First Time Home Buyer? Think About Your Second Home Now
How a first time home buyer can utilize their first home as a stepping stone to get to their second home. Leveraging equity and options of generating income from the property can help to do this. This is key for the first time home buyer to consider.
Being a first time home buyer can be difficult and stressful with many things to keep in mind and think about. An agent should be a key resource for this process, but one thing that may get overlooked is thinking into the future. For some consumers a first home may be their home for most of their life, but often it is a place for them to start a family, get a taste for home ownership, or simply gain some independence. Many consumers who are purchasing their first home are making the largest purchase of their life to date and are often using the majority of their savings to make it happen. An important thing for first time home buyers is to keep in mind that their first home can be used as a stepping stone to their second home. Two ways to make this happen are creating equity in the home or utilizing part of the home as an investment.
What is equity? Simply put equity is the stake the consumer has in the home or property. Meaning the amount of money they can get out of the home after paying off their loan. A down payment is the amount of equity that the consumer begins with, so every consumer will begin with some level of equity. However, the key is to grow that equity over time and use it as an advantage when it is time for another home.
While paying down a loan can increase the equity and the amount of money the homeowner will be able to get out of the property when they are ready to move on, there are other ways, such as putting in sweat equity. Sweat equity is when the homeowner does a project such as updating a kitchen or bathroom using their own labor. While this may seem like a daunting task, it can pay off in the long run as purchasing a home that needs updating can help a consumer get more home for their money and add future value. An agent can help the consumer understand what projects would pay off the most in the consumer’s search area.
Another way to create equity is buying in an area that may see a possible surge in demand within the years after purchasing. While an agent cannot give a forward looking value on a home, they can provide information to the consumer on what is happening in the area and trending data showing where prices may be going. It is very important for the consumer to do their due diligence and make their own assessment, but the agent is a great resource to acquire the information needed to get to this decision.
Utilizing Part of the Home as an Investment
For first time home buyers the thought of being a landlord may be the last thing on their mind and even more daunting than updating a kitchen or bathroom, but it can result in a large payoff for the homeowner. There are different ways of utilizing a property as a primary residence and as an income generator. Options may include renting a room, renting a garage space, or even renting land to be farmed. In this option it can take creativity, but having a primary residence generate income can help pay down a mortgage faster or create more funds to help update different areas of the home.
Where this comes into play for the second home is that the property could now be marketed as an income generating property to sell or the homeowner could be in a position to now rent the entire property, which will increase their income, allowing for the possibility to get a higher mortgage or have the property pay the majority or maybe the entire mortgage on the new property. This strategy has a lot of risk but can be very rewarding and should be researched and thought out thoroughly before going forward. An agent can provide comparable properties in the area to help the consumer understand how much rent may be.
There are many things to consider when purchasing a first home but one major thing to consider is how a first home can be used to get the consumer to their second home. The last thing a consumer wants is to get to a point where they need to move on to another home and they find out the property has actually lost value and they risk losing money by selling. Ensuring that value is retained, and even possibly increased, can be done through the above strategies and an agent may even have another creative strategy to help the first time home buyer, so be sure to think about this and never be afraid to ask.
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