Overview of Starter Homes Are Back. Here’s Exactly Where to Buy One
This BiggerPockets episode argues that while starter homes are still out of reach for many buyers nationally, there are pockets of real opportunity in specific states and market segments. The hosts break down where starter homes are actually affordable, why new construction may be especially attractive right now, and how investors or first-time buyers can avoid confusing an “affordable” home with a “cheap” property that becomes a money pit.
Key Takeaways
- Starter homes are not back everywhere, but they are more accessible in certain lower-cost states.
- National affordability is still strained: only about 37.6% of non-homeowner households can afford a typical starter home.
- Builders are creating opportunity through smaller floor plans, more inventory, and aggressive incentives.
- Cheap does not equal good value: older neglected homes can be affordable but still expensive to own.
- The best deals balance payment affordability, market health, rental demand, and resale flexibility.
What Counts as a Starter Home?
The hosts define a starter home as:
- A buyer’s first primary residence
- Typically a smaller, more modest home
- Often around 1,500 square feet or less
- Usually something like:
- 3 bed / 1 bath
- 3 bed / 2 bath
- A ranch-style or basic single-family home
- Often functional and livable, but without luxury finishes or major upgrades
They also note that starter homes are highly market-dependent: a $200,000 home may be “starter-level” in one area and impossible in another.
Where Starter Homes Are Actually Affordable
The episode highlights several states where a larger share of households can afford starter homes.
Most Affordable States Mentioned
- Mississippi — about 61.8%
- Typical starter home value: $85,000
- Income needed: about $29,000
- West Virginia — about 58%
- Value: $90,000
- Income needed: about $29,114
- Arkansas — about 54.3%
- Value: $110,000
- Income needed: about $37,860
- Alabama — about 54.1%
- Value: $120,000
- Income needed: about $39,000
- North Dakota — about 52.7%
- Value: $150,000
- Income needed: about $48,000
- Kansas — about 52.3%
- Value: $125,000
- Income needed: about $46,000
- Kentucky — about 50.7%
- Value: $125,000
- Income needed: about $42,280
National Context
- Average starter home value: around $200,000
- Income needed: roughly $62,000–$63,000
- Median non-homeowner household income is lower than that, creating a gap nationwide
Why New Construction Matters Right Now
The hosts spend a lot of time on the case for smaller new builds and why they may be one of the best starter-home strategies today.
Why New Builds Are Attractive
- Builders are sitting on more inventory
- Many are offering sales incentives
- Some are cutting prices
- New homes may be cheaper than older homes once incentives are included
- Builders often provide:
- Closing cost credits
- Rate buydowns
- Upgrades
- Appliance packages
- Lot premium waivers
- Warranty coverage
Why Buying Early in a Development Can Help
- In phase one, buyers may have leverage to negotiate incentives
- Builders often want to protect appraised values for later phases
- A higher sale price on paper can support future comps, even if the buyer gets concessions instead of a lower sticker price
Important Caveats
- Don’t ignore:
- HOA fees
- Property taxes
- Supplemental tax bills
- Utilities
- Maintenance costs
- New construction may look affordable up front but still have high monthly carrying costs
Why Cheap Older Homes Can Be a Trap
Ash warns against confusing affordability with true value.
Problems With “Cheap” Properties
- They may have been patched multiple times
- Often include band-aid repairs
- Can have hidden maintenance issues
- May have little appreciation potential
- Often require constant repairs instead of routine maintenance
Better Type of Resale Starter Home
A good starter home is often:
- Older, but well maintained
- Structurally sound with good bones
- In need of cosmetic updating, not a full gut rehab
- Located in a market with real economic strength
How to Evaluate a Starter Home Like an Investor
The episode ends with a five-part screening process for evaluating starter homes.
1. Market Liquidity / Market Health
Look at:
- Inventory levels
- Days on market
- Price reductions
- Rental supply
- Rent trends
- Demand in the neighborhood
2. Payment Test
Underwrite the full monthly cost, including:
- Principal and interest
- Taxes
- Insurance
- PMI, if applicable
- HOA dues
- Utilities
- Maintenance
- Repairs
- Vacancy allowance
- Property management
Also test:
- Year 1 payment
- Payment after any builder incentive expires
3. Total All-In Cost
Don’t just focus on the down payment. Include:
- Closing costs
- Immediate repairs
- Appliances
- Landscaping
- Reserve funding
4. Functional Demand
Make sure the property fits what renters or future buyers want:
- Number of bedrooms and bathrooms
- Layout
- School district
- Proximity to jobs and employers
- Local rental comps
They note that in some markets, even awkward spaces like dining rooms may be used as bedrooms by tenants.
5. Clean Exit Strategy
Ask:
- Could this be resold to an owner-occupant later?
- Or is it so unusual that only investors would want it?
- Does the layout limit future buyer interest?
The broader the buyer pool, the safer the exit.
Practical Advice for Buyers
If you’re trying to buy a starter home or first investment property, the episode recommends:
- Focus on attainable monthly payments, not just purchase price
- Look for market supply improvements
- Prefer durable rental demand
- Avoid properties that are cheap but structurally or operationally problematic
- Think about future resale, not just current cash flow
Final Bottom Line
The opportunity is not simply to buy the cheapest home in the cheapest state. It’s to find the overlap between:
- A payment you can actually afford
- A market with improving supply
- Strong rental demand
- A property that will still appeal to ordinary buyers later
In other words: the best starter home is not just affordable today — it also makes sense tomorrow.