It’s exciting to buy your first home! You’ll have a place to call your own, and ideally you’ll meet at least most of the criteria you set for your first abode.
While bells and whistles are great, smart first-time homebuyers also keep in mind the big picture in order to maximize the wealth-building opportunity that real estate provides. For this reason, first-time homebuyers should buy with the intention of holding the property for the longer term, and renting it out once they’ve “outgrown” it themselves.
Looking for a place in Denver? Click here to see Denver housing inventory in your price range.
Today’s housing shortage isn’t going away anytime soon. And over time, real estate ownership and investment has been an accessible way for the “little guy” to get ahead and build wealth.
Let’s take a look at some of the advantages first-time homebuyers have in the market, and how their home purchase can be used to benefit not only their immediate, but also long term financial picture.
First-time Homebuyer Advantages
Programs & Incentives
Many cities across the US offer incentives to help first-time homebuyers get in the door. Here’s a link to first-time homebuyer programs in Colorado which offer downpayment and closing cost assistance and lower cost loans.
Mortgage lenders love owner-occupants, as they are lower-risk buyers than investors. As a result, lendersgive them the best loan terms. Lenders also may offer first-time incentives, so be sure and ask.
Flexible Lifestyle, Less Baggage
As a first-time buyer, it’s likely you’re in a more flexible phase of life, which can be an advantage if you’re on a tight budget. A smaller household means you can opt for a smaller place, or may have fewer location restrictions. If you’re not worried about school districts, or less stringent on the number of bedrooms you need, perhaps you can opt for a compact and centrally-located condo, or a place in an “up-and-coming” neighborhood, (with positive growth signs).
Thinking Like an Investor
The eventual goal is to build equity in a property while you–and then someone else–pay the mortgage. You’ll want break-even or positive cash flow in the rental scenario, in an area with appreciation potential. This is the fastest way to grow your asset, which will then allow options for you in the future (baby’s college fund, perhaps? Retirement nest egg?). You’ll want to pay attention to certain indicators to make sure it’ll be a good rental property in the future.
Look at the Map
It sounds simplistic, but the “Location, location, location” adage holds true for renters and buyers. Consider spots which offer easy access to highways, transportation, and/or job centers like hospitals, universities, government buildings, and airports.
Neighborhoods with Potential
Pay attention to who’s moving there. Young, salary-earning residents with income potential are good signs for neighborhood improvement. Is there new development on the horizon? If you see yoga studios and hip Korean fried chicken joints, the neighborhood has probably already “arrived” but may still be affordable. Do some research and listen to your gut.
Remember, you won’t live in this place forever. And if you can tolerate an imperfection that another buyer wouldn’t, you might be able to get a good price. Let’s say it’s a house on a busier street – something a couple with a baby on the way wouldn’t tolerate. Well, that house will still rent out later if it’s in the right neighborhood. Or maybe you purchase a studio (efficiency) unit in a downtown location. Someone will rent that out, too.
Remember, if you’re planning a long-term hold, and it means getting you in the door, it might be worth it to be less picky — within reason of course. You probably don’t want to buy the place next to the new city dump. But it’s a slight change of your mind frame — people will always need housing, and someone will rent it if it’s in the right location. And renters tend to be less picky than owners when it comes to certain things (again, within reason).
If it’s a condominium or house with an HOA, be cautious, because this will introduce an X factor. Condo boards can be fickle and may not have your interests in mind when making their rules, so you want to get a feel for what’s going on, how many investors might be in the building, and their current rental policy/restrictions. HOAs tend to be less strict on these matters but do check the bylaws of the association so as not to get caught off guard. Of course, things can change and you may not have much control over the new rules an association decides to implement, so that is a risk to consider.
Of Course, You Can Get Out
Sometimes things happen, and you may decide that being a landlord is not for you. While real estate is less “liquid” than a stock, if you’re in a good market, you should be able to sell it within a reasonable amount of time.
And, if you do need to sell once you’ve outgrown it, at least you’ve had a roof over your head for a few years. That’s an advantage that stocks don’t provide.
Here’s a great article with tips from famous investors.