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Small Homes Have Their Advantages

July 19, 2022 • By Loan Depot

Is bigger always better? Not necessarily.

Whether you’re just starting out your home search, or you’ve been searching for a while, you might be asking yourself some important questions. Is bigger always better? What makes a home valuable?

Is it the location, the finishes, or the size?

Indications are that bigger is not always better. When comparing the appreciation of 2-bedroom home values to 4-bedroom homes, Zillow metrics show that the smaller homes increased in value by 7.2%, as opposed to the larger homes, which only increased in value by 5.3% in a 12-month period.

If you have a budget limit like most buyers, or live in a high-cost market, don’t stress about not being able to afford a spacious property. A smaller home could still be a great investment with plenty of perks:

  1. Lower property taxes
  2. Less costly utilities and maintenance
  3. Less cost to furnish the home
  4. Shorter work commute
  5. Ability to pay extra toward principal due to smaller monthly payment
  6. Better neighborhood/school district

And those are only a few of the potential benefits. Smaller homes can provide financial relief to homeowners who are tired of expenses associated with larger homes. This is one reason retirees often want to downsize. A recent TD Ameritrade report showed that 42% of investors surveyed planned to downsize to a smaller property upon retirement.

Still wondering why small homes can offer big returns? The answer is pretty simple.

There are not enough starter homes on the market to meet demand. As more Millennials desire to live closer to city centers, the values of smaller start-up homes continue to rise. Both lack of inventory and increased demand create price appreciation for these less-roomy abodes. Not to mention that homes in smaller price brackets are more affordable to a bigger chunk of the population, which could keep them on the market shorter than larger properties.

So before you give in to the allure of a large home, keep in mind that investing in even a small space could reap rewards for years. You’ll still gain the potential to build equity you would never accumulate renting while enjoying the privacy no apartment can provide.

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