Should you buy your first home with the intention of not living there for good?

[Ella]

My sister and her husband are going to be buying their first home this year or next year and they have agreed to go into the house shopping as a means of temporary living. They intend on only living in the house for 5 years and then either selling it or renting it out when they decide to upgrade. They are financially stable enough to buy a home but not one in the area they want or the size they want. They can afford around a 250k house but want one that is closer to 400k. Do you think this is a good investment plan?

[Rachel]

It can be a good investment, because homes can increase in value later on, but there's always the risk of the devaluing in price after a while. If they are looking to sell the place after, why not buy the $250k house instead and just make that better? Then sell it in the 5 years like they planned. I think they could end up making more off of it down the road. 

[James]

I have decided for myself that if I do not plan on holding a property for 10 years I am likely better off renting. 

I do know plenty of people that buy homes without the intention of staying there for more then a few years and it has never made much sense to me. Transaction cost in a traditional real estate transaction is typically high and if you are taking out a loan to buy the property you have mortgage origination costs. 

All that is money that is going towards nothing. Yes I understand the sellers pay the commissions but there are still costs for the buyers all the way through the process. Then when the time comes to sell they are going to pay those selling costs. 

Now I would make an exception to my own rule if my plan was to do a live in flip and I was going to be staying at minimum 3 years and it was going to be my full time residence for that time period. That way the purchase was less since there is a value add component then if I live in it for the 3 years I can sell it and make up to 250k profit if I was a single person and not pay capital gains taxes on that gain. 

If I was paying retail though off the MLS and did not have a hold of at least 10 years for that I would likely rent.

It seems in real estate a lot of people depend on appreciation of the property and we know things do not always go up in value and we also do not really have control over it so it is hard to factor into the equation. 

[Sophia]

With the way finances and inflation are going for a lot of people in the US, it would not shock me that the next generation coming up (I think they are known as gen Z?) will be mostly a generation of renters. I would guess 60% of them will be which is more than half. Knowing that, it would make sense to keep any house you buy and rent it out, even if you plan on moving/buying a new house for yourself.

[Yonder]

If you have the moeny and are buying it as a solid investment and know you can rent it out, I think it's a sound idea.