What if a starter home didn’t have to be just a stepping stone? What if it could be your forever home, evolving with you at every stage of life while also building substantial equity?
At HUTS, we believe a starter home can become a forever home when it’s designed to grow with you. Rather than facing the costs of buying, selling, and moving every few years, The Starter Home is crafted to expand as your needs evolve, allowing you to avoid the expenses of moving, while building wealth with each new phase.
Starting with a thoughtfully designed and affordable foundation, each phase of The Starter Home adds value to your property, transforming your initial home investment into a lifelong equity-building asset.
Let’s take a look at this phasing strategy, including the costs and value creation that come with each step. To illustrate the point, we’re making some assumptions here about rate of appreciation (7%), cost of construction in this example ($300 / SF) and starting after construction value (ACV) of the built space ($400 / SF) at the start of the project.
Building the Foundation: Phase 1 – A Home Built for Two
The first phase of The Starter Home is a compact, well-designed foundation for two people, with unfinished spaces that allow for future expansion. This 750-square-foot layout is the perfect start, with flexible design and plenty of light, creating a comfortable home base.
For the initial build, homeowners will typically finance using a construction loan that converts to a 30-year fixed mortgage upon completion. The land cost will be paid cash and serve as the downpayment on the construction loan. This financing approach covers the cost of the initial build and establishes the home as a long-term asset.
Phase 1 Costs and Initial Equity:
- 750 SF x $300/SF = $225,000 for the finished space
- $75,000 for land + $40,000 for improvements
- Total Initial Investment: $340,000
With an after-construction value of $400 per square foot, the home’s initial valuation provides instant equity:
- Initial Home Value: 750 SF x $400/SF = $300,000
- Total Home Value: $415,000
With this initial setup, homeowners have already gained $75,000 in equity upon completion.
Phase 2: Expanding for Three (Year 3) - Cash-Financed
When it’s time to expand for a young family, Phase 2 brings an additional bedroom and bathroom by finishing the attic, growing the home to 925 square feet. Rather than taking out a new loan, many homeowners opt to pay for this smaller addition with cash savings, minimizing additional debt.
By year 3, with property values appreciating at 7% per year, the home’s value per square foot increases from $400 to:
- Home Value per SF = $400 x (1.07^3) ≈ $490/SF
Here’s how the equity looks at this stage:
- New Finished Area: 925 SF
- Home Value: 925 SF x $490/SF ≈ $453,250
- Phase 2 Cost (175 SF x $300/SF) = $52,500
- New Total Investment: $392,500
With the home now valued at $453,250, this phase has added $60,750 in equity, all while avoiding new debt by financing with cash.
Phase 3: Expanding for Four (Year 7) - HELOC
As the family continues to grow, Phase 3 completes the basement, adding 750 square feet of usable space for children, play areas, and a home office, bringing the home to 1,675 square feet. For this larger expansion, many homeowners choose to tap into a Home Equity Line of Credit (HELOC), leveraging the equity already built in the home without taking on a new mortgage.
With home values continuing to appreciate at 7% annually, the property value per square foot reaches:
- Home Value per SF = $400 x (1.07^7) ≈ $640/SF
Here’s the breakdown of the home’s value and equity at this stage:
- New Total Area: 1,675 SF
- Home Value: 1,675 SF x $640/SF ≈ $1,072,000
- Phase 3 Cost (750 SF x $300/SF) = $225,000
- New Total Investment: $617,500
With the home now valued at $1,072,000, Phase 3 adds $454,500 in equity while using a HELOC for cost-effective financing.
Phase 4: A Home That Expands for an Extended Family (Year 15) - HELOC
For Phase 4, the home expands to 2,275 square feet to accommodate extended family with a separate, connected in-law suite. By year 15, the HELOC from Phase 3 is likely paid off, allowing homeowners to finance Phase 4 with another HELOC, using built-up equity to fund the addition while keeping financing manageable.
With home values still appreciating at 7% annually, the property value per square foot reaches:
- Home Value per SF = $400 x (1.07^15) ≈ $1,100/SF
At this final phase, here’s the complete picture of the home’s value and equity:
- New Total Area: 2,275 SF
- Home Value: 2,275 SF x $1,100/SF ≈ $2,502,500
- Phase 4 Cost (600 SF x $300/SF) = $180,000
- New Total Investment: $797,500
With a final valuation of $2,502,500, homeowners now have $1,705,000 in accumulated equity since the initial build.
The Financial Advantages of a Forever Starter Home
By approaching The Starter Home with a phased financing plan, homeowners can grow their space and value over time, while minimizing debt and maximizing equity. Each phase is strategically financed to keep costs manageable:
- Construction Loan to 30-Year Fixed – Phase 1
- Cash Savings – Phase 2
- HELOC – Phase 3
- HELOC (Phase 3 Paid Off) – Phase 4
This financing strategy not only allows for a more affordable approach to expanding the home but also supports significant equity accumulation, avoiding the financial strain and disruption of repeatedly buying and selling. Instead of moving, homeowners can stay put, enjoying a home that grows with them and builds wealth over the long term.
When it’s Time to Downsize
The Starter Home’s flexibility doesn’t end when the original owner is ready to downsize. As life moves forward, the homeowner has options that can further support retirement:
- Option 1: Move into the in-law suite and rent out the main house, creating a steady rental income stream to supplement retirement funds.
- Option 2: Move to a smaller property and do a cash-out refinance on The Starter Home to buy a new place, renting out the entire home to provide a stable retirement income.
With these options, homeowners can continue benefiting from The Starter Home’s equity growth, letting the home they built expand with them through every life stage—financially as well as physically.
In the end, The Starter Home isn’t just a stepping stone; it’s a forever home, thoughtfully designed to meet each new stage of life while serving as a lifelong investment.
