Why a Small Home Could Be a Great Investment

Are you currently in the market for a house? Maybe you’re daydreaming about owning a home one day, after binging on your favorite HGTV show? Or maybe you’re stuck in a nightmare rental situation, like me and looking for some options.

Either way, realtors and lenders often advise you to “buy as much house as you can afford.” While that sounds like reasonable advice, keep in mind that these agents get paid more if you spend more. So they want you to spend!

But you shouldn’t put yourself and your finances in jeopardy so that someone else can benefit from it.

Which is why a small home could be a better investment for you.

A smaller real estate investment can leave you with more cash to diversify your investments. It can make home-ownership possible for those of us with a smaller budget. And in some cases, it can also bring you a better return.

Won’t You Be My Neighbor

The value of your home will be restricted by the neighboring homes around it. Even if you live in a luxurious modern mansion, its selling price will be limited by the average value of the homes in your neighborhood.

Therefore, a small house in a great neighborhood will benefit from the surrounding properties, rather than being dragged down by them. This raised status should remain true, regardless of shifts in the market, or specific issues your home may have (such as a leaky basement or a damaged roof).

On the other hand, the value of the biggest houses on the block probably won’t be protected in the same way.

Opportunities to Add Space

Renovating a house isn’t as easy as those aforementioned HGTV shows make it out to be. They can be quite time-consuming, and unfortunatly don’t wrap up within the hour.

But if you have the yard space, the money, the right building permits and of course, the patience, there is the opportunity to add space onto your small home.

Although building an addition doesn’t always pay off, it can initially save you money over buying a larger house.

It can also give you the opportunity to make your home your own. Add another bedroom as your family grows. Or a home office for your thriving side hustle. Or a nice sun-room to have your own little at-home retreat. You get to decide what your home needs.

Small House = Small Bills

Buying a smaller home will mean a smaller down-payment and smaller monthly payments.

But it also means smaller utility bills, since there isn’t as much space to heat or cool. It means smaller property taxes and smaller insurance premiums. It means smaller maintenance and repair bills. And less landscaping. And less furniture. And less decorating. And so on.

With a bigger house, all of these expenses will be bigger, too.

Own Your Small Home Sooner

If you have a mortgage, you don’t really own your home – the bank does. So the less you borrow to buy your house, the sooner it really can become yours.

Do you honestly want to be making monthly payments for the next 30 years? I sure don’t! Imagine the financial freedom you can have if you pay off your mortgage in only 15 years, instead.

If you buy a small house that’s easier on your budget, you can be debt-free years, maybe even decades sooner than you would be if you bought a bigger home.

Just think of all the interest that this can save you, too!

Small Homes Are Easier To Sell

No matter the market, there are always people looking for smaller homes. These include single people, young couples looking for their first home, landlords looking for their first investment property, retirees looking to downsize, and of course, any one on tight budget that is tired of renting.

Large houses, however, generally appeal to families. Especially those with a few children. Since us millennials aren’t having as many kids as the generations before us did, this could impact the future demand for larger houses. 

More Money to Spend on Other Priorities

If you buy more house than you can afford, one that pushes your budget to the limit, how are you going to afford the other things in your life that matter?

Not being able to save money when you’re young will affect your retirement plans, your family plans, your travel plans, all of your future plans.

Personally, I’d rather have a big bank account than a big house, wouldn’t you?

Even if you are in a financial position to buy a larger home, a small home could be a smarter investment for you. So think carefully. Compare your options before you make a purchase. And resist the urge to automatically buy the biggest house you can afford. 

You just might find that buying a small home is the best choice for you.

Photo by Jessica Bryant from Pexels

Amanda Kay, an Employment Specialist and founder of My Life, I Guess, strives to keep the "person" in personal finance by writing about money, mistakes, and making a living. She focuses on what it’s like being in debt, living paycheck to paycheck, and surviving unemployment while also offering advice and support for others in similar situations - including a FREE library of career & job search resources.