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How does one leverage a starter home to eventually upgrade?

My partner and I are trying to find our first home to purchase. We see and hear a lot of advice to find and buy a starter home now and "use that to upgrade to a bigger and better home in the future" but we don't understand how that works. We're hoping someone here can offer something like an ELI5.

If we buy a starter home now, it'll most likely appreciate, but so would the more expensive homes to which we'd upgrade down the line. So how does the equity we would build in a starter home help us afford a more expensive home, moreso than say investing in the stock market?

EDIT: Maybe I can clarify and add some assumptions we have to hopefully get them confirmed or broken?

  • If our starter home appreciates at x%, wouldn't the more expensive homes also appreciate at x%? So, the price gap would actually grow between our starter home and our dream home so we're not sure how the equity in the starter home could actually help us land the dream home.
  • We want to buy in a very HCOL area where it's currently cheaper to rent than to own with the current interest rates coupled with the very high house prices. Are we better off continuing to invest in index funds and in a year or so, sell them to buy a nicer house than we're able to afford right now?
submitted by /u/cyclineer
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source https://www.reddit.com/r/RealEstate/comments/1bo2twu/how_does_one_leverage_a_starter_home_to/
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