Smaller homes are overtaking McMansions as the best kind of home to invest in

Feb.February 11, 2017 10:30 AM

Small homes — even ones that measure less than 400 square feet — are becoming increasingly popular. Besides being cheaper to buy, small houses might also be better investments than larger ones, according to a new report from financial-services company Nerdwallet.

The analysis (first reported by Curbed) compared home-listing prices and sizes in America’s 20 largest metro areas between 2013 and 2016. It found that, on average, the value of smaller homes rose faster than that of larger homes.

From 2013 to 2016, the value of the smallest 25% of homes (most of which measure less than 1,800 square feet) grew by 8.9% annually in 17 of the 20 areas studied — the largest percentage hike of all homes studied.

The region of Florida that includes Miami, Fort Lauderdale, and West Palm Beach saw the most dramatic growth, with the smallest home quartile appreciating by 19.5% each year. The area’s largest 25% of homes appreciated by only 5.1% annually.

Richard Green, chair of the Lusk Center for Real Estate at the University of Southern California, says the price appreciation of small homes could be a result of more people choosing to live in cities, where spaces tend to be smaller. When there’s a high demand for a certain type of home, it becomes more valuable.

The report also found that while smaller homes increased in value by percentage, larger homes appreciated higher by dollar amount; since larger homes are more expensive, a rise in price inevitably involves larger sums. While the cost of the smallest homes appreciated by $57,535, on average, since 2013, prices of the largest homes increased by $99,790.

Still, the report suggests that if you’re looking for the best home investment, downsizing may be the way to go.

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