Becoming New Homeowner/Considering Options

[stepitup]

Hey all,

I'm currently in the market for buying a property for the first time. Part of the reason is that I'm a teacher and there is a state program that could give me $10,000 for a down payment and/or closing costs.

I already have been pre-qualified and am working through the pre-approval process and am beginning to look at homes that are out there. Unfortunately, for my price point the look market seems to be very hot when properties going quickly. Therefore I'm trying to think through as many different scenarios as I can in case I want to make a offer quickly.

The big debate I'm going on in my head right now is whether to buy a bigger place now so that I can stay in it for a long time or buy a smaller place with plans to move into a bigger one later when I have some equity and some more savings to work with.

For example, right now there's a studio in a convenient location that I could get for pretty cheap. Even after the mortage/taxes/Insurance/HOA/PMI it would still be lower than what I'm paying rent on right now (although my apartment is a 2 bedroom in a less convenient area). With my grant I could move in with no/little money out of pocket as long as I stay 5 years (and even then I could move out early and just repay a prorated part of the grant).

My thought would be to take the place, save up a bunch and then re-evaluate in 5 years. Maybe sell at that point and trade up to a bigger place. Or maybe rent it out and buy a different place using other money I'd be able to save in the meantime.

My hesitation is that I would definitely feel the size of the studio as being too small. I also wonder if I would be missing out on bigger equity gains and appreciation if I didn't buy a bigger place (that would also be more attractive to future sellers).

I'm wondering what thoughts are out there about the option as presented. I'd also be appreciative of any general first time buyer advice that existed.

Thanks!

[sokoloff]

I find moving incredibly expensive in time, money, and inconvenience, so I've twice bought "my last house". :)

I think if you can find a place that would work as a solid rental down the road AND you want to become a landlord, that might tip the scales towards buying a smaller rental-suitable place. But, in so doing, you'll give up the capitals gain exemption on primary home sales, so if your area is booming and house prices increasing, that might be a concern.

My first preference/recommendation would be to buy a place you can realistically see yourself living in for 10 years. Not to say that you must do that for it to make sense, but I don't see the logic in buying a 3-5 year "starter home" and doing the moving rigamarole twice (and all the associated expenses).

[ixtap]

You say the studio is too small, so let's look at the downsizing aspect.

How do you currently use your second bedroom?

Do you currently entertain at home? If so, can you make that work in the studio?

Would you be willing to have a roommate if you got a bigger place?

Does this studio have an alcove or any L shapes to divide up the space?

Would you be willing to close off your bedrooms this weekend and try out studio living at your current place?

[Cwadda]

One thing I highly recommend is purchasing a multi family property and owner occupying it. It's a fantastic deal. You can get as low as a 3.5% down payment. Would this be possible for you?

[stepitup]

I find moving incredibly expensive in time, money, and inconvenience, so I've twice bought "my last house". :)

I think if you can find a place that would work as a solid rental down the road AND you want to become a landlord, that might tip the scales towards buying a smaller rental-suitable place. But, in so doing, you'll give up the capitals gain exemption on primary home sales, so if your area is booming and house prices increasing, that might be a concern.

My first preference/recommendation would be to buy a place you can realistically see yourself living in for 10 years. Not to say that you must do that for it to make sense, but I don't see the logic in buying a 3-5 year "starter home" and doing the moving rigamarole twice (and all the associated expenses).

Thanks for the thoughts. I'm still pretty used to moving. As much as I dislike it, I haven't lived in the same place for more than a couple years since I left home for college. So that aspect of it I don't think would bother me.

I do see a lot of value in the 10 year framework, or perhaps similarly 9 years. That is how long I'm committing myself to my current job. Not that I'll necessarily leave after, there's just a big financial incentive for me to stay that long.

[stepitup]

You say the studio is too small, so let's look at the downsizing aspect.

How do you currently use your second bedroom?

Do you currently entertain at home? If so, can you make that work in the studio?

Would you be willing to have a roommate if you got a bigger place?

Does this studio have an alcove or any L shapes to divide up the space?

Would you be willing to close off your bedrooms this weekend and try out studio living at your current place?

Honestly, I don't really use the second bedroom at all. It wasn't the reason I chose the apartment I did to rent, so I wouldn't miss it. The entertaining part is also not an issue. I'm definitely introverted and don't do much hanging out in my current place.

 I do use my bedroom, but honestly only to sleep in. So the lack of the separate room isn't perhaps as much of a problem as I guess the total square footage would be.  So, when I go look at it, I should probably take a tape measure and visually block some stuff out bed/furniture wise.

[stepitup]

One thing I highly recommend is purchasing a multi family property and owner occupying it. It's a fantastic deal. You can get as low as a 3.5% down payment. Would this be possible for you?

Unfortunately, it seems unlikely. There is one listing that includes a separate in-law unit, but it's not in the best part of town and a perhaps a little too far from my work too.

I would be more likely to rent out an extra room. Which I'm willing to pursue as long as it wouldn't be financially necessary to get by (that is, that I could be really selective with the tenant). I have a friend who rents out a room occasionally through Airbnb which I guess I could also look into. There are certain times of year that are especially tourist heavy when even the motel 6 approaches a couple hundred a night.

[jennifers]

I bought a very small (500 square ft) one bedroom condo in a downtown area as my first property purchase. It gave me a feel for owning property without much of the responsibility. Personally I loved it as smaller = less cleaning and upkeep.  And being in a downtown area can be more fun and convenient.

Does the studio come with any options for renting or buying a storage unit? I've been using a storage unit to store infrequently used items. It makes the place seem much less cluttered.

[stepitup]

I bought a very small (500 square ft) one bedroom condo in a downtown area as my first property purchase. It gave me a feel for owning property without much of the responsibility. Personally I loved it as smaller = less cleaning and upkeep.  And being in a downtown area can be more fun and convenient.

Does the studio come with any options for renting or buying a storage unit? I've been using a storage unit to store infrequently used items. It makes the place seem much less cluttered.

I ended up taking the step of looking at the place and the layout is pretty good. It's still small, particularly the area set up as the kitchen, but one of the nice things is there is a huge walk-in closet. In fact, it's so big that it would be tempting to just stick my bed in it and sleep in there. But there's probably good safety reasons not to do that.

Ultimately, I think it's too small for me, but I'm not ruling it out completely. It was only the second place I looked at and I want to see what else is out there. It may mean that I someone else grabs it, but I'm willing to let that possibility happen.

Thanks again for everyone who offered some thoughts. They were helpful. This home-buying journey is an interesting one.

[lifeofourown]

One thing I highly recommend is purchasing a multi family property and owner occupying it. It's a fantastic deal. You can get as low as a 3.5% down payment. Would this be possible for you?

We did this in our first property and I highly recommend it. We knew we couldn't afford a place that we wanted or could grow into, so we bought a duplex. We lived in one half and rented the other half out. The rental income from the other half paid for the mortgage, insurance and taxes so all we had to cover were any repairs that came up. We didn't have to pay rent or a mortgage.

About 3 months ago, we moved out into a new house. So now, the duplex pays for itself (all expenses including repairs, capital expenditures, vacancy, mortgage, etc) and we collect $600 a month in rental income.

It's definitely something you have to think about, and you may have to broaden your current search criteria. However, I think it's a great solution for someone who isn't looking (or in our case, couldn't afford) their "forever" house. You can live for free while you live in your house hack and then collect some additional income when you move out!