.  No moving, relocating, and buying a house that don't need anything major for ~10 years is great vs coming in below budget and I have to do a roof year after next.

 I think it just depends on how certain you are of what you want. If you can afford to get into your dream home right now, I think you should go for it, especially if it will be a good investment.

If it's not your dream home & it stretches your budget (& minimizes your investment funds), then I would go with a cheaper home, knowing that it will be somewhat temporary.

Looking at it from a money management perspective (and less of an investment perspective), I would buy the least house that suits you now. Save some money, hopefully pick up some appreciation, and look in 5-10 years to upgrade. The biggest reason is I bet what you think you’ll want in 10 years isn’t what you’ll really want. Jobs change, you may want to live closer to the city, or more in the country, or in a different state. Or you might decide you want to raise emus. Who knows. But we all change - especially if you get married... all bets are off. :) Get something that suits you now, then find what will suit you when it’s time to move.

 Good advice Ty and Mike thank you.

I think a majority of people like to buy what they can afford when it comes to their home, and often buy a starter home and move on to a bigger home when they figure out there's a baby about to be on the way or they get a raise etc.  I'm planning on the future, and do I need 4b now, no, but I hope I will, and I can afford it.

I just think I see friends in their early 30's rushing to buy homes when they could've waited, saved, or bought a house (that maybe needed some work for the same price) that they could've grown into. I don't see the house as an asset, but its enviable and you need somewhere to live. I just get the feeling that buying for now will cost me later. 

In my situation at least, job/location probably wont change as I have a job I'll most likely retire from; putting me in the fortunate position of considering a home I can grow into with a family and retire in.  I suppose buying in a nice neighborhood, even a smaller house appreciates.  I understand a lot of you buy rentals or live in a multi-plex first.

Personally I'm not looking to buy 50 doors in 50 months or anything like that. I just want to make a good primary residence purchase and subsidize/secure my already secure retirement with a few brick and mortar SFH rentals, and only being 30, I have time to make that work, so no rush there.

I suppose I wanted to hear some personal stories or some numbers that verified one is better than the other.  And honestly I think it helps to just type something out and ask a question you already know the answer to, but any more advise or personal stories are welcomed.

Also I think it would be cool if BP could add in a vote or tally system so if you clicked on a thread you could vote and see results for conversation like this.

I guess asking this question on a real estate investment forum would yield those kind of responses. But anyway-

I’m currently about to go under contract for my primary home and it’s towards the top end of my budget.  My thinking behind it is great schools, new construction, happy wife and you know the rest.  But it depends where you are in life and what your goals are.  My wife and I already lived in a duplex so now we want a nice home that fits our growing family. After we close I will continue re investing with capital that I still have saved.  Yes I could get more units now if I went with a smaller home but that’s part of the reason I invest is to provide a better lifestyle for my family.  

@Robert T. I always bought homes at a lot less than I could afford. That way I could start saving and planning for the next one. At some point, I outgrew the old one and turned it into a rental and moved to the new one. Rinse and repeat. Pros - I accumalated RE. Cons - My homes were always less fancy compared to friends who brought the one mansion but could not go beyond that.

I can definitely see both sides of your situation. Like it's been stated above, it all depends on your short/long term goals. Do you want to invest in real estate? Do you want to start a family? What are your expenses? It just all depends on you. 

If I was in your position, I would write down my short and long term goals. Then, I would write down the pros/cons of buying a more affordable home over a less affordable home. When you write things down on paper, you're able to analyze the situation better IMO. Why not find a happy medium?

@Robert T. I did the "plan ahead" home you are talking about. Had one kid, bought a 2500 sqft 4 bed, 2.5 bath, 2 car garage, and just about maxed my budget. 2 years later, we have a second child, we decide that my wife will stay home and raise the kids, budget is really stretched. This year we decided that investing in our future is more important than the big house, moved to a different state for better investment opportunities, downsized to a 1200 square foot house for half the price, and live in a place that we love. My point is that goals and plans change. You can always buy the big house if and when you need it. You'll never get the money you wasted back again.
Originally posted by @Sam Josh :
@Robert Tumulty I always bought homes at a lot less than I could afford. That way I could start saving and planning for the next one. At some point, I outgrew the old one and turned it into a rental and moved to the new one. Rinse and repeat. Pros - I accumalated RE. Cons - My homes were always less fancy compared to friends who brought the one mansion but could not go beyond that.

@Sam Josh  How many times did you move in and out and turn that into a rental? How many did you keep/sell?

Anyone with experience can you speak to the rates you got 20 years ago, 10 years ago, or 10 months ago and how relevant it is now with buying bigger? It seems like right now I hear "rates are historically low" Take advantage of that?. So maybe lock a bigger house up now VS in 5 years when its 7%? Hindsight's 20/20 and if you're certain about the future then go bet on it, but any advise on current rates and the talk about the FED raising them?

Writing things down is definitely good advise as there's so many factors and everyone's different. I suppose my friends in their 30's spent the banks money doing FHA or a low down payment with PMI so they didn't take the decision so seriously. '~You just go get an agent and buy a house with who he recommends for lending'. I've made relatively good money since college so spending a lump sum is a big decision not to be taken lightly or ill advised, and I don't want to be told what to do, just maybe gain some perspective on how others went about it so I appreciate you guys sharing.

And I don't think ill be raising lamas out west or anything like that, but that's also something I haven't considered so ty.  I've traveled the country and know there's no place like home, and I know there's more ways than one but just trying to figure out the best way to get one of them homes. :)

personally  I would buy a starter home that can become a rental when I decide to move out.

here's my story for what its worth


I bought my first 1000 sq ft 2b1b condo when I was 24 for 100k. didn't even think about REI seriously but I figured the area was a good rental place for when I wanted to get out. started investing in real estate late 25 years old. kept grinding it out and finally decided to upgrade.

at 26 I bought a nice 2200 sqft 3b2b house for 300k (yes just for my single self). is this my forever home? nah...but definitely still something I will be in for at least a couple years and is a good home base close to my rentals.

the area is coming up nicely and I'm pretty sure any interest I "lose" will be recouped and then some with the appreciation (hopefully) if I sell. Worse comes to worse, the interest in my mind is worth the fact that I'm happy with living here.

The condo I used to be in is now generating rents of 1550/m  so that turned out great too.

ultimate goal? beachside home in Cali. and some nice condos among different countries.

so hopefully it gives you an idea that things change. people change. where you want to live will probably change. don't worry about losing interest now to a starter home as long as you have a good exit strategy. besides you're gonna lost more interest on your expensive "forever" home.

Buying a home larger than you need knowing 100% that you and a "serious" girl friend can and will grow into. How many times have we heard this one.

My recommendation is you find a nice apartment to move into together and see how things go. Once married and the first child is on the way then reassess your housing situation. In your situation a house, which is a clear liability, is a rediculas idea.

Spending money you don't have on something you don't need in a relationship that may not last should not garner any support on a investing site.

Thomas S.  I don't know why you put "quotes" on serious girlfriend.  I didn't go into details about that as it wasn't relevant.  If it is now, I've known her for 30 years, and have already lived and traveled the globe with her, and we've had the talk and know what we want.  I don't need 4 bedroom but I want it.  Ive worked and saved hard enough I could buy my dream home in cash.  I'm not going to do that, but spending 100's of thousands of dollars on a home makes me uneasy and I just wanted some advise from people that buy homes all the time.  Hopefully all of your 12,000 posts are not all arrogant, ignorant comments.

@Robert T. Methinks you’re too soft. “Need“ is a subjective word. Starter home all the way. You say you don’t want duplex numbers so I’ll skip to my 3rd purchase. A 2 bed 1000 sq ft: Purchased for 115. Renovated for another 60 over 3 yrs . PITI was about 720/month while I lived there with wife and then son. Now it’s a rental bringing in 1450/month with PITI about 680. And a nice bit of equity, worth about 220-240k.

I'd be inclined to say that its not a good idea to stretch your budget. Even if its the "dream home" at the moment- it may be that you find you don't like the neighborhood, or you have terrible neighbors, and you end up having to sell at a bad time. I'm in the situation where I liked the neighborhood when I bought my place 5 years ago, but it has in the last 2 or 3 years been degrading quite quickly- just had a major fight literally right in front of my house with a bunch of screaming high schoolers. A lower priced home will be easier to move out of if you decide that the neighborhood is not to your liking or has developed in a way that you don't like, since the price range (even though it may have gone up in value) will relatively be in a more affordable range for a larger number of people. Of course you could also do what others are recommending about getting a smaller or lower priced home and renting it out. I'm at the point where my home is not a great rental property- the rental income is just about what the PITI is. So unless I already have it all the way paid off, it wouldn't be a good prospect to rent out. Plus, the equity I supposedly have in the house has increased a lot because the housing market in Hawaii is ridiculously on fire- so all my cash is tied up in the house, and I can't move somewhere quieter or to a larger home unless I sell my current house and use the equity towards a down payment. This would not be the case if I had a more expensive home, since I'd have less equity (been paying off my mortgage aggressively since it is lower than what I could have afforded following the traditional 30% or whatever guidelines). So at this point my options are to rent out this place at break even and pay full price for a much more expensive home (there aren't any lower priced that have the lot size my husband wants), sell this keep the equity and pay only 10% down with a VA loan, use the equity for down payment to reduce the monthly mortgage, or do the 10% down and keep the equity to buy a unit or two outright for rental.

Things to think about- but in reality its up to you, because it's your life and your home. You could try to figure out how much your monthly payment would be for the larger home, and save the difference between that and what you are paying in rent (I'm assuming you are renting currently). Put that in your savings account towards the down payment, and see how your cashflow goes for about the next 3 months. If you can make it, live in a way that makes you happy, then yay- you can buy the house! (I would think). 

Buying a home is bad enough. I did a spreadsheet and found that if you can grow your money at 14% or more in rei you are much better renting your primary.

That said go with a smaller home since its the less or two evils.

Also think about the utilities. Double the space, double the cost. That's the one thing I hate most about our new residence.

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