Why I Love Starter Homes

Everyone wants to own a multi-family and house hack (myself included). But there’s an overlooked segment of real estate that has the potential to pay off big time for those willing to put in a little elbow grease.

In the past, I’ve done live-in flips and found great success with starter homes. These are entry level houses that many first-time buyers target when they buy for a variety of reasons.

Whether you’re looking to house hack and rent by the room, do a live-in flip, or a more advanced investing method you NEED to consider starter homes as part of your portfolio. Here’s why:

Affordability

We’ve all seen what’s happening with inflation. Despite the Fed’s efforts, we’re still losing the battle. Those with lower incomes are especially susceptible to getting squeezed by inflation. Meanwhile, housing prices have steadily climbed–this is great for investors, but not so good for someone looking to buy their first house.

As an investor, affordability is an important factor to consider when purchasing a property because it determines the size of the potential buyer pool. Starter homes are typically more affordable than larger homes, making them more accessible to a wider range of potential buyers. This is particularly true for first-time homebuyers who may be on a tighter budget.

Furthermore, the affordability of starter homes can also mean lower initial investment costs for the investor. As such, it can make them a more accessible option for those with limited capital. This can be especially attractive for newer investors who are just starting to build their real estate investment portfolio.

Demand

Millennials are the largest cohort of buyers. The younger ones are in their late 20s and early 30s, the prime time for family creation. As they settle down, they want to buy their first property.

Considering what we know about affordability, starter homes are a natural place to start looking.This larger pool of potential buyers can increase demand for a given property– we all saw what happened in the craze of 2021 with bidding wars abounding.

With starter homes in demand, you might be wondering “why would I want to compete with homeowners for deals?” While that’s a valid point, the answer is very simple: millennials prefer turnkey properties.

To meet this demand and buyer preference, there’s tremendous opportunity for investors who can find and renovate fixer-uppers.

Limited Inventory

Basic economics tells me everything I need to know about starter homes. We’ve already established that there’s a high demand for starter homes. There’s also a limited supply.

Since the market crashed in 08, developers have been underbuilding in general because they don’t want history to repeat itself. Couple that with the fact that developers have been focusing on upscale or luxury developments in the last decade to justify higher building costs and ROI.

Existing inventory of starter homes is not only limited, but aging. By renovating these properties, you can force appreciation and serve the large market of buyers looking for a first home.

Starter Homes Offer Great Potential Upside for Investors

Don’t overlook starter homes when building your investment portfolio. By diversifying your investment portfolio with a mix of property types, including starter homes, you can spread out your risk and increase your potential returns by taking advantage of your market conditions.