Looking to invest in real estate? Smaller can be better, report says

DENVER – If you’re investing in real estate and looking for the best return on your investment, consider looking at smaller homes.

That’s the finding in a new report from NerdWallet, which examined the appreciation in prices of online home listings over the past three years.

NerdWallet divided home listings into four groups based on square footage and found that in 17 of the 20 metropolitan areas analyzed, the smallest quarter of homes saw the biggest percentage increases in price. The median rate of growth for small homes between 2013 and 2016 was 8.9 percent.

In the Denver area, listings for homes that were smaller than 2,324 square feet saw annual price increases of almost 13 percent. By comparison, the largest homes (those above 4,804 square feet) saw increases of less than 5 percent.

There are a number of reasons this could be the case. Richard K. Green, a professor and chair of the Lusk Center for Real Estate at the University of Southern California, told NerdWallet the trend is likely tied to the increased desirability of cities. More people are choosing to live in urban centers rather than the suburbs, and homes in cities tend to be smaller. The increased competition in the market drives up the prices of these homes.

Green added that inventory in general is low, as new home construction has been down since the great recession and housing crisis. That leads to fewer “starter” homes on the market, which in turn drives up prices of smaller houses.

Log on to nerdwallet.com for more information.