First Time Home Buyer Strategy



If you are thinking about buying a home for the first time, I want to offer a strategy that is rarely used, but hugely successful for those who do.

Before I jump into the first time home buyer strategy, there are a few things you need to know:

- The average buyer will buy and then sell that home within 2-5 years. And that is closer to the lower end for first time home buyers.

- New buyers are more likely to purchase a home as a commodity rather than an investment.

- They don’t know what they want until they’ve lived in a home for a couple of years.

- Selling a home can be profitable, but it does have costs associated with it so you need to be smart.

- What you qualify for and what you actually are comfortable with paying each month are often way off, so make sure you know what you are comfortable with. 

- First and second time home buyers are more likely to need to relocate for changes in employment or growth in a family.

So if you knew before you bought your first home that there is a good chance that you will desire another home in 2-5 years and want or have to move, and when you sell a home it can cost you money, wouldn’t you want to position yourself to capitalize not only on a great home, but a better financial position for your second and third house and/or be positioned well if you must transfer for a job? 

Generally when buyers are looking to buy a home, whether they know it or not, they mentally decide whether they want to put precedence on either the home or location.  We generally find 80 – 90% of first and second time home buyers are buying homes first and 80 – 90% of third and fourth time home buyers are buying location first. 

Here is what that means: If I am a home buyer that is buying a home first, location matters a bit, but I will go to where the best house is in my general location. Buying location first is more like I want to be in these 5 neighborhoods only or in this school district and I will only look at homes in this area. 

So here is one strategy. No there is no right or wrong because you are buying a place for you and/or your family to live. This strategy is just a way you can position yourself to have more money and clarification when you are ready (sooner than you think) to buy your second or third house thus putting you in a better financial position.

The strategy is a combination of the below options:

1.  Buy a property under market value (foreclosure, short sale, bad condition, etc)
2.  Buy the most sellable product in the area (school areas are different than retirement areas, which are different than young professional areas)
3.  Buy in a great location

When you hear all these, you think “Well, that is a no brainer”. And yes, it may be. However, it is a fact that when most first and even second time home buyers get out and start looking, quickly their eyes get big and a “nice” house will make them forget about all of this and just buy because it feels good now, not knowing how painful it could be if they had to sell or wanted to sell in two years.

I’ll briefly go through each of these so it makes sense:

Buy a property under market value (foreclosure, short sale, bad condition, etc)

Most buyers start off searching for this, but quickly get distracted on what looks nice versus what is a good value. When you are in a great market like we are here in the Austin/Round Rock area, “great” deals come around a lot less. However, finding deals several thousands or tens of thousands below market that do not need a lot of money put into them (since most first time home buyers do not have a lot of cash to fix up the ones that need a ton of work thus are further under value) are not too hard to find.  They are out there, but do not look as attractive as the other ones.  But even gaining $10,000 - $20,000 on the front end of buying could make all the difference in selling later and having cash in your pocket. 

Buy the most sellable product in the area (school areas are different than retirement areas, which are different than young professional areas)

Buyers do not always realize it, but there are certain homes that sell better in certain areas. An easy example is to not buy a two story home with the master upstairs in a retirement community unless it has an elevator. A condo in the suburbs is a lot harder to sell versus being in downtown Austin where they are extremely popular. A two bedroom home in the suburbs in a great school district is not an optimal product for a place where you see large families congregate. You need a good local Realtor that truly knows the entire local market so they can help guide you in all the different areas. And honestly, a lot of them do not always keep track later so make sure you search and get one that you feel is smart and understands the big pictures of real estate


Buy in a great location

Location, location, location. This one is easy. If you buy a place that everyone loves to be, normally even in a down market you would be safe. And for a first or second time home buyer, buying the least expensive home in the most expensive neighborhood makes a lot of sense. That could be buying close to downtown, in a developing area, in a high end neighborhood, by a major employer, in a popular school district, etc. Can location hotness change? Normally not, however, school districts can change and businesses can relocate and/or go out of business, so it is never 100%. But certain areas are almost always good and that too can be easily tracked and figured out. 

In short, there is so much more to buying a home than most people think. Most buyers look at buying a home as if they were buying any commodity like a flat screen television. That is not bad because it is your home and you decide what you want to do. However, I’m just offering a strategy to help position you and your family for financial success in the future.

If you can manage 2 or 3 of the above options, you will position yourself for success. 

A great Realtor will be your real estate financial advisor and not only tell you how good this home is to buy, but how good or potentially bad that same home may be to sell. If you find a Realtor willing to look out for your best interest and knows how to interpret the market, you might find yourself with $20,000 - $80,000 extra to use toward your second, third, or fourth house and have a lesser chance of being tens of thousands of dollars upside down. A great Realtor is a huge asset to have on your team. And just keep in mind when you are buying, how the house you’re considering might sell later.