When you first buy a home, it feels like moving into a palace. Not only is the space typically bigger than what you were renting, but you no longer have to deal with nosy landlords and ignored service requests. You’re in charge of your own space, finally. And you’re building equity.
But as years pass by, that “palace” can start to feel small, crowded, or confining. The space no longer feels adequate, especially if you’ve started a family, and the shine of being a new homeowner has inevitably worn off. You start to wonder – should I upgrade to a bigger home?
That’s not an easy question to answer. It depends on the status of your mortgage, the market you live in, your personal motivations for wanting to move and much more.
But here are some scenarios where it makes sense to consider upgrading from your starter home and a few factors that you should keep in mind when making your decision.
When to Upgrade
Not sure if your desire for a new house is just boredom or a genuine necessity? Here’s how to figure out when you’re ready to move up.
When it’s too small. If you feel like you’re living in a college dorm, it might be time to move. But before you do, declutter your house and get rid of anything that’s just taking up space. You might find that your current home is perfect, or that you need much less space than you thought.
When you’ve been there five years or more. Because mortgages are structured so that more of your initial monthly payments go toward interest than principal, most people don’t see much equity in the home until they reach the five-year mark. If at all possible, stay in your house until it’s been at least five years.
When it’s not safe. Feeling safe in your home is usually the most important thing of all, and it’s time to move if the safety of your neighborhood has deteriorated to the point where you don’t feel comfortable leaving your house.
When renovating isn’t for you. For some people, moving is the only solution if a home isn’t right. For others, renovating or paying for home improvements can solve most of their problems. A skilled contractor can expand your cramped kitchen, add an extra bedroom, or convert your basement into a cozy home office. But if renovating isn’t something you want to deal with, you’re better off moving.
Should You Sell or Rent Out Your Starter Home?
While many homeowners sell their starter home, others decide to rent it out. Becoming a landlord isn’t a simple decision, but it can be a fruitful one if you play your cards right.
“Rents historically rise, meaning you’re putting more and more money in your pockets with each passing year,” said Mindy Jensen, Community Manager at BiggerPockets. “Most likely the home will increase in value every year, adding to your net worth with little to no effort on your part.”
The extra income you earn from being a landlord can be used to pay down your mortgage early, save toward retirement or fund a new business.
However, being a landlord isn’t so easy as just collecting a rent check every month. A renter may not treat your house as well as you did, and a bad renter can cause substantial damage to a property. You might even have to go to small claims court if they won’t pay up.
Some landlords struggle to secure good tenants, which means they have to cover the mortgage themselves until they find someone responsible.
Being a landlord also takes time, especially if you decide to do the repairs yourself. If you can’t or don’t want to get your hands dirty, you’ll have to hire out those jobs. Depending on the property, you might have frequent service requests or expensive repairs.
In some cities, laws are favored toward tenants, so if you need to evict them for nonpayment, it can be several months before they’re forced to leave.
You can always test the waters as a landlord, then decide to sell if it’s not worth the hassle. Ultimately, you need to choose whatever best fits your lifestyle.
Share this Post