Starter Homes Are Back. Here’s Exactly Where to Buy One

0:00For years, rookies have heard the same bad news. starter homes are disappearing. First-time buyers are getting older and anything affordable is either in a market you do not understand or needs more work than you think you can handle. But the newest data shows something more interesting than housing is unaffordable. The starter home market is beginning to loosen in a few very specific places. Now, that does not mean that cheap houses are back everywhere. Nationally, fewer than four in 10 non-homeowner households can afford the study's typical starter home. But in Mississippi, that share is nearly 62 % and several other states are above 50%.

0:41At the same time, builders are sitting on more inventory, offering more incentives, and designing smaller homes to reach buyers who cannot afford the old model. Today, we're breaking down where this opening is real, where the headline can mislead you, and how a rookie can turn a smaller new build or an overlooked existing home into a smart first purchase. We'll also give you a five-part screen to separate an affordable home from a cheap property that still does not work.

1:14Okay, Tony, your first starter home, was that in a good time to buy or was it an expensive market, hard to find affordable homes in your starter home? Yeah, it's funny. From a layout perspective, my first investment property, my first primary home were like almost identical. They were both three bedroom, two and a half baths, um, good school districts, different parts of the country, right? Like primaries in California, the investment was in Louisiana, but like very, very similar. I think my primary was a little bit bigger in terms of square footage. Um, but three bedrooms, two and a half baths, nice house, you know, like that, that was me.

1:50Um, and we bought our, our primary home back in 2018. I think we moved in. Um, and it was a great time to buy. and we got super lucky. I mentioned this in the podcast before, but we got super lucky because we bought in a new development and they've continued to build the same exact floor plan. They're still building it today, but now it's like, I don't know, almost double the price that we paid for it back in 2018. So it's worked out pretty well for us buying that starter home. Well, I think you'll be a great asset to this episode, really specifically talking about building in like phase one in the beginning and to getting into one of these starter homes.

2:29So a starter home, the best way that I guess we could explain it is that this is a home that typically newer families get into. It's usually your first property you're purchasing as your primary residence where it's maybe not the lavish and every single, you know, expensive detail that you would really like in a home. But in my area, typical starter home is three beds, one bath, or three beds, two bath is what you see. A lot of them are ranch style houses where just one floor. And then typically no lavish upgrades or any things like that. And a lot of them that I'm seeing right now that are going really fast, selling really fast in the market are outdated, but really, really well taken care of where somebody older, you know, is moving on to another property or something like that.

3:24And they've just haven't updated in a long time, but they've kept it in really great condition. Those properties are actually selling really fast, but they're going as starter homes where maybe DIYers are coming in and, you know, slowly adding value over time to the property by doing cosmetic updates here and there. Ash, just out of curiosity, is there such thing as like a starter farm? No, because farms are really, really extensive to start from scratch. So you basically have to be born into a farm family where you already have all of your equipment, all of your cows and things like that. Like one cow can just cost you$3 ,000.

4:02So do not recommend starting a farm from scratch unless you already have wealth and you're looking for agricultural tax write-offs. One other thing I would mention about a starter home is that it's usually an affordable home in your market. So it's not on the higher end, but it's not a super cheap property, but it's still affordable. So in my market, that would be around like$200 ,000 to$300 ,000 for a typical decent starter home in my area. What about in your market, Tony? it's crazy it's like in in like my immediate neighborhood right now buying a three-bedroom two-bath in terms of like new inventory like new construction they're almost not even building like traditional single-family homes anymore like almost everything they're building like a lot of a lot of the new inventory right now are are townhomes like they aren't even really building a lot of new like starter single-family homes like if you're buying a three-bedroom and like a lot of the new construction right now is townhomes and they're going for like six seven $700K probably for that type of product.

5:06If you're buying resale, you can still find those for around the same price, but everything new construction is about that price point, which is crazy to think right now. We pulled up a couple articles and things here to give you guys some data, but Realtor.com had this article and this is how they describe a starter home. It is a smaller, affordable home, often around 1 ,500 square feet or less. And then we also looked at lending tree, what their actual definition was, and theirs was the weighted 25th percentile value of owner-occupied homes in each state. So basically what this means is the lower-priced quarter of each state's owner-occupied housing stock.

5:50And then there was actually another inventory analysis done by realtor.com and they said homes price below$350 ,000 nationally or below 80 % of a local market's median list price. So look at your market and what is the median list price and take 80 % of that and that's kind of the price point of a starter home. So basically your takeaway from that is a$200 ,000 home could be an entry-level starter home in one market, but not in another market. And me and Tony just kind of shared that as an example comparing our two markets. So let's talk a little bit more about the affordability piece. So we mentioned like Mississippi earlier, but let me just break down what we actually meant by that.

6:40So 61%, and again, we're looking at Mississippi, 61 % of non-homeowner households in Mississippi have the income that would allow them to kind of meet the threshold of buying a starter home for that state. Nationally, that number is only 37.6%. So you've got 61 % of people in Mississippi that based on their finances can afford a starter home compared to 30, almost 8 % in other, you know, like nationally that can afford to buy a starter home in their market. And the data says that the average starter home value is about 200K. The income needed is about$62 ,000,$63 ,000. And the median non-homeowner household income is$55 ,000, right?

7:27So there's a gap there. If the income needed is 62 and the average income is 55, we've got a gap there of seven to almost$8 ,000 that we're seeing nationally across the market. I think just for context sake, Ash, people always talk about how do we fix affordability and what does that actually mean and how do we get there? Obviously, I'm not an economist and there's lots of other people who are way smarter than me who I'm sure are working on solving this. But just like in my mind, as someone who's a real estate investor, I think if a few things were true, we could probably get housing costs down.

8:09Number one is make it easier to build things. Like I think part of the big challenge in a place like California is that there's so much red tape to build and it's such a pain. And a lot of times it's not worth it, right? Because of how difficult it is. And then I think if we also adopted maybe cheaper ways of building homes, have you seen, Ash, like these like 3D printed homes? Yeah, I've never like seen one in person, but yeah, I've seen the YouTube videos. And it's like, it seems, I think we're all just so used to like these traditional stick-built homes that there's maybe like a stigma around things that aren't.

8:46Or even like prefab homes that are super similar to stick-built, but they're just like majority assembled off-site. And they're just like installed on a foundation when they get there. But there's all of these other building strategies that I think maybe if we adopted and there was less stigma around, we could also have an opportunity to bring cost down. So making it easier for builders to build, employing strategies that are just generally more cost efficient. I think those are the two things that come to mind for me, right? Because it's like supply and demand, right? It's like the laws of economics say that if we increase the supply dramatically and supply outpaces demand, then we can get some balance there of affordability.

9:27Now, I think the bigger question, Ash, and I'm curious what your thoughts are, is like, say we do get to this point where like every home is 3D printed and they can build a home in like, you know, four weeks. And so the prices come down exponentially. what does that happen to everyone like us who has all this equity in our homes if like the supplies now just flooded the market uh and home prices have gone down um it's you know so there's some give and take so i don't have all the answers but i i do think if we want to help affordability those two things that come to mind what are your thoughts ash well like everything i i think there's something else that will be offset by that plan so like in theory that seems like a great idea is to remove the red tape, let more people build.

10:10There's this town near me that has let, it's a really small town. They don't even have a grocery store or anything like that. They, their element, they have their own elementary school that is connected with a town over that is a larger school that has three of their own elementary schools, middle school and high school. Okay. the smaller town just the town permitted two new developments one just did 63 single family homes every single person that moved into those homes besides one family brought kids from other districts now the school has two classrooms per grade the town also just approved development of 163 prefab houses to be built, which will also be going to the school that has two classes per thing.

11:10So I think like some of these towns, you know, by me, they can't keep up if they were to allow more building and keep up with the demand that would come for the resources that the government provides such as school, the staffing, the police, I don't know, other things like that. But that's just like, that's the first thing I thought of is that, you know, even if you were going to increase the supply in some areas that the infrastructure has to be put. Yeah. Negative effects in that market. Okay. So the purchase price of the property is only one line item. When we come back, we're going to discuss more about the affordability of starter homes and other expenses you'll incur such as property taxes, insurance, HOA fees, and many more that you need to look at before you actually purchase the deal.

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15:21So we found some markets and rated them by affordability. So Kentucky, 50.7%,$125 ,000 value, and you need an income of$42 ,280 to be approved. Kansas comes up next at 52.3%, and the home values there are$125 ,000, and the income you need is about$46 ,000. And next up, we have North Dakota at 52.7%, and that's$150 ,000 value, and you'll need an income of$48 ,000 on that one. Next, we have Alabama at 54.1%. And again, guys, just to clarify in case you forgot, the 54.1 % represents all of the non-household or non-property-owning households that have the income to actually qualify a forward mortgage, right?

16:17So that's what the 54.1 % means. And the value there is$120 ,000 for properties and the income needed is only$39 ,000. Next up, we have Arkansas. 54.3 % with$110 ,000 value. And the income you need is$37 ,862. Side note, we always talk about my lack of geographic know-how. And I remember when I found out that Arkansas was a state because we were going on a road trip and I was young. I had to be like in, I don't know, second grade maybe. And we did this long road trip. And I knew Kansas, but I'd never heard of Arkansas. And I saw it on paper and I was like, mom, what's Arkansas? And she's like, actually, it's Arkansas.

17:05So side, you know, if you want some trivia on Tony Robinson's ineptitude of maps, it traces all the way back. I never, ever put that together, that it has Kansas in the name. Kansas is in there, right? It's like, how does SAS, how is that pronounced? Saw? It makes no sense to me. And it never has, even when I was like in second grade. We got to lobby to get to Arkansas to change how they spell it. All right. But anyway, Arkansas comes up next at 54.3 % of households,$110 ,000 value and income at$37 ,000. Then we have West Virginia. And this one is at 58 % with a value of$90 ,000. and income needed is only$29 ,114.

17:53West Virginia also just from like a median home price. It actually has the lowest median home price across all the states in the country. So it's just generally a really, really affordable or low cost place to live. You had looked at a deal there before, right? Like a glamping? We did, yeah. We were looking at like a glamp site. And there's a national park in West Virginia as well. A lot of people don't know, but in 2020 during COVID, it got its designation. So it wasn't super popular. But yeah, there is a national park that's pretty popular as well. And then rounding out the list, we have Mississippi coming in number one.

18:27Again, 61.8, almost 62 % are able to afford. $85 ,000 is the typical starter home value. And then the income needed is only$29 ,000. Now, Ash, I just want to get your take, right? Because obviously, long-term rentals are your thing. From your perspective as a landlord, is it better to buy in an area like this where the starter home is so accessible? Or is it better to buy in an area where it is slightly out of reach so that you do have more consistent rental demand? Well, like we said in the intro, it is important to not confuse affordability with cheaper options. So when I started investing, I was going for those cheap properties and they just ended up being headaches and didn't see a lot of appreciation and just I wouldn't do it again.

19:23Yes, it got me started, but we're talking about a completely different thing. Those cheap properties, they had lots of updates to them that were Band-Aids. They were never well taken care of properties. They had been resold and resold and resold multiple times with people doing different DIY things and everything like that. So I think a big thing to really be cautious of is not only the property itself. Is this going to just be a money pit to you where you're constantly going to have to be doing repairs to the property? and repairs are different than maintenance, where maintenance is maintaining and more proactive than actually making repairs because things are constantly breaking in the property.

20:16With these older properties, you want to take that into account, but also you want to look at the market. So just because a property is affordable or cheap in one of these markets doesn't mean that you should go and invest in that market. You still need to do your market analysis. So right off the bat, I'm probably not going to purchase a property in Mississippi or West Virginia. I don't know a ton about either property, but like West Virginia is, I'm pretty sure the last I looked was seeing like a huge decline, like not of like people actually not moving into the property like they have or to let me say it again is seeing a huge decline in property god i still can't say it is seeing a huge decline in population growth where people aren't moving to west virginia um arkansas though i would be very interested in investing there our good friend henry washington from the bigger pockets real estate podcast he does a lot of investing in Arkansas and is from there also.

21:28So they have a lot of industry drivers, like a lot of headquarters are also in Arkansas, like I think Walmart and a bunch of other ones. So definitely looking at the property itself and looking at the market that it's in. The markets that I had invested in, they were very small. They didn't have any industries. There was no economic drivers and there was not population growth, anything like that. I just saw the price tag and I saw that there was renters that wanted units in these areas and I just purchased them. So make sure you know the difference between these affordable starter homes and cheap properties.

22:05And me, I'm just kind of looking at the math, but it's like if we use Mississippi,$85 ,000 starter home, three and a half percent down, say they go FHA, that's just under$3 ,000 that they'd need in terms of down payment to get into that deal. The income's$30 ,000 that they need to qualify. so maybe in the course of like a couple of years someone could save up the three grand on a thirty thousand dollar income to buy a house right um whereas in other markets where maybe it's like i would need to save for a decade to to be able to actually get to the down payment that i need to buy in this house it just feels like there's maybe a little bit more stability um if if actually the the gap and the number of people who can afford a starter home is actually a little bit lower.

22:46So affordability as the investor doesn't always necessarily equate to maybe the best deal, right? So just more data points that I think we should try and look at. Okay. Now this is the part I was really excited talking about because I get shiny object syndrome over this and we've had several guests come on and talk about this, but buying smaller new builds and house hacking them as a single family home or maybe renting out the rooms while you're living there and then moving out after a year, going and purchasing another property or just buying it right off the bat as an investment property and renting it out.

23:25I actually pulled a report here from the Census Bureau and it reported that 485 ,000 new homes for sale were in June of 2026. This is equal to 9.3 months of supply if we stay at the current sales pace. The median sale price was 398 ,000, which is down from about 410 ,000 one year earlier. So you can see the year-over-year change isn't significant, but it is still kind of, you know, a little margin of error there that you have. The big thing I think that makes these new builds so attractive is the builder incentives that can come with it. So we pulled this other report that states that 64 % of builders are offering sales incentives and 37 % of them have actually cut prices to be able to move through inventory.

24:24And guys, I think that's one of the biggest benefits of new construction is that you can get things like having the builder cover all of your closing costs, giving you permanent rate buy downs, temporary rate buy downs, additional upgrades inside of the property. So I think right now, at least in recent history, might be one of the best times to go after a new build because it could actually in a lot of ways be cheaper to buy a new build than it is to buy a home that was built 20 years ago. And I think that's kind of a unique situation for us to be in. But to Ash's point, we've had investors who do exactly that.

24:59They buy a new build in phase one. They refinance again at phase 10 when they built up a lot of equity and they use that when it's go just like repeat that same process. So I love the idea of new builds as a specific strategy to build your portfolio consistently over time. And here's a little list we can give you guys. So if you got a pen and paper, take out your notes app. Here's things you can ask the builder for. The first one is a permanent rate buy down. So they're going to buy down your rate. The next one is maybe just a temporary buy down. So the first year, first two years, they're buying down your rate and then know, go back to whatever the bank is offering.

25:34A closing cost credit, an appliance package, a lot premium waiver, and a price reduction as separate line items. So there's different advantages for asking for things separately, you know, but these are just a list of things that you can ask and see what you can get from the builder. I think the only thing to consider as you're going after the new builds is also just like the total cost, right? So sometimes you're going to have to deal with HOAs, right? And a lot of these bigger subdivisions including that cost. Things like your property taxes. Like for example, for us, when you buy a lot of times a new construction or really any property in the county that we live in, you get this thing called a supplemental tax bill or you buy the property, it gets reassessed and you get this massive bill at the end of the year saying, hey, here's how much you owe us because you paid more for the property than what it was the last time that this transacted.

26:30So just know that there are like some ancillary costs that you want to be aware of as you go through new construction. But I think the last big thing that I'll say that it's like a benefit is that you often, most builders will give you some sort of warranty for the first year or two after you buy. And that can help, especially if something big happens. Like we had a leak, Ash, at our primary residence and it was like 10 months into owning it. We had a 12-month warranty and it was like you know right up against the right right up against like the edge of this deadline but there was this big leak uh that's a cut out like a big part of my ceiling they had to reconstruct my guest bathroom upstairs and it was all covered under the warranty which would have been a much bigger expense that i had to take care of to take care of that myself so um i do love new builds for for that reason and also too um i'm not positive about this and maybe you can confirm this, Tony, but also when you're buying in phase one, I would assume that the builder wants a higher purchase price to be able to sell for phase two.

27:32So say the property is listed at 500, or they're selling the new build for 500 ,000. And instead of asking for the purchase price to be 450 ,000, you keep it at 500 ,000, but you ask for all these additional things. So that way they can close with a sale price of$500 ,000. And that is then a comp used for phase two. Yeah, absolutely. And that's my exact understanding as well is that the builders want to protect their appraised value for the second phase. They can continue to increase prices. So we do have leverage as buyers when it comes to new construction. All right, guys, new construction is just one of the ways we can go, but there's also tons of homes that are resale that we can go buy as well.

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