The American Dream, it may look a little different than it did in the 50’s, but at the core it still involves home ownership, smart investing and building a little bit of wealth. With housing prices on the rise nationwide- and definitely here in Phoenix- how is the American Dream of home ownership a possibility for first timers?
It seems the dwindling inventory of centrally located single-family homes has caused a bit of a panic out there in the market (speaking in terms of the market under $400,000). Investors are purchasing single family historic homes to create rentals or maximize return on remodels and cash transactions are on the rise. I see first time buyers paying too much to try to be competitive, spending too much and regretting their decision, feeling frustrated by the outcome.
So what do you do if you’re in this market as a first timer? My advice is to first be prepared- don’t wait until you pick the house to get a pre-qualification. Call a lender before you start looking, you may be able to afford more or less than you were initially thinking. Second, pick a Realtor, develop a relationship- let your Realtor look for you as well.
Now, do you want the REAL DEAL advice? Well, here it is, adjust your expectations. What I mean by this is, the social media world has shown you the interiors and homes of your favorite influencers, reality TV shows us the homes and lives of the rich….this is not real! What is real is the fact that owning a home is a huge responsibility, homes need work, kitchens are dated, closets are small and yards are a ton of work. Think smaller, click “condo” or “townhouse” when looking online, you will have many more choices immediately.
Condo and townhouse ownership is underrated by first timers and needs to be a bigger consideration. The inventory is much more robust, locations are often more ideal and prices are typically lower. Now, the biggest draw back is the HOA (Home Owner’s Association) which is like having an additional bill a month. Picking an HOA that has more amenities- gym, pool, gates, etc. can help you save in other ways. Or pick an HOA with very low fees and no amenities. With a condo, you typically will have a patio or balcony and with a townhome often a small yard, parking situations should be considered both for safety and guests. The HOA typically takes care of the exterior maintenance of the unit, all common areas, often the roof is covered and provides an added insurance to the buildings.
Some buyers are worried that condos and townhomes don’t appreciate as much as single family homes. This may be true, but you will typically be spending a lot more to improve your single family home in order to realize that appreciation in value- making a condo just as wise of an investment.
Consider this scenario; a first time buyer is currently renting at $1400 a month, they are looking for their first place and have a minimal down payment of 3%. This buyer (with decent credit and proven income) should be looking at condos/townhomes with an HOA of around $200 a month, priced between $220k-$230k OR a single family home not in an HOA of up to $240k-$250k. This would keep the buyer at the same payment and get them out of paying rent. See below the list of Phoenix single family homes between $240k-$250k and the second list of Phoenix condos between $220k-$230k for comparison.
Single Family Homes-$240k-$250k Phoenix
Condos & Townhomes- $220k-$230k Phoenix
The biggest takeaway here can certainly be location as it seems you get more centrally located with condos and townhomes, the second takeaway would be about interior updates, condos and townhomes looking more recently updated than singe-family homes.
Just for fun, here is a gathering of my favorite condos and townhomes on the market right now:
Favorite Condo and Townhouse Listings on Market
Remember, starter homes are just that, starters, you will likely sell and move up and on within 5 years. Taking the starter step into home ownership is about getting out of the rent cycle and investing in your future. Starting small, stacked or attached has so many benefits and most of my buyers who have tried it say they love their homes.
Written by: Misha Renteria
Photos by: High Res Media
*Photos were from a previous listing at Portland 38- if you are interested in learning more about this subdivision, I have a new listing hitting the market soon, email firstname.lastname@example.org for more info.